Professional Documents
Culture Documents
Anjaneyulu, J.: — The following question of law has been referred to this court by the
Income-tax Appellate Tribunal under s. 256(1) of the I.T Act, 1961 (for short “the Act”):
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is
justified in holding that the income of the assessee's husband is includible in the
assessment of the assessee under s. 64(1)(ii) of the Act?”
2. This reference relates to the income- tax assessment year 1976-77. The assessee, Smt.
Batta Kalyani, runs a hardware and paint shop. She employed her husband, B.
Venkataramaiah, to manage the business and paid him salary for services rendered. There
is no dispute that the business is carried on by the assessee as a sole proprietrix. The ITO
included in the total income of the assessee, the salary paid by the assessee to her husband
by applying the provisions of s. 64(1)(ii) of the Act. It may be relevant to extract the same:
“(i) In computing the total income of any individual, there shall be included all such
income as arises directly or indirectly—
(ii) to the spouse of such individual by way of salary, commission, fees or any other form
of remuneration whether in cash or in kind from a concern in which such individual has a
substantial interest:
Provided that nothing in this clause shall apply in relation to any income arising to the
spouse where the spouse possesses technical or professional qualifications and the income
is solely attributable to the application of his or her technical or professional knowledge
and experience.”
3. The ITO held that the assessee's husband who was employed to manage the business did
not possess any technical or professional qualification and the income derived by the
assessee's husband was not solely attributable to the application, of the technical or
professional knowledge and experience of the assessee's husband. In that view, the ITO
came to the conclusion that the proviso to s. 64(1)(ii) has no application to the facts of the
present Case. The assessee appealed to the AAC, who allowed the assessee's appeal,
holding that the sum paid by way of salary to the assessee's husband is governed by the
proviso to s. 64(1) (ii) of the Act and, consequently, the salary paid to the assessee's
husband was not liable to be included in the total income of the assessee. The ITO
appealed to the Appellate Tribunal against the order of the AAC. The Tribunal allowed the
ITO's appeal. In allowing the appeal, the Tribunal came to two conclusions:
(a) that the proviso to s. 64(1)(ii) of the Act can have no application unless ‘the technical
or professional qualifications’ relate to the qualification awarded by a recognised body;
(b) there was also no evidence in the present case to show that the income earned by the
assessee's husband was solely attributable to the application of technical or professional
knowledge and experience. In the above view, the Income-tax Appellate Tribunal reversed