1. These two appeals preferred by the assessee Shri C. Raghavachari of Madras relating to his income-tax assessments for the two years 1976-77 and 1977-78 raise a somewhat unusual claim that certain remuneration received by him by way of commission or other allowances as a manager in a partnership firm Sri Krishna & Co., in which the assessee's wife and three sons are partners with an outsider Shri Y. Venkateswara Rao, should not be assessed in his individual assessment, but should be clubbed with the income of his wife in her assessment, on account of Section 64(1)(ii) of the Income-tax Act, 1961 ('the Act'). The amounts of remuneration and allowance forming the subject-matter of dispute are commission receipt of Rs. 13,500 for each of the years and conveyance allowance at Rs. 6,000, reduced by the expenditure claimed against the same at Rs. 5,000.
2. Section 64(1)(ii) provides for inclusion in the total income of any individual of such income as arises directly or indirectly to the spouse of such individual by way of salary commission, fees, or in any other form of remuneration whether in cash or in kind from a concern in which such individual has substantial interest. The proviso to that clause, however, saves the operation of this clause where any income has arisen to the spouse having technical or professional qualification and such income is solely attributable to the application of such technical or professional knowledge and experience. It is an undisputed fact that the assessee's wife has substantial interest in the partnership firm Sri Krishna & Co. and, therefore, Section 64(1)(ii) is attracted in this case. It is also the assessee's claim, not contradicted by any material adduced before us by the learned departmental representative, that the income received by the assessee by way of commission and allowance is not referable to the application of any professional or technical knowledge or experience of the assessee as he has no such qualification. Prima facie, therefore, the assessee's claim appears to us to be correct, meriting acceptance.
3. The learned departmental representative, however, contended that the provisions of Section 64(1)(7) create a sort of fiction of treating the income of a spouse of an individual, as belonging to and assessable in the hands of the individual, where such income is derived from a concern in which the individual has substantial interest but this section has to be invoked by the ITO assessing the individual in whose hands the inclusion is made, in this case the assessee's wife and it is not open to the assessee to claim that the provisions of Section 64(1)(ii) should be brought into play and he should not be assessed on the income admittedly received by him and which belongs to him. It is of course conceded by the learned departmental representative that if the ITO while assessing the assessee's wife has already included in her assessment the income in question, then the same income cannot be taxed again in the hands of the assessee as it is a fundamental principle that there can be no double taxation on identical income. But he submits that it is for the assessee to show that the income has already been included or taxed in the hands of his wife and then alone he is entitled to dispute the inclusion in his own assessment.
4. On a consideration of the facts and the submissions of the parties, we find force in the assessee's claim. The learned departmental representative is undoubtedly right when he concedes that the same income cannot be taxed in the hands of the two persons as there cannot be a double taxation of the same income. Therefore, it follows that it has to be assessed only in the hands of one person. The question is in whose hands the disputed income is assessable according to the provisions of the Act. It is true that ordinarily the income is to be assessed in the hands of the person who is in receipt of such income, but the Act makes a departure in this respect when it provides for inclusion, under Section 64(1), in the assessment of an individual, of income belonging to some other person. The provision of Section 64(1) is apparently intended to foil the attempts of persons to divert income which otherwise would have accrued or arisen to them by raising an implicit statutory presumption of such attempts in the instances covered in the various clauses, irrespective of whether there is any such actual attempt or not. The requirement of the section is mandatory as borne out by the use of the words 'shall be included' in the opening part of the section and gives no option to the ITO other than to include the income contemplated in the various clauses as required therein. It follows, therefore, that in all such cases covered by the various clauses, such income has to be included in the total income of the individual concerned, even though he or she is not in receipt of the income and it arises to some other person. According to these provisions, therefore, in the present case of the assessee even though the disputed income arises to the assessee it has to be included and assessed in the assessment of his wife, as it is the only way of taxing the income under the provisions of the Act. The assessee has, therefore, every right to question the inclusion of the amounts in his total income notwithstanding the fact that the income in fact arises to him. The contention of the departmental representative that the assessee cannot dispute the addition and it is for the ITO while making the assessment on his wife, should invoke the provision, has no merit.
We, therefore, accept the assessee's contention and direct deletion of the disputed addition. The appeals are allowed.