1. At the instance of the Revenue, the following two questions were referred to this court for its opinion :
'(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that deduction under s. 80L should be allowed in respect of the dividends derived by the assessee's wife before her income as clubbed with the husband's income under section 64(1)(iii)
(ii) Whether the Appellate Tribunal's view that the deduction under section 80L should be allowed in respect of the dividends received by the assessee's wife because she is the owner of the shares is correct in law especially when her income is clubbed with the husband's income under section 64(1)(iii) ?'
2. The admitted facts are :
The assessee is an advocate by profession. Besides his professional income, he has property income as also dividend income. The assessee's dividend income was Rs. 18,425. A sum of Rs. 9,666 was the dividend income derived by his wife. It is not in dispute that such dividend income of the wife has to be treated as the assessee's income under s. 64(1)(iii) of the I.T. Act, 1961. The assessee claimed that before such dividend income of his wife is to be treated as his income, the relief adumbrated under s. 80L of the Act should be given effect to, i.e., before his wife's dividend income is added on to his income, the statutory deduction envisaged under s. 80L should be made and that, consequently, what has to be added on to his income is the wife's dividend income minus the statutory deduction. This contention of the assessee did not find favour with the ITO. The assessee's appeal to the AAC was not successful, because the said appellate authority held that as s. 80L cannot be availed of even before the assessee's wife's dividend income is clubbed with his income. However, the Income-tax Appellate Tribunal, on further appeal by the assessee, held that it is only the dividend income of the wife minus Rs. 3,000 which can be brought in for inclusion under s. 64(1)(iii) on its interpretation of s. 80L.
3. For the disposal of this tax case, it is useful to refer to certain relevant provisions in the Act. It is immediately incumbent to note that the assessment year under reference is 1971-72 and that, therefore, s. 64, before its amendment by the Taxation Laws (Amendment) Act, 1975, is the relevant provision which has to be applied to the instant case. The charging section, s. 5 provides that subjet to the provisions of the Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India during such year. The rest of the provisions are omitted as they are not necessary for this case. Under s. 4 of the Act, income-tax shall be charged for any assessment year in respect of the total income of the previous year or previous years, as the case may be, of every person at the rates specified in the relevant provisions. The extent to which that part of s. 4 is applicable to this case is alone taken into consideration. Section 64(1)(iii) runs as follows :
'64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly - ......
(iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.'
4. It is immediately necessary to look at s. 27(i) of the Act. For the purposes of ss. 22 to 26, an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred. A plain reading of the section would indisputably indicate that if any house property were transferred to his or her spouse for adequate consideration, the transferor will not be the owner, but then the transferee will be the owner. So too, if the transfer by an individual to his spouse is in connection with an agreement to live apart, even then the property will become the property of the transferee and will not be deemed to be of that individual. This case relates to a spouse and, therefore, the application of the provision to a minor child is left out of consideration. Under s. 64(1)(iii), the income of an individual from assets transferred directly or indirectly to the spouse by such individual will be treated as the income of that individual. The reference to s. 27(i) in s. 64(1)(iii) is obviously to avoid friction between section 27(i) and s. 64(1)(iii). For instance, if an individual should transfer his property to his spouse for adequate consideration or in connection with an agreement to live apart, then the property will be the property of the transferee-spouse, but shall not be deemed to be that of the individual and the income from such property is excluded from the deeming addition of the income of such transferee as envisaged under s. 64(1)(iii) of the Act. This impact of s. 27(i) on s. 64(1)(iii) was not properly understood by the Tribunal.
5. It is already pointed out that the wife's dividend income has to be treated as the income of the assessee under s. 64(1)(iii). Learned counsel for the assessee would submit that the transferee-wife should also be treated as an assessee and, if so treated, s. 80L is attracted before such dividend income of the wife is added to the assessee's income. In his submission, the law envisages two separate assessments, one in the hands of the wife, and the other in the hands of the assessee, her husband. In our considered view, such contention is hardly tenable. Section 80L provides that where the gross total income of an assessee being an individual includes any income by way of dividends from any Indian company, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee a deduction as specified hereunder, viz., (a) in a case where the amount of such income does not exceed in the aggregate three thousand rupees, the whole of such amount; and (b) in any other case, three thousand rupees. It is needless to reiterate that it is this sum of Rs. 3,000, the assessee claims, that should be deducted from the wife's dividend income before it is clubbed with his income. The gross total income referred to in s. 80L is defined under s. 80B.'Gross total income' means the total income computed in accordance with the provisions of this Act before making any deduction under this chapter or under s. 280-O. The instant case does not call for an examination of s. 280-O. According to the above definition, 'gross total income' is the total income before making any deduction under Chap. VI-A within which s. 80L also falls. The 'income' is defined under s. 2(24) of the Act, which includes profits, gains, dividend, etc. According to s. 4, income-tax shall be charged in respect of the total income. As per s. 2(45), 'total-income' means the total income of income referred to in s. 5 computed in the manner laid down in this Act. We have already extracted the relevant part of s. 5 as applicable to this case. It will thus be seen that the income of the assessee and the deeming income of the assessee by virtue of s. 64(1)(iii) have to be clubbed together in arriving at the total income of the assessee. Thus, the total income of the assessee is his income plus the wife's dividend income.
6. Incidentally, it is necessary to advert to the other argument advanced by the learned counsel for the assessee and the argument was that the word 'income' implies the expenses incurred in earning that income or the loss occasioned thereto. To put it differently, it is the net income that has to be taken into account even if the wife's dividend income were to be tacked on to the income of the assessee by virtue of s. 64(1)(iii) of the Act. This aspect does not at all arise for consideration in this case, because the question that was referred to this court is restricted to the statutory deduction of Rs. 3,000 and there is, therefore, no need to examine the connected emphasis laid on the expression 'subject to the provisions of s. 5(1) of the Act'. As in the instant case, deduction is not claimed by way of commission or remuneration to a broker or any other person for the purpose of realising such dividend on behalf of the assessee, there can be no room for the application of s. 57(i) as submitted by the learned counsel for the assessee.
7. Section 80L can be availed of only by an assessee as is obvious from the very opening expression, 'Where the gross total income of an assessee........'. A reference to s. 80A will reveal the deduction to be made in computing the total income of the assessee. For, s. 80A provides that in computing the total income of an assessee, there shall be allowed from his gross total income in accordance with and subject to the provisions of this Chapter, the deductions specified in ss. 80C to 80VV. Chapter VI-A relating to deductions to be made in computing the total income comprises only ss. 80A to 80VV. Thus, it is quite clear that the deductions to be made in computing the total income are available exclusively to the assessee. In this case, the dividend income of the assessee's wife is taken as the income of the assessee. Even if the assessee's wife were to be an assessee by herself, then, this dividend income shall not be treated as her income. The above circumstances will also reinforce the view that s. 80L is available only to the assessee. It is further clear that the ownership factor is not quite relevant in the application of s. 80L in the circumstances of this case. We have already pointed out that under s. 64, in computing the total income of any individual there shall be included all such income as arises directly or indirectly to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. It is only after such inclusion of the above income to the assessee's income is the assessee entitled to claim exemption under s. 80L.
8. The Tribunal has referred to B. K. Guha v. CIT : 84ITR592(Cal) , and held that the fiction envisaged under s. 27(i) will not operate in respect of assets other than a house property and that, therefore, the shares which earned the dividend income under consideration will not be deemed to be owned by the assessee. In our view, the reference to s. 27(i) and the ownership of the shares are not germane in deciding the first question referred to us.
9. We, therefore, hold that the dividend income of the assessee's wife had to be clubbed with the income of the assessee before any benefit under s. 80L is claimed. We, therefore, answer question No.(i) in the negative and against the assessee.
10. We had already pointed out that the ownership of the shares is not a material consideration to answer question No.(i). Then it is unnecessary for us to record any answer in respect of question No.(ii); the same is, therefore, returned unanswered.
11. None the less, learned counsel for the assessee brought to our notice the decisions in CWT v. Vasantha : 87ITR17(Mad) , Karimtharuvi Tea Estates Ltd. v. State of Kerala : 48ITR83(SC) , Bhagwan Dass Jain v. Union of India : 128ITR315(SC) , CIT v. P. K. Kochammu Amma : 125ITR624(SC) and V.D.M.RM.M.RM. Muthiah Chettiar v. CIT : 74ITR183(SC) . At the outset, we must state that from none of these decisions, can we derive any assistance or guidance in the disposal of this tax case. The decision in CWT v. Vasantha : 87ITR17(Mad) , arose under the W.T. Act and this court was concerned with the words 'net wealth' and 'valuation date', which were not defined in the W.T. Rules in relation to agricultural lands, and it was held that in computing the value of the net wealth of an assessee who was a partner in two firms which owned agricultural lands, the value of agricultural lands will have to be excluded. In Karimtharuvi Tea Estates Ltd. v. State of Kerala : 48ITR83(SC) , all that the Supreme Court held is that the State Legislature cannot enact such a provision which would make agricultural income from tea plantations higher than what it would be if computed in accordance with r. 24 read with s. 10 of the Indian I.T. Act, and that the provisions of the Indian I.T. Act and the Rules made thereunder will control the provisions of the Agrl. I.T. Act enacted by the Kerala State Legislature. In Bhagwan Dass Jain v. Union of India : 128ITR315(SC) , the Supreme Court had construed what the expression 'income' meant and also held that the words in the Constitution conferring legislative power should receive a liberal construction and should be interpreted in their widest amplitude. So far as the decision of the Supreme Court in CIT v. P.K. Kochammu Amma : 125ITR624(SC) , it was ruled that the assessee must disclose in the returns submitted by him all amounts representing the shares of his spouse and minor child in the profits of the firm in which he is a partner since they formed part of his total income chargeable to tax and that, the assessee could not be said to have concealed her income by not disclosing in the return filed by her the amount representing the shares of her husband and minor daughter. In the last decision which was also rendered by the Supreme Court, i.e., V. D. M. RM. M. RM. Muthiah Chettiar v. CIT : 74ITR183(SC) , the principle that was laid down is that s. 16(3) of the Indian I.T. Act, 1922, imposes an obligation upon the ITO to compute the total income of an individual for the purposes of assessment by including the items of income set out in cls. (a)(i) to (iv) and (b) but thereby no obligation is imposed upon the taxpayer to disclose the income liable to be included in his assessment under s. 16(3) and that for failing or omitting to disclose that income, proceedings for reassessment cannot, therefore, be commenced under s. 34(1)(a) of the said Act. Indeed, this decision was relied on in CIT v. P.K. Kochammu Amma : 125ITR624(SC) . We reiterate that the assessee cannot derive any support from any of these decisions in support of his contention that before the dividend income of the assessee's wife is added on to the income of the assessee, the deduction under s. 80L should be made.
12. The Revenue will have its costs from the assessee. Counsel's fee fixed at Rs. 500.