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income-tax Officer Vs. A. R. Balakrishnan. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberI. T. APPEAL NO. 746 (MAD.) OF 1983 [ASSESSMENT YEAR 1979-80]
Reported in[1986]17ITD637(Mad)
Appellantincome-tax Officer
RespondentA. R. Balakrishnan.
Excerpt:
- .....for the assessment year 1979-80. in other words, he contended that the clubbing of remuneration of assessees spouse was not warranted by explanation 1.3. the learned departmental representative, on the other hand, justified the clubbing on the ground that the clubbing was always intended by law and the only remedy was in the proviso which could save such clubbing of income of spouse.4. we have duly considered the rival contentions urged before us and the facts of this case. the erstwhile proprietrix business was taken over by girinath agencies (p.) ltd. of which both the assessee and his wife were equally and substantially interested. the role played by the spouse of the assessee was that of a director and as a director she does not have either technical or professional qualifications.....
Judgment:
ORDER

Per Shri T. V. K. Nataraja Chandran, Accountant Member -In this appeal by the revenue the short point for consideration is whether the remuneration received by the assessees wife Smt. Savitha Balakrishnan from Girinath Agencies (P.) Ltd, in which she is also a director holding 50 per cent share of the limited company is to be clubbed or not. During the previous year ending on 31-3-1979 which is the first year of the business, Smt. Savitha Balakrishnan was paid remuneration of Rs. 12,000 per annum, as director of the company which was clubbed by the ITO under section 64(1) (ii) of the Income-tax Act, 1961 (the Act). According to the ITO, the remuneration was paid not for professional or technical qualifications or knowledge and, therefore, the proviso to section 64(1) (ii) was not applicable. The clubbing was done in the hands of the assessee as he had higher income than his spouse. On appeal, the AAC was of the view that as proprietrix, she possessed technical knowledge and experience in the business consisting of building materials and, therefore, held that the ITO was no justified in clubbing the income. Consequently, he directed the exclusion of Rs. 12,000 clubbed by the ITO.

2. The learned representative for the assessee contended that Smt. Savitha Balakrishnan had experience in the business of building materials and, therefore, proviso to section 64(1) (ii) was applicable. He further contended that the amendment in Explanation 1 was made with effect from 1-4-1980 and, therefore, such amendment was not applicable for the assessment year 1979-80. In other words, he contended that the clubbing of remuneration of assessees spouse was not warranted by Explanation 1.

3. The learned departmental representative, on the other hand, justified the clubbing on the ground that the clubbing was always intended by law and the only remedy was in the proviso which could save such clubbing of income of spouse.

4. We have duly considered the rival contentions urged before us and the facts of this case. The erstwhile proprietrix business was taken over by Girinath Agencies (P.) Ltd. of which both the assessee and his wife were equally and substantially interested. The role played by the spouse of the assessee was that of a director and as a director she does not have either technical or professional qualifications nor she has any experience or knowledge in the principles of managements. Nothing has been brought to our notice that she is qualified in management science. Therefore, mere experience, if at all it could be attributed to her as the proprietrix of the business alone, does not amount to technical or professional qualifications and it should be shown that the payment of remuneration was solely attributable to the application of such technical or professional knowledge and experience. The cases relied upon by the assessees representative should be considered purely on the basis of its own facts and merits and there is no universal formula or guide for deciding the issue. In our view section 64(1) (ii) is quite clear and contemplates dual conditions namely, possession of technical or professional qualifications and application of such technical or professional knowledge and experience. Mere experience in the business alone does not satisfy the dual conditions contained in section 64(1) (ii) and, consequently, we hold that the proviso to section 64(1) (ii) does not come into operation and the income has to be clubbed. As regards the technical objections raised by the learned counsel for the assessee that he amendment came into force from 1-4-1980 only and, therefore, was not applicable for the assessment year 1979-80 also cannot be accepted for the simple reason that the provisions of law should be harmoniously construed and made them workable and not otherwise. Explanation 1 is only clarificatroy in nature and it can be presumed that it was the intention of the law even before such amendment as it contemplates only procedure of clubbing and not clubbing itself. The law as has been rightly contended by the learned counsel for the department has been in favour of clubbing of income arising to spouse or minor children of indivudal and only in case both the spouse and husband earning income the Explanation gives clarifiaction in this regard. In this case, on the substatial issue we hold that the ITO was justified in clubbing the income under section 64(1) (ii) as the assessee has greater income than his spouse. In this view of the matter, therefore, we set aside the order of the AAC and restore the order of the ITO clubbing the income of smt. Savitha Balkrishnan under section 64(1) (ii).

5. In the result, the appeal is allowed.


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