1993 (7) TMI 47 - HC - Income Tax

Tribunal Decision Affirmed: Spouse's Income Includible in Assessee's Income

The High Court affirmed the Tribunal's decision that the income of the assessee's wife was includible in the assessee's income u/s 64(1)(ii) as she did ... Clubbing Of Income Of Spouse - Concern - Salary Paid By Assessee To Spouse - Interpretation of word 'concern' appearing in section 64(1)(ii) - expression 'substantial interest' - technical or professional qualifications - HELD THAT:- What is technical or professional qualification, therefore, will have to be decided in each case depending upon the nature of the profession or the technical work. But one thing is certain that it is not any and every qualification, academic or otherwise, which can bring a spouse within the scope and ambit of the proviso to take the income out of the clubbing provision. It is the possession of only technical or professional qualification necessary for undertaking the particular technical job or carrying on the profession to which the income is attributed that will meet the requirement of the first part of the proviso. 'Knowledge and experience' will not be relevant for that purpose. A spouse, well versed in law and experienced in the working of the legal profession, cannot be said to be in possession of professional qualification for carrying on the legal profession if he or she does not possess the requisite degree or diploma. Payments made to the spouse in such a case for any legal services cannot be brought within the purview of the proviso by reference to the words 'knowledge and experience' occurring in the latter part thereof. There is no scope for mixing up the two and diluting the first condition relating to qualification of the spouse by reference to the expression 'knowledge and experience' in the second condition. It is a cardinal rule of interpretation of statutes that construction which would leave without effect any part of the statute should normally be rejected. We are, therefore, clear in our mind that there is no conflict between the two requirements of the proviso, each deals with a different aspect and both of them must be satisfied, though the second comes into operation only on fulfilment of the first condition, not otherwise. In the instant case, the spouse of the assessee neither possessed any technical or professional qualification nor was she paid for any, technical or professional services rendered by her. Admittedly, she had passed first year Arts of the Bombay University and that was her only qualification. She was employed by her husband, the assessee in this case, as receptionist-cum-accountant and paid a salary for that employment. In such a case, it is not only difficult but impossible to hold that she possessed any 'technical or professional qualification' which is necessary to bring her within the proviso. That being so, the proviso to section 64(1)(ii) is not applicable to her and, as such, the assessee is not entitled to get the benefit thereof to bring her income out of the purview of the clubbing provision contained in section 64(1)(ii). Thus, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. Issues Involved:1. Applicability of section 64(1)(ii) to professional concerns.2. Interpretation of 'substantial interest' in proprietary concerns.3. Interpretation of 'technical or professional qualifications' and the proviso to section 64(1)(ii).Summary:1. Applicability of Section 64(1)(ii) to Professional Concerns:The assessee contended that the term 'concern' in section 64(1)(ii) did not include 'profession' and thus the provisions were inapplicable. The Tribunal rejected this, stating that 'concern' means both business and professional concerns. The High Court upheld this interpretation, stating that the term 'concern' is of wide import and includes any entity carrying on business or professional activity, whether owned by a company, partnership, or individual.2. Interpretation of 'Substantial Interest' in Proprietary Concerns:The assessee argued that section 64(1)(ii) does not apply to proprietary concerns where the individual has 100% interest. The Tribunal and the High Court rejected this argument, clarifying that 'substantial interest' includes having cent per cent interest. The Explanation 2(ii) is a deeming provision to extend the section's application and does not restrict it.3. Interpretation of 'Technical or Professional Qualifications' and the Proviso to Section 64(1)(ii):The assessee contended that 'technical or professional qualifications' should include necessary knowledge and experience, and that the word 'and' in the proviso should be read as 'or.' The Tribunal and the High Court disagreed, emphasizing that both conditions in the proviso must be satisfied: the spouse must possess technical or professional qualifications, and the income must be solely attributable to the application of such knowledge and experience. The High Court clarified that 'qualification' must be specific to the technical or professional work and cannot be interpreted broadly to include general knowledge or experience.Conclusion:The High Court affirmed the Tribunal's decision, holding that the income of the assessee's wife was includible in the assessee's income u/s 64(1)(ii) as she did not possess any technical or professional qualifications. The question was answered in the affirmative, in favor of the Revenue and against the assessee.