2013 (1) TMI 483 - HC - Income Tax

Appeals Dismissed Upholding Section 64(1)(ii) Proviso Decision (1)(ii)

YASHWANT CHHAJTA Versus DEPUTY COMMISSIONER OF INCOME TAX. SHIMLA

YASHWANT CHHAJTA Versus DEPUTY COMMISSIONER OF INCOME TAX. SHIMLA - TMI Issues Involved:1. Disallowance of salary paid to the assessee's wife under Section 64(1)(ii) of the Income Tax Act, 1961.2. Interpretation of the proviso to Section 64(1)(ii) regarding technical or professional qualifications and the application of such knowledge and experience.Issue-wise Detailed Analysis:1. Disallowance of Salary Paid to Assessee's Wife:The primary issue revolves around the disallowance of salary paid by the assessee to his wife, Smt. Nanda Chhajta, for the assessment years 2003-04 and 2004-05. The assessee, engaged in civil construction, claimed deductions for the salary paid to his wife, who purportedly held an Electronics Telecommunication degree and was involved in the business operations. The Assessing Officer disallowed these claims, invoking Section 64(1)(ii) of the Income Tax Act, 1961, which includes the income of a spouse in the individual's total income if the spouse is paid by a concern in which the individual has a substantial interest. The Commissioner of Income Tax (Appeals) initially allowed the assessee's appeal, but the Income Tax Appellate Tribunal later reversed this decision, leading to the current appeals.2. Interpretation of the Proviso to Section 64(1)(ii):The crux of the legal argument lies in the proviso to Section 64(1)(ii), which exempts the spouse's income from clubbing if the spouse possesses technical or professional qualifications and if the income is solely attributable to the application of such knowledge and experience. The court examined precedents from various High Courts:- Karnataka High Court in Commissioner of Income Tax vs. D. Rajagopal: The court emphasized that the proviso must be strictly construed, requiring both the possession of technical or professional qualifications and the income being attributable to the application of such knowledge and experience.- Bombay High Court in Dr. J.M. Mokashi vs. Commissioner of Income Tax: This judgment reiterated that both conditions in the proviso are cumulative. The qualification must be relevant to the job, and the income must be solely attributable to the application of the spouse's technical or professional knowledge and experience.- Gujarat High Court in Ashaben Rohitbhai vs. Commissioner of Income Tax: The court held that the technical or professional qualification must relate to the post occupied, and the income must be attributable to the application of such knowledge.Application to the Present Case:In the present case, the court found that while the assessee's wife held a technical qualification, the assessee failed to provide tangible evidence that she was actively involved in the business operations, such as looking after plans for execution or making administrative decisions. The assessee did not substantiate these claims with material evidence or an affidavit. Consequently, the court concluded that the assessee did not meet the stringent requirements of the proviso to Section 64(1)(ii), and thus, the salary paid to his wife could not be excluded from his total income.Conclusion:The appeals were dismissed, affirming the decision of the Income Tax Appellate Tribunal. The court held that the proviso to Section 64(1)(ii) was correctly applied, and the assessee failed to conclusively prove that his wife's income was solely attributable to her technical or professional knowledge and experience. Pending applications were also disposed of, with no costs awarded.