1989 (8) TMI 48 - HC - Income Tax

Court rules payment to spouse for services not assessable under Income-tax Act; expertise deemed sufficient.

The High Court of Madhya Pradesh ruled in favor of the assessee, determining that the remuneration paid to the spouse for services rendered was not ... Inclusions In Total Income, Technical Or Professional Qualification, Total Income Issues:Interpretation of section 64(1)(ii) of the Income-tax Act, 1961 regarding the assessability of remuneration paid to the spouse of the assessee.Analysis:The High Court of Madhya Pradesh was presented with a reference under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Indore Bench. The main issue in question was whether the remuneration paid to the husband of the assessee, who was employed by a firm where the assessee was a partner, should be assessable in the hands of the assessee under section 64(1)(ii) of the Act. The Income-tax Officer initially disallowed the salary paid to the husband, citing lack of technical or professional qualifications. However, the Appellate Assistant Commissioner disagreed, stating that the payment was for services rendered. The Tribunal upheld this view, leading to the reference to the High Court.The Tribunal found that the husband possessed the necessary experience as a salesman and that the firm heavily relied on his salesmanship. The salary paid to him was deemed as remuneration for his professional experience utilized by the firm. The High Court concurred with this assessment, emphasizing that the proviso to section 64(1)(ii) does not require formal qualifications from recognized bodies but rather expertise and experience in the relevant profession. Citing a previous ruling by the Andhra Pradesh High Court, the High Court clarified that possessing technical or professional knowledge and earning income through its application satisfies the proviso, even without formal qualifications. Therefore, the High Court held that the remuneration paid to the husband was not assessable in the hands of the assessee under section 64(1)(ii) of the Act.In conclusion, the High Court answered the question in the affirmative, ruling in favor of the assessee and against the Revenue. The court directed that each party would bear their own costs in this reference.