1983 (11) TMI 61 - HC - Income Tax

Court rules only net income, not gross salary, of spouse should be clubbed in assessee's hands under Income Tax Act

Commissioner Of Income-Tax, Karnataka I Versus SK. Nayak

The High Court of Karnataka ruled in favor of the assessee, holding that only the net income of the spouse under salary after deductions should be clubbed ... Clubbing Of Income Of Spouse, Total Income Issues involved: Interpretation of section 64(1)(ii) of the Income Tax Act, 1961 regarding clubbing of income of spouse with the assessee's income and whether it should be the net income or gross income.The judgment delivered by the High Court of Karnataka addressed the question referred by the Income-tax Appellate Tribunal regarding the clubbing of income of the spouse with the assessee's income under section 64(1)(ii) of the IT Act, 1961. The case involved the managing director of a company and his wife, who was a whole-time director in the same company. The dispute arose when the Income Tax Officer included the gross salary received by the wife in the total income of the assessee under section 64. The assessee appealed, and the AAC ruled in favor of the assessee, stating that the concept of 'income' in section 64 should be the net income after allowing expenses and deductions. The Revenue challenged this decision before the Appellate Tribunal, which upheld the AAC's decision, leading to the current reference to the High Court.The main issue for consideration was whether section 64(1)(ii) permits the clubbing of the net income or the gross income of the spouse with the assessee's income. Section 64(1)(ii) deals with clubbing the income of the spouse received from a concern in which the assessee has a substantial interest. The High Court emphasized that if the wife had been the assessee, she would have been entitled to compute her net income after deductions. Therefore, it was held that allowing deductions before clubbing the income is in line with the Act's scheme. The Court found no justification to deviate from the Tribunal's reasonable interpretation and ruled in favor of the assessee, stating that only the net income of the spouse under salary after deductions should be clubbed in the hands of the assessee under section 64(1)(ii), not the gross salary income.