TaxTMI 
TaxTMI 
1982 (11) TMI 65
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....Vice President --- The assessee-individual held 2020 shares out of 16,400 shares in a company Diamond Shamrock (I) Ltd. His wife held 282 shares in the same company, whereas his daughter and son held 2,898 and 3,000 shares, respectively. Both the wife and the husband thus had substantial interest in this company as defined in section 64 of the Income-tax Act, 1961 ('the Act'). In another company Speciality Formulations (P.) Ltd., the assessee held 1,250 and his wife 3,735 out of the total 5,000 shares of the company. In this company also the assessee and his wife thus had substantial interest. 2. For the assessment year 1978-79 under appeal in working out the total income of the assessee, the ITO included the salary received by the asses....
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....ause (ii) in that Explanation. The income of any person, therefore, was only assessable in the hands of his or her spouse and not in his own hands. This type of assessment is referred to by the learned counsel as the reciprocal clubbing of the income of spouses. The amendment with effect from 1-4-1980 of Explanation 1, only brought in for the first time, the question of clubbing the spouse's income in the hands of the person having the larger income and also the question of the department's exercising an option in this regard relevant to the assessment of consecutive years. The department has followed the very same method in the preceding years and it was not proper for the department to go back on this method correctly followed by it from ....
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....ds of one person. 6. The provisions of section 64(1)(ii) and Explanation 1 thereto, so far as are relevant for the purpose, are as under : "64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly --- (ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest : Explanation 1 : For the purposes of clause (i) and clause (ii), the individual, in computing whose total income the income referred to in that clause is to be included, shall be the husband or wife whose total income (excluding the income referred to in that cl....
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....., by himself. In order to delete such an amount from the total income of a person that income has to be covered by an exemption provision of the Act. The proper purpose of section 64 is to include in the total income of a person, the income of his spouse, i. e., the fictional income referred to in section 64. The provisions of section 64 cannot, as pointed out by the learned counsel, mandate the inclusion of the husband's income in the wife's hands and vice versa and the exclusion of the husband's own income from his assessment and the wife's income from her assessment. This peculiar proposition given by the learned counsel for the assessee under the nomenclature of reciprocal clubbing of income is not only not warranted by the Act but is ....
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....f Rs. 66,000 thus gets doubly taxed once in the hands of the recipient, the wife, and again under section 64 in the hands of the assessee. This really, is the position that obtains. A literal interpretation of the provisions of section 64 would result where both the spouses have interest in the same concerns, in the assessment in the hands of both the spouses clubbing the income of the other. The Act does not seem to have provided any remedy for this. Both equity as well as the general principle of taxation that no income should be taxed doubly in the same passage would, however, enure to the benefit of the assessee. On this basis the assessee should be exonerated from the double levy by deleting both the amounts from the assessment of one ....