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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: Smt. PRATIMA SAHA and another
Court Name: Gauhati High Court Judge(s): P. G. Agarwal, N. C. Jain Title: COMMISSIONER OF INCOME-TAX vs Smt. PRATIMA SAHA and another Case No.: Income-tax References Nos.8 and 9 of 1996 Date of Judgment:1999-05-14 Reported As: 2001 PTD 2043 Result: Reference answered
JUDGMENT
JUDGMENT N.C. JAIN, J.---This judgment of ours would dispose of Income-tax Reference Nos.8 of 1996, 9 of 1996, 2 of the 1997 and 7 of 1997. Counsel for the parties are agreed that the facts of the case be picked up from Income-tax Reference No.8 of 1996 (CIT, N.E. Region, Shillong v. Smt. Pratima Saha). In the said Income-tax Reference No.8 of 1996 the following questions have been referred: Assessm ent year 1987-88: "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in the assessment of the spouse under section 64(1)(ii) of the Act? (2) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 27 of the Income Tax Act, 1961, the assessee could be deemed to be the owner of the house property which was transferred by her spouse to her? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that bank interest is assessable in the hands of the assessee? (4) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in observing that except the income for ready-made garments business, the rest of the income should be assessed as a substantive measure?" In the Income-tax Reference No.9 of 1996 (CIT, N.E. Region, Shillong v. Smt. Pratima Saha), the assessing authority assessed the assessee for the assessment years 1986-87 and 1988-89 and the following questions have been referred by the Tribunal: Assessm ent year 1986-87:
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"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in directing the Assessing Officer to assess the income of Rs.44,870 disclosed by the assessee on regular basis as against on protective basis done by the Assessing Officer? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in the assessment of the spouse under section 64(1)(ii) of the Act?" Assessm ent year 1988-89: "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in the assessment of the spouse under section 64(1)(ii) of the Act? (2) Whether, on the facts and in the circumstances of the case and on a correct interpretation of section 27 of the Income Tax Act, 1961, the assessee could be deemed to be the owner of the house property which was transferred by her spouse to her? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that bank interest is assessable in the hands of the assessee?" In the aforesaid reference it is clear that the assessing authority decided the case of the assessee pertaining to two assessm ent years, i.e., 1986-87 and 1988-89. In Income-tax Reference No.2 of 1997 CIT N.E. Regoni, Shillong v. Dr. M.L. Saha), the husband of Pratima Saha who was the assessee in the aforesaid two references is the assessee and the following questions have been referred to us: Assessm ent year 1986-87: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified indirecting the Assessing Officer to exclude the income of Rs.44,878 disclosed by his spouse from the assessm ent of the assessee? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the salary income of the spouse of the assessee from the firm in which the assessee has substantial interest is not includible in the assessment of the assessee under section 64(1)(ii) 'of the Act?" In Income-tax Reference No.7 of 1997 (CIT, N.E. Region, Shillong v. Dr. M. L. Saha), again the husband of Smt. Pratima Saha who is the assessee in Income-tax References Nos.8 of 1996 and 9 of 1996, is the assessee and the following questions pertaining to the assessment year 1987-88 have been referred to us: Assessm ent year 1987-88: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the salary income of the spouse of the assessee from the firm in which the assessee has substantial interest is not includible in the assessment of the assessee under section 64(1)(ii) of the Act? (2) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 27 of the Income Tax Act, 1961, the assessee could not be deemed to be the owner of the house property which was transferred by him to his spouse? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the bank interest is not assessable in the hands of the assessee? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that except the income for readymade garments business, the rest of the income should be excluded from the assessment of the assessee?" Having reproduced the questions of law referred to us by the Tribunal, the facts of Income-tax Reference No.8 of the 1996 must now be adverted to. In the firm, Saha Clinic and Nursing Home, Dr.
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M.L. Saha and Sri Tarit Kanti Saha had 60 per cent, and 40 per cent. Share of profit and loss, respectively. The aforesaid two partners are husband and son of the assessee who has been paid the salary by the firm for rendering service by her as nurse-cum-supervisor. Admittedly, the assessee did not furnish any certificate evidencing that she has undergone any training in any institution. However, she was having a degree of B.Sc. In Bio Science. She was admittedly receiving salary right from the assessm ent year 1983-84. The basic question which arose for determination before the Assessing Officer, the appellate authority and the Income-tax Appellate Tribunal was whether the salary and remuneration paid to the assessee is to be clubbed in the hands of Dr.M.L. Saha in the light of the provisions of section 64(1)(ii) of the Income Tax Act, 1961 (for short, "the Act"). The Assessing Officer held that the income declared by the assessee deserved to be clubbed with the income of her husband. On appeal the Commissioner of Income-tax (Appeals) reversed the order of the Assessing Officer. The order of the appellate authority was confirmed by the Tribunal. In order to determine the question of law whether the salary, and remuneration received by the assessee is to be clubbed in the hands of Dr. M.L. Saha as required by section 64(1)(ii) of the Act and whether the benefit of the proviso is available to the assessee to avoid clubbing of income and further whether the income of the assessee is to be assessed in her hands as a protective or substantive measure, it is necessary to have a look at the bare provision of section 64 of the Act. We extract the relevant provision which reads as under: "64. Income of individual to include income of spouse, minor child, etc.--(l) 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 inte rest : Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualification and the income is solely attributable to the application of his or her technical or professional knowledge and experienc Counsel for the Revenue has strenuously argued that the salary and remuneration paid to the wife from the firm should be included in the income of the husband as he had substantial interest in the firm having 60 per cent. Share and that the assessee does not possess technical or professional qualification and the income earned by her cannot be said to be solely attributable to the application of her technical or professional knowledge and experience. Counsel has further argued that the assessee in order to bring her case within the ambit of the proviso, must satisfy both the conditions, namely, possession of technical or professional qualifications and the income earned by her must be solely attributable to the application of her technical or professional knowledge or experience. According to counsel, if the assessee does not satisfy the first condition, i.e., possession of technical or professional qualifications, the proviso in that case would not apply and the reference to the second condition in such a situation would be unnecessary. Counsel has further argued that the taxing statute is to be interpreted strictly and that there was no scope for liberal or harmonious construction. The first part of the proviso, according to counsel for the Revenue, cannot be diluted by reference to the expression "knowledge and experience" in the second part of the proviso. There cannot be any scope for mixing up two parts of the proviso, according to counsel. In support of the submissions, counsel has placed reliance upon two decisions, one of the Bombay High Court in Dr. J.M. Mokashi v. CIT (1994) 207 ITR 252 and the other of the Karnataka High Court in the case of CIT v. D. Rajagopal (1985) 154 ITR 375. Counsel for the assessee, Mr. Ranjan Gogoi, while arguing the case with equal vehemence has submitted that the Legislature has not confined the expressions "technical or professional qualifications" and "technical or professional knowledge and experience" as appearing in the
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proviso to any degree or diploma obtained from a University. According to Mr. Gogoi, the words degree or diploma being absent from the statute, the same cannot be inserted and in case this Court is to follow the view of the Bombay and Karnataka High Court, it would amount to introducing the two words of degree or diploma in the proviso which should not be done. Mr. Gogoi has further argued that even the Bombay High Court in Dr. Mokashi's case (1994) 207 ITR 252 at page 264 has observed that technical and professional qualification would depend on the facts of each case. Counsel has further argued that the Bombay High Court has wrongly disagreed with the view of the.Andhra Pradesh High Court in Batta Kalyani v. CIT (1985) 154 ITR 59, the Madhya Pradesh High Court in CIT v. Madhubala Shrenik Kumar (1990) 181 ITR 180 and the Kerala High Court in CIT v. Sorabji Dorabji (1987) 168 ITR 598 on the point that the second part of the proviso cannot be used to interpret the first part and with this proposition of law this Court is not concerned in the present case. It has further been argued that even the Bombay High Court has nowhere laid down that in order to avoid the clubbing, the assessee must possess a degree or diploma and this is not the requirement of law either. Mr. Gogoi has drawn pointed attention of the Court to an intended amendment by the Legislature of the existing proviso to section 64(1)(ii) by the Direct Tax laws (Amendment) Act, 1987, with effect. From April 1, 1989, reported in (1988) 169 ITR (St.) 89, at page 102, which reads as below: "Provided that nothing in this clause shall apply in relation to any such income arising to the spouse from a firm carrying on any such profession as is referred to in subsection (1) of section 44AA, where the spouse possesses any technical or professional qualification in the nature of a degree or diploma of a university within the meaning of clause (c) of the Explanation below subsection (2B) of section 32A." The aforesaid amendment, according to Mr. Gogoi, was not effected and the proviso which exists today continues which according to Mr. Gogoi means that there is no requirement of possession of any degree or diploma. In short, Mr. Gogoi while arguing that the view taken on the question of law by the Tribunal is correct has heavily relied upon the view taken by various High Courts in Batta Kalyani's case (1985) 154 ITR 59 (AP), Madhubala Shrenik Kumar's case (1990) 181 ITR 180 (MP) and Sorabji Dorabji's case (1987) 168 ITR 598 (Ker.). Before adverting to the arguments of counsel for the parties and interpreting the bare provisions of section" 64(1)(ii) and the proviso we propose to discuss the case law cited at the Bar. In Dr. J.M. Mokashi's case (1994) 207 ITR 252 (Born.), the facts were that the assessee, Dr. Mokashi, was a practising physician and a cardiologist. His wife had passed first year Arts and was employed as a receptionist-cum-accountant. She was paid a salary of Rs.8,100 by her husband. The amount paid was included in the income of the husbandassessee by the Income-tax Officer by the Appellate Assistant Commissioner as well as by the Tribunal. The Bombay High Court while interpreting the provisions of section 64(1)(ii) and the proviso held that in order to claim the benefit of the proviso to avoid clubbing of income both the conditions specified in the proviso have to be satisfied. It was observed that the first condition relates to the spouse of the individual who must possess technical or professional qualifications and in case the said condition was not satisfied the proviso would not apply and in that situation reference to the second requirement would not be necessary. It was on satisfaction of the first condition that it would be necessary to refer to the second condition which pertains to the income that would not be clubbed. Even in the case of a spouse possessing technical or professional qualification, it was held that only that much income arising to such spouse which is solely attributable to the application of his or her technical or professional knowledge and experience will, be out of the purview of section 64(1)(ii) and not the whole of the income of such spouse. The following observations of the Bombay High Court can be' reproduced with advantage (headnote):
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"In order to claim the benefit of the proviso to avoid clubbing of income under section 64(1)(ii) of the" Act, both the conditions specified in the proviso must be satisfied. The first condition relates to the spouse of the individual who must possess 'technical or professional qualifications' . If this condition is not satisfied,, the proviso will not apply and reference to the second requirement will be unnecessary. If the first condition in regard to the qualification of the spouse is satisfied, it will be necessary to refer to the second condition which pertains to the income that will not be clubbed. Even in the case of a spouse possessing technical or professional qualification, only the income arising to such spouse which is solely attributable to, the application of his or her technical or professional knowledge and experience will be out of the purview of section 64(1)(ii) and not the whole of the income of such spouse. It is in this context that the words 'technical or professional knowledge and experience' have been used in the latter part of the proviso in contradistinction to 'technical or professional qualifications' used in the earlier part. Thus, two different expressions have been used by Parliament in the very same proviso, not inadvertently, but with a deliberate purpose. The word 'qualification' simpliciter is a word of very wide import and, in the absence of any qualifying words or expression, conveys the idea of any quality which makes a man fit for any job or any activity in life. But the word 'qualification' in the proviso to section 64(1)(ii) is qualified by the words 'technical or professional . In that view of the matter, its broad meaning will not be relevant for the purpose of section 64(1)(ii). The word 'profession' does not take within its ambit any and every activity or employment undertaken by a person for his livelihood. The word 'qualification' occurring in section 64(1)(ii) must be such which makes a person eligible for technical or professional work. A person can, therefore, be said to be in possession of requisite technical qualification when, by virtue thereof, he- is eligible to perform that function. Similarly, professional qualification must mean qualification which is necessary for carrying on the particular profession. 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 a spouse in such a case for any legal services cannot be brought within the purview of the proviso to section 64(1)(ii) by - reference to the words 'knowledge and experience' occurring in the latter part thereof. Therefore, the possession of technical or professional qualification is a condition precedent on fulfilment of which that part of the income which falls in the second part of the proviso is excluded from the operation of the clubbing provision. The two conditions mentioned by the proviso are cumulative and not alternative. They deal with two different aspects---one pertains to the eligibility of the spouse to claim benefit of the proviso, the other to the income which would qualify for exclusion from clubbing. Both are relevant and equally important. 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. Any attempt to do so will go counter to the clear language, scheme and object of the proviso and the well-accepted rule of interpretation that one part of a section or clause should not be construed in such a manner as to render the other part redundant. There is no conflict between the two requirements of the proviso." The Bombay High Court after laying down the law as reproduced above upheld the decision of the Tribunal by holding that the 'salary paid by Dr. Mokashi to his wife had to be included in his total income. The Karnataka High Court in D. Rajagopal's case (1985) 154 ITR 375 assessed the salary of the husband in the hands of his wife who was a partner of the firm where her husband worked as managing director having only graduation as the qualification. The following observations were made by the Court (page 377):
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"The proviso is an exception to clause (ii). It must, therefore, be strictly construed. The proviso contemplates two conditions: (1) the spouse must possess technical or professional qualifications; and (2) the income derived by him or her must be attributable to the application of such technical or professional knowledge and experience. The requirement of technical or professional qualification is not general in terms. It must relate to the post which he or she occupies and, secondly, the salary or fees must be attributable to the application of his or her technical or professional knowledge. Both these conditions must be satisfied for excluding the salary drawn by an assessee in his/her assessm ent, and to assess it separately in the individual assessment of the recipient. Having regard to the nature of the business in which the assessee is employed and a mere degree qualification which he possesses cannot, in the context, be considered as professional or technical qualification and the experience gained in that business shall not be referable to the qualification which he possesses. In this case, the assessee was just a graduate. He was receiving salary as the managing director of the concern in which his wife had substantial interest. His salary cannot, therefore, be taxed in his hands ignoring the provisions of section 64(1)(ii). The Tribunal was, therefore, justified in excluding the income of the assessee from his assessment and directing it to be assessed in the hands of his spouse." It may be recalled that the view taken in the aforesaid judgment by the Karnataka High Court found favour with the Bombay High Court in Dr. Mokashi's case (1994) 207 ITR 252. Coming to the case law cited by counsel for the assessee, the Andhra Pradesh High Court in Batta Kalyani's case (1985) 154 ITR 59 has held that the words "technical or professional qualification" occurring in the first part of the proviso to section 41(1)(ii) of the Act do not necessarily relate to technical or professional qualifications acquired by obtaining a certificate, diploma or degree or in any other form from a recognised body like university or an institute. It was further held that the intention of the Legislature was clear from the use of the expression "knowledge and experience" in the latter part of the proviso, as otherwise it would have been permissible for the Legislature to use the same expression as occurring in the first part of the proviso to section 64(1)(ii) of the Act. The Andhra Pradesh High Court was of the view that a harmonious construction of the two parts of the proviso shows that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not be possessing any qualification from a recognised body. The aforementioned proposition was laid down while dealing with the case of an assessee who was running a hardware and paint shop and employed her husband to manage the business and paid him the salary. The Income-tax Officer included the salary of the husband in the total income of the assessee by holding that 'he did not possess any technical or professional qualification an the income derived by him was not solely attributable to the application of the technical or professional knowledge and experience. In other words, the Income-tax Officer held the proviso not to be applicable. The appellate authority allowed the assessee's appeal and held that the sum paid by way of salary was governed by the proviso to section 64(1)(ii) of the Act and, therefore, the salary paid to the husband of the assessee was not liable to be included in her total income. On appeal, the Tribunal agreed with the Revenue on the ground that there was no evidence to prove that the income earned by the assessee's husband was solely attributable to the application of technical or professional knowledge. The High Court after holding that a certificate, diploma or degree was not needed in order to attract application of the proviso, in its ultimate decision decided the case in favour of the Revenue of the facts by observing that the second part of the proviso was not complied with as there was no evidence to prove that the income earned by the assessee's husband was solely attributable to the application of technical or professional knowledge and experience.
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In CIT v. Soarbji Dorabji (1987) 168 ITR 598, the Division Bench of the Kerala High Court while upholding the view which helps the assessee in the present case has observed as follows (headnote): "The context in which the crucial words 'technical or professional qualifications' or 'technical or professional knowledge or experience' occur in the proviso to section 64(1)(ii) of the Income Tax Act, 1961, show that they do not refer to a degree or diploma of a university or other similar institution. That this was not the intention of the Legislature is clear from the use of the expression 'knowledge and experience' in the latter part of the proviso, as otherwise it would have been perfectly permissible for the Legislature to use the same expression as occurring the first part. A harmonious construction of the two parts of the proviso implies that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not possess any qualification issued by a recognised body." The aforementioned proposition of law was laid down by the Kerala High Court in the case of an assessee who paid salary to his wife and the salary so paid was included in the income of the husband-assessee by the Income ax Officer as he had substantial interest in the company where his wife worked as a director. The Income-tax Officer held that the wife did not possess any technical or professional…
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