Batta Kalyani v. Commissioner Of Income-Tax.

Anjaneyulu, J.:— The following question of law has been referred to this court by the Income-tax Appellate Tribunal under s. 256(1) of the I.T Act, 1961 (for short “the Act”):

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the income of the assessee's husband is includible in the assessment of the assessee under s. 64(1)(ii) of the Act?”

2. This reference relates to the income-tax assessment year 1976-77. The assessee, Smt. Batta Kalyani, runs a hardware and paint shop. She employed her husband, B. Venkataramaiah, to manage the business and paid him salary for services rendered. There is no dispute that the business is carried on by the assessee as a sole proprietrix. The ITO included in the total income of the assessee, the salary paid by the assessee to her husband by applying the provisions of s. 64(1)(ii) of the Act. It may be relevant to extract the same:

“(i) 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:

Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience.”

3. The ITO held that the assessee's husband who was employed to manage the business did not possess any technical or professional qualification and the income derived by the assessee's husband was not solely attributable to the application, of the technical or professional knowledge and experience of the assessee's husband. In that view, the ITO came to the conclusion that the proviso to s. 64(1)(ii) has no application to the facts of the present Case. The assessee appealed to the AAC, who allowed the assessee's appeal, holding that the sum paid by way of salary to the assessee's husband is governed by the proviso to s. 64(1)(ii) of the Act and, consequently, the salary paid to the assessee's husband was not liable to be included in the total income of the assessee. The ITO appealed to the Appellate Tribunal against the order of the AAC. The Tribunal allowed the ITO's appeal. In allowing the appeal, the Tribunal came to two conclusions:

(a) that the proviso to s. 64(1)(ii) of the Act can have no application unless ‘the technical or professional qualifications’ relate to the qualification awarded by a recognised body;

(b) there was also no evidence in the present case to show that the income earned by the assessee's husband was solely attributable to the application of technical or professional knowledge and experience. In the above view, the Income-tax Appellate Tribunal reversed the order of the AAC and upheld the ITO's inclusion in the assessee's income under s. 64(1)(ii) of the salary paid to her husband. The assessee asked for and obtained this reference under s. 256(1) of the Act.

4. Sri M.J Swamy, learned counsel for the assessee, has raised a twofold plea before us. Firstly, he urged that the Tribunal was in error in considering that the technical or professional qualification for purposes of the proviso above referred to should necessarily relate to a degree, diploma or other certificate issued by a recognised body. Learned counsel submitted that the proviso did not contain any requirement that the technical or professional qualification is referable to the conferment of such qualification by a recognised body. It is submitted that if a person possesses technical or professional knowledge, that itself is an attribute of qualification. Learned counsel reinforced the submission by reference to the latter part of the proviso which referred to the professional knowledge and experience. According to the learned counsel, if qualification is the requirement, the latter part of the proviso could surely have proceeded to state that the income should be solely attributable to the application of his or her technical or professional qualifications. Instead of using the word “qualification”, the Legislature had used the words “knowledge and and experience”. Learned counsel, therefore, submitted that the word “qualification” occurring in the first part of the proviso must be read taking into due consideration the words “knowledge and experience” used in the latter part of the proviso. Learned counsel further pointed out that in the present case, the assessee's husband had rich experience in paint business and he used his skill and knowledge in the paint business and helped the assessee to manage the business who was otherwise incapable of carrying on the business. According to the learned counsel, the requirements of the proviso are satisfied and the salary paid to the assessee's husband should not have been included in the total income of the assessee.

5. Sri M.S.N Murthy, learned standing counsel for the Revenue, urged that the word “qualification” occurring in the first part of the proviso should necessarily refer to a certificate, diploma or a degree conferred by a recognised body and the technical or professional knowledge and experience referred to in the latter part of the proviso must also originate from the qualification referred to in the first part. According to the learned counsel for the Revenue, technical or professional knowledge and experience simpliciter without a qualification does not satisfy the requirement of the second part. Therefore, in a case where there is no recognised technical or professional qualification as such, mere possession of technical knowledge and experience does not bring into application the proviso above referred to. In this view, learned standing counsel for the Revenue submitted that the view taken by the Income-tax Appellate Tribunal is proper.

6. We find considerable force in the submission of the learned counsel for the assessee that the words “technical or professional qualifications” occurring in the first part of the proviso do not necessarily relate to the technical or professional qualifications acquired by obtaining a certificate, diploma or a degree or in any other form from a recognised body like a university or an institute. 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 in the first part. The harmonious construction of the two parts of the proviso, in our opinion, would be 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. In our opinion, the Tribunal erred in coming to the conclusion that unless a recognised body conferred a qualification, it should not be considered that a person possessed technical or professional qualifications. It is enough, in our opinion, for the purpose of the proviso, if the recipient of the salary possesses the attributes of technical or professional qualifications, in the sense that he has got expertise in such profession or technique. If by the use of that expertise in the profession or technique, the person concerned earns salary, then the latter part of the proviso is also satisfied.

7. Coming, however, to the facts of the present case, we are not satisfied that the second part of the proviso is complied with. The finding of the Tribunal is 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 and experience.

8. This is essentially a finding of fact and it is not challenged before the lower authorities. We are, therefore, unable to accept the submission of the learned counsel for the assessee that in the present case both the requirements of the proviso; are satisfied. In that view of the matter, we consider that the Tribunal was justified in coming to the conclusion that the salary paid by the assessee's wife to her husband is includible in her total income under s. 64(1)(ii) of the Act. We, accordingly, answer the question in the affirmative, that is, in favour of the Revenue and against the assessee. In the circumstances of the case, the parties shall bear their own costs. Advocate's fee Rs. 300.