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Commissioner Of Income-Tax v. Madhubala Shrenik Kumar.
Factual and Procedural Background
The assessee was a one-third partner in the firm Tanted Brothers. For the assessment years in question the assessee's husband, Shri Shrenik Kumar, was employed by the firm as a salesman. The Income-tax Officer disallowed the salary paid to the husband on the ground that he did not possess any technical or professional qualifications and treated it as assessable in the hands of the assessee. On appeal the Appellate Assistant Commissioner held that the husband had experience as a salesman, that the salary was in consideration of services rendered and could not be included in the assessee's income; the appeal was allowed. The Revenue appealed to the Income-tax Appellate Tribunal (Indore Bench), which dismissed the appeal. The Revenue sought a reference under Section 256(1) of the Income-tax Act, 1961, and the Tribunal referred the question whether the Tribunal was right in law in holding that the remuneration paid to the husband was not assessable in the hands of the assessee under Section 64(1)(ii).
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the remuneration paid to Shri Shrenik Kumar, the husband of the assessee, was not assessable in the hands of the assessee under the provisions of Section 64(1)(ii) of the Income-tax Act, 1961?
Arguments of the Parties
Revenue
- The salary paid by the firm to the husband should be included in the assessee's income under Section 64(1)(ii) because the husband did not possess technical or professional qualifications.
Assessee / Appellate Assistant Commissioner
- The husband had experience as a salesman and the salary was paid in consideration of services rendered; therefore the amount could not be included in the assessee's income.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Batta Kalyani v. CIT [1985] 154 ITR 59, 62 | The words "technical or professional qualifications" are not confined to qualifications conferred by a recognised body; possession of technical/professional knowledge and experience (expertise) suffices for the proviso where income is attributable to application of such knowledge and experience. | The court adopted these observations to construe the proviso to Section 64(1)(ii) and applied them to the facts, concluding that the proviso's conditions were satisfied and the husband's income should not be clubbed with the assessee's. |
Court's Reasoning and Analysis
The court reviewed the Tribunal's factual findings: the husband possessed requisite experience as a salesman; the firm relied on his salesmanship and had not employed other salesmen; and the salary paid was for his professional experience utilised in the firm's business. The court held that these findings satisfy the conditions of the proviso to Clause (ii) of Section 64(1). It construed the phrase "technical or professional qualifications" in light of the cited Andhra Pradesh High Court decision (Batta Kalyani), accepting that such qualifications need not be certificates or degrees from recognised bodies but may be established by knowledge and experience. Applying that construction to the Tribunal's findings, the court concluded the proviso applied and the husband's remuneration could not be clubbed with the assessee's income.
Holding and Implications
The Tribunal was right in law: the remuneration paid to the husband was not assessable in the hands of the assessee under Section 64(1)(ii) of the Income-tax Act.
Direct effect: The question is answered in the affirmative and against the Revenue; the Tribunal's decision stands. Costs: parties shall bear their own costs. The opinion does not purport to lay down a new precedent beyond applying the cited authority and interpreting the proviso as set out above.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the remuneration paid to Shri Shrenik Kumar, the husband of the assessee, was not assessable in the hands of the assessee under the provisions of Section 64(1)(ii) of the Act ?"
2. The material facts giving rise to this reference, briefly, are as follows :
The assessee is a partner of a firm, Tanted Brothers. The assessee has one-third share in the profit and loss of the said firm. For the assessment years in question, the husband of the assessee was employed by the firm as a salesman. While framing the assessment of the assessee, the Income-tax Officer disallowed the amount of salary paid by the firm to the husband of the assessee on the ground that he did not possess any technical or professional qualifications. On appeal, the Appellate Assistant Commissioner held that the husband of the assessee had experience as a salesman when he was employed by the firm, that the payment of salary to the husband of the assessee was in consideration of services rendered by him and that the amount of salary paid to him could not be included in the income of the assessee. In this view of the matter, the Appellate Assistant Commissioner allowed the appeal. The Revenue thereupon preferred an appeal before the Tribunal, which was dismissed. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
3. Now, the Tribunal, in the instant case, has found that the husband of the assessee had requisite experience as a salesman, that the firm in question was entirely dependent upon the salesmanship of the husband of the assessee as the firm had not employed any other salesman and that the amount of salary paid to the husband of the assessee by the firm was for his professional experience which was utilised by the firm in the conduct of the business of the firm. In view of these findings, the conditions requisite for the applicability of the proviso to Clause (ii) of Section 64(1) of the Act are satisfied and the income of the spouse of the assessee could not be clubbed with the income of the assessee. The words "technical or professional qualifications" occurring in the aforesaid proviso cannot be construed to mean obtaining a degree or diploma from a recognised body. In this connection, the following observations of the Andhra Pradesh High Court in Batta Kalyani v. CIT [1985] 154 ITR 59, 62 are pertinent:
"We find considerable force in the submission of 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."
4. We respectfully agree with the aforesaid observations. In our opinion, therefore, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the remuneration paid to the husband of the assessee was not assessable in the hands of the assessee under Section 64(1)(ii) of the Act.
5. Our answer to the question referred to this court is, therefore, in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.
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