TMI Blog1999 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 readymade 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 : Assessment year 1986-87 : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 1996 must now be adverted to. In the firm, Saha Clinic and Nursing Home, Dr. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sub-section (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 (Bom), 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional 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 assessment, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 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 on 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. In CIT v. Sorabji 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 : "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 'know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 makes it clear 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. Held, that, in the instant case, the Tribunal had 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. The words used in the proviso do not lay down that the spouse must be in possession of a degree or diploma from a recognised institute in order to attract its applicability. The above mentioned is the simplest interpretation which we can possibly give to the bare provisions of the statute. May be the possession of any degree or diploma is not essential for attracting the applicability of the proviso, the court of law in each case would be called upon to determine as to whether a spouse has been able to satisfy the conditions of the proviso in order to avoid clubbing. The court of law in each case, in our considered view, will have to decide whether the spouse possessed technical or professional qualifications or not and for doing so the nature of the job would be the determining factor. If the spouse has been appointed by an individual as a chartered accountant surely such a spouse is required to undergo a regular course and exhibit his or her professional qualification by production of a degree. If a spouse is appointed as a surgeon he or she must have passed out with at least MBBS degree from a recognised university and one cannot say that such a spouse by virtue of his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature in the existing proviso was not inserted in the year 1989 and, therefore, this court should not read the words "degree, diploma or certificate" in the proviso for extending its benefit to the spouse, but it will have to be decided in each case whether the spouse was possessed of sufficient technical or professional knowledge or not and this can be done only by judging the nature of the job upon which he or she has been employed by his or her spouse having substantial interest in the concern, The Kerala High Court on the facts, in our opinion, rightly decided the question against the Revenue, as a spouse working as a director need not possess any technical or professional qualification. Similarly, the Madhya Pradesh High Court was right in taking the view that the husband of the assessee had requisite experience as a salesman and that the firm in question was dependent upon the salesmanship of the husband of the assessee and further the amount of salary paid to the husband of the assessee was for his professional experience which was utilised by the firm in the conduct of its business. As regards the decision of the Andhra Pradesh High court in Batta Kalyani's case [1985] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, is the legal requirement of the statute which has been so interpreted by courts. In short, as a result of the discussion of the case law and in view of the interpretation of section 64(1)(ii) and its proviso the following propositions can be summed up : (i) section 64(1)(ii) clearly envisages the clubbing of the income of the spouse in the income of the individual whether such income has arisen on account of salary or commission, fee or in any other form of remuneration in cash or in kind from a concern in which such individual has a substantial interest ; (ii) in order to avoid clubbing, the spouse of any individual will. have to bring his or her case within the purview and ambit of the proviso ; (iii) the proviso lays down two conditions and it is on satisfaction of both the conditions that the same can be applied in a given case. Both the conditions are cumulative and not alternative ; (iv) the first condition pertains to the eligibility of the spouse for claiming benefit of the proviso. In other words, the first condition can be described to be relating to the spouse of the individual who possesses technical or professional qualifications. If the first condition as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on over the land. The land in question was transferred to the assessee by her husband at book value, that is, Rs. 42,664. The requirement under section 27 of the Act is "adequate consideration". In a case of transfer of land to the wife, the transfer at book value cannot be construed as inadequate consideration. The fact that construction started in the land a few months prior to the actual registration is not of much consequence or importance to hold that the transaction is sham. The Commissioner of Income-tax (Appeals) and the Tribunal held that the property was transferred after proper consideration and income from the property should be assessed in the hands of the assessee. We find no impropriety in the above findings and question No. 2 is, therefore, answered in favour of the assessee and against the Revenue. Questions Nos. 3 and 4, it was conceded by counsel for the parties during the course of arguments, is dependant upon the decision of question No. 2. Question No. 2 having been answered in favour of the assessee and against the Revenue, questions Nos. 3 and 4 are also answered in favour of the assessee and against the Revenue. In other words, they are answered in the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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