Income Tax Appellate Tribunal - Mumbai
Fist Income-Tax Officer vs Sadanand A. Shetty on 31 May, 1996
Equivalent citations: [1982]1ITD122(MUM)
ORDER
Shri K.S. Viswanathan, Accountant Member
1. In this departmental appeal, the only issue is the quantum of income which is to be included in the assessment under section 64(1) of the Income-tax Act, 1961 ("the Act"). The assessee is an individual. He is a director in Fouress Engg. (I) (P.) Ltd., His wife is employed by this company on a salary of Rs. 21,500. she had also received fees for attending board meeting amounting to Rs. 1,350. The ITO included these two amounts under section 64(1). Apart from the income of the wife, the dividends arising to the shares held by the minor children of the assessee were also included under section 64. We may mention that there is no dispute that section 64 would apply in this case. However, the assessee had claimed that deduction should be allowed in respect of the contribution made to the provident fund by the assessee's wife from her salary income as well as the insurance premium paid by her on the policy taken by her under section 80C of the Act and only the balance was to be included. In the case of the minor children, the claim was that the provisions of section 80L of the Act would be applicable and to the extent of income assessable relief ought to be allowed. Both these contentions were negatived by the ITO.
2. On appeal, the AAC agreed with the assessee on the basis of a decision of the Jaipur Bench of the Tribunal in IT Appeal No. 494 (Jp.) of 1979 dated 25-12-1979.
3. The department is on appeal before us. Shri Makhija, representative for the department, submitted that what is to be included under section 64 is the income without any of the deductions claimed. He pointed out that under Chapter VIA deductions are to be effected only after the gross total income is determined. He submitted that inclusion under section 64 has to be made in the process of determining the gross total income. Therefore the deduction claimed ought not to have been allowed. He further submitted that the amount which ought to be deducted should be an expenditure incurred voluntarily. He relied on the decision of the Gujarat High Court in [1968] 69 ITR 2 (sic). In this case, he submitted that the assessee had not incurred any expenditure. The claims are based on expenditure incurred by the wife. He then submitted that the decision of the Kerala High Court in P. K. Yeshodamma v. CIT (1973) 87 ITR 54 is a direct authority on the point. He submitted that the decision of the Jaipur Bench of the Tribunal has not taken note of the Kerala High Court decision and, therefore it should not be followed.
4. Shri Patil, counsel for the assessee, submitted that the Jaipur Bench of the Tribunal had considered the very same issue which is raised in this departmental appeal and their decision should be followed. He further submitted that section 64 is not a deeming provision : it is only a provision which permits the ITO to add certain income. So, it is essential to see what is the income which is to be included. He then referred to the decision of the Bombay High Court in CIT v. Bai Navalbai N. Gamadia (1948) 16 ITR 109 and submitted that where an income was earmarked for charity, although the provisions of section 64 would apply, the court has held that no income could be assessable.
5. We have considered the facts of the case. The issue is what is the amount to be included under section 64. The relevant provision of the section reads as follows :
"(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,"
Now the expression used in the section is "all such income". Section 2(24) contains an inclusive definition of "income". What is to be included under section 64 is not the gross receipts which the wife or the minor child might get but the income thereof. In this case, the assessee's wife is an employee of the firm in which the assessee has substantial interest. So, what has to be included is the income arising to her from such employment, that is, her income is to be computed under the head "Salaries". Now under the head "Salaries" certain deductions are permitted. Shri Patil had admitted that those deductions contemplated under section 16 had been allowed and only the income which would have been assessable as salary income had been included under section 64. Now, the deductions claimed in respect of the income of the wife are the deductions under section 80C. These deductions arise only after the computation of the gross total income. The scheme of the statute is that the income of an assessee has to be computed by applying all the provisions of the Act except the provisions under Chapter VIA which contains section 80C. Section 80B (5) of the Act defines the "gross total income" as the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter, i.e. Chapter VIA, or under section 280-0. Therefore, on a plain reading of the section, there is no case for allowing any deduction under section 80C at the stage of computing the gross total income. Up to this stage what the ITO has done is correct.
6. On the above analysis, we will have to reject the contention of Shri Patil that section 64 is not a deeming provision. there is a direct authority to hold that under section 64 a legal fiction is created. This is the decision of the Bombay High Court in the case of CWT v. C. Rai (1979) 119 ITR 553. The Bombay High Court in the said case was construing the provisions of section 4(1) (a) (i) of the Wealth-tax Act. This provision is in pair material with section 64(1), The Bombay High Court has pointed out that the section imports a legal fiction. Therefore, although the income or the wealth, as the case may be, in law, belongs to someone else, by virtue of the deeming provision, it would be treated as the income of the assessee. To the same effect is the decision of the Jammu & Kashmir High Court in the case of CIT v. Mohd. Amin Tyamboo (1980) 125 ITR 375. In fact, this case has a great deal or relevance to the point at issue before us. In that case, certain income was included in the assessment under section 64. In computing the income of the self-occupied property, it was contended that the income included under section 64 should not be taken into account. This claim was rejected by the High Court. Question No. 2 in that reference read as follows : "Whether, on the facts and circumstances of the case, the Tribunal was right in holding that under' total income' as laid down in section 5 the basis of charge of income-tax tantamounts to gross total income as defined in section 80B (5) of the Act ?"
The High Court observed as follows :
"The Tribunal has argued that where the Legislature wanted to exclude income under section 64, it has expressly said so. The argument cannot be reasonable interpreted to mean the 'total income' chargeable under section 5 is equivalent tot the amount of 'gross total income' as defined in section 80B (5). If at all the Tribunal meant that, we must say at once that it has fallen into an error. For this we rely upon the discussion herein before appearing which clearly shows that the 'total income' and 'gross total income' are not synonymous. They are mutually exclusive. the concept of each is different from the other. In this view the 'total income' chargeable under section 5 is not the same 'gross total income' defined in section 80B (5) of the Act. Therefore, Question No. 2 is liable to be answered in the negative." (p. 380) Thus, it is clear from the authorities that the income includible under section 64 is part of the gross total income.
7. At this stage itself, we may point out that the decision of the Kerala High Court in Yeshodamma's case (supra), on which reliance was placed by the departmental representative, would not help in resolving the issue. The Kerala High Court was concerned with a case where the premium on a life insurance policy was paid by the spouse. The claim for rebate in respect of such premium was not paid by the assessee. The Kerala High Court had held that the fiction under section 64 would not extend further to hold that the premium payments were also made by the assessee. Now we have pointed out that the Bombay High Court has held that section 64 creates a legal fiction. The Bombay High Court has further held that the legal fiction should be fully worked out to the extent required, following the famous dictum of Lord Asquith in East End Dwellings Co. Ltd.'s case. So, we will have to hold that if the income arising to the wife belongs to the husband, the payment of insurance premium and contribution to the provident fund are payments from the assessee's own income.
8. From the above finding, it will be clear that the assessee would be entitled to a deduction under section 80C in respect of such payments within the limits prescribed in the section as applicable to the assessee's gross total income. For the same reason, the assessee would be entitled to deduction under section 80L within the limits prescribed therein.
9. Under the circumstances, the departmental appeal would be partly allowed. The ITO is justified in including the income of the wife and the minor children for the gross total income purpose. But, the ITO will consider this print for the purpose of deductions under sections 80C and 80L as if these payments had been made by the assessee himself.