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"64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -
(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner."

2. In essence it provides that when the husband and the wife are members of the very same partnership firm carrying on a business, the income of the two is to be clubbed together. In so far as the income arising directly or indirectly from the business of the partnership is concerned, such clubbing together would naturally result in a higher rate of tax being attracted having regard to the fact that income-tax at a higher rate is levied in regard to the slab of income which is in a higher bracket. The assessee is, therefore, interested in escaping the clutches of this provision. The revenue on the other hand would be anxious to call into aid this provision in case any question of interpretation arises which would result in an assessee being in a position to successfully contend that the provision would not be attracted in his case. Such a question has arisen in the context of a partnership firm between two spouses who happen to be professionals. Each of them is a qualified medical practitioner (doctor). The husband and the wife team of doctors have formed a partnership and are carrying on their professional activities in partnership. The activities, inter alia, consist of the running of a nursing home where the patients under the treatment of the team of doctors are admitted as indoor partients and the income from the nursing home also forms a part of the professional income of the partnership firm. The assessees contended that the clubbing provision contained in s. 64(1)(i) would be attracted provided and only provided the basic pre-condition envisioned by the provision, namely that the two spouses must be members of a partnership firm carrying on a business is satisfied. The expression "carrying on a business" has been placed under spotlight and it has been contended that when a doctor-husband and a doctor-wife carry on their "profession" in partnership, it cannot be said that they are "carrying on a business". If the contention is right, the assessees must succeed. Otherwise the revenue would be justified in clubbing together their income. It appears that a similar question on similar facts has arisen in the cases of a number of doctor-couples carrying on their profession in partnership. In the case of a couple from Godhra the question arose in three successive years, viz., 1972-72, 1973-74 and 1974-75. The Income-tax Appellate Tribunal upheld the contention of the assessee-couple that the provision in question was not attracted because they were partners in a firm carrying on "profession" and not partners in a firm "carrying on business". Thereupon three allied references have been made at the instance of the revenue. In I.T.R. Nos. 193/78 and 113/79 we are concerned with the case of the doctor husband who has succeeded in respect of assessments for the aforesaid three years. In I.T.R. No. 154/78 we are concerned with the doctor wife who has also succeeded before the Tribunal. All these three references will be disposed of by this common judgment. We will also dispose of two income-tax applications (I.T.A. Nos. 158/81 & 159/81) pertaining to another doctor-couple from Ahmedabed in respect of two successive years 1974-75 and 1975-76. These applications have been made by the Commissioner with a view to invoke the jurisdiction of this court under s. 256(2) in order to require the Appellate Tribunal to state the case and refer the question to us. A reference is sought by the Commissioner in the case of a doctor-couple from Bhuj (I.T.A. No. 167/81). If we negative the plea of the revenue that the Income-tax Tribunal was wrong in holding that the provisions concerned would not be attracted in the case of a husband and wife couple carrying on a "Profession" in partnership, these three applications must of necessity fail. That is why these three applications have been tagged on and being disposed of along with the aforesaid three references. These three Income-tax Applications will also be disposed of by this common judgment.

8. That is why it is of considerable importance to find out whether the intendment and purpose of the Legislature in introducing the new concept of a firm carrying on a "business" in the new Act in order to replace the existing concept of a mere firm in the corresponding provision of the old Act assumes importance. It assumes importance because the provision is a provision pertaining to the clubbing of the income of two partners by reason of the "relationship" between them. Ordinarily, the incomes of the partners in a firm would be assessed independently. There would be no question of clubbing (them) together. The provision for clubbing together was introduced in the old Act presumably in order to prevent evasion of tax. It is not difficult to visualise a husband forming a partnership with a wife so that the income would be distributed and both of them may escape the tax net altogether in the event of their incomes falling below the exempt line or at any rate would attract tax at a much lower rate having regard to the fact that the scheme of taxation is such that a higher rate of tax is applicable to income falling within a higher slab in the case of an assessee. An individual can form a partnership with his wife regardless of the fact that the wife may have no capacity to make any contribution in running the business. She may be an altogether illiterate wife, who does no more than engage herself in the domestic chores. And by and large such would be the case in the case of a large number of assessees in India having regard to the structure of the society as it has existed for a number of years. She would be only a nominal or a notional partner who has been made a partner only for the sake of escaping the rigour of tax liability. It must be realised that when an individual forms a partnership with a stranger, even if the stranger agrees to be a nominal partner, the person who enters into such arrangement runs a risk because the stranger may assert his right and may not agree to make over the amount falling to his hare to the real partner. There would be no such risk when a wife is introduced as a partner. That is conceivably the reason why s. 16(3)(a)(i) has introduced the clubbing provision. The situation, however, would be altogether different when a professional couple, say a doctor-couple, enters into a partnership. Each of the two can carry on his or her profession in his or her individual capacity. Each of them can also enter into a partnership with other members of the same profession. In that event, their professional income would be assessed separately and no question of clubbibg would arise. It must also be realised that a doctor-husaband cannot form a partnership with a wife who is not a doctor in order to carry on his profession. The rules of professional ethics would not permit this. It would be unethical to do so and he would run the risk of being debarred from practice. It would not also be recognised by law. But when both of them are qualified doctors and they join in partnership there is practically no risk of the partnership coming into existence being a nominal one. As mentioned earlier, in a business partnership, the husband may be an astute businessman and the wife may be no more than an illiterate housewife or a housewife who is not capable of carrying on an economic activity on her own. On her own, the wife may not be able to earn any income or make any contribution. Even so she can be introduced as a partner in a partnership firm in a business. It is here that the aspect regarding the difference in the situation in the context of a doctor-husband and a doctor-wife would require to be emphasized. A doctor-wife is capable of carrying on her own profession, say as a Gynaecologist and earn her own income. It would be unreasonable to make her pay tax at a higher rate merely because she carries on an activity in partnership with her doctor-husband. Again, so far as the businessman's wife is concerned, nobody would ever accept her as a partner and give her a share in the profits if she is herself not capable of carrying on a business and making any worthwhile contribution in the business activity. As against this, the doctor-wife of a doctor-husband can enter into partnership with any other doctor and carry on the professional activity. There would be no reluctance on the part of another doctor to take her in as a partner because she would be fully qualified and can share the work and contribute her talent in the profession in order to secure income for the firm. Thus, the raison d'etre for clubbing together the incomes of non-professionals does not exist in the case of professionals. It is this aspect which was presumably realised and that is why in the new Act a change was introduced by providing that the provision would be attracted only in the case of spouses carrying on business in partnership and not in the case of spouses who do not carry on business (but carry on profession) in partnership. And it is now worthwhile to reproduce an extract from the speech of the Finance Minister made on the floor of the House at the time of introducing the I.T. Bill of 1961. We will refer to that part of the speech which pertains to the clubbing provision under the old Act and the change sought to be introduced in this sphere by the new Act. The speech has been reproduced on page 33 of the Treatise on the Income-tax Act, 1961, by S. C. Manchanda, K. Srinivasan & B. Malik in Volume I of the 1st Edn. of 1962. The relevant extract from p. 37 may be quoted :

10. We are, therefore, of the opinion that when professional couples such as a doctor-husband and a doctor-wife or a lawyer-husband and a lawyer-wife or an architect-husband and a architect-wife form a partnership for the purpose of carrying on a professional activity which would fall within the scope of the interpretation in Dr. Devendra Surti's case, AIR 1969 SC 63, their income is not liable to be clubbed together under s. 64(1)(i). We would, however, add the following riders :

(1) If a doctor-husband and a doctor-wife are also carrying on the activity of a nursing home in the context of their professional activity for the purpose of treating their own patients, the income from the nursing home can be treated as the professional income of the professional couple and no question of clubbing together can arise.
(2) If any business activity is carried on by a firm constituted by the doctor-husband or doctor-wife such as of running a drug store for selling drugs to the patients or to others, the income from such activity can be clubbed together. Such income will not be exempt from being clubbed together merely because it is an activity which is adjunct to the main professional activity. Similarly, when a doctor-couple carries on the nursing home activity by admitting patients of other doctors and charging fees such as room fees or fees for services rendered to them, it may amount to a business activity carried on by the firm and that part of the income can be clubbed together.