Gauhati H.C : the salary income of the spouse of the assessee from the firm in which the assessee has substantial interest is not includible in the assessment of the assessee under s. 64(1)(ii)

High Court Of Gauhati

CIT vs. Smt. Pratima Saha & Anr.

Sections 27, 64(1)(iii) proviso

Asst. Year 1986-87, 1987-88, 1988-89

N.C. Jain & P.G. Agarwal, JJ.

IT Ref. Nos. 8 & 9 of 1996 and 2 & 7 of 1997

14th May, 1999

Counsel Appeared

U. Bhuyan, for the Revenue : R. Gegoi, R.K. Joshi & Mrs. U. Chakraborty, for the assessee

JUDGMENT

N.C. Jain, J.:

This judgment of ours would dispose of IT Ref. Nos. 8 of 1996, 9 of 1996, 2 of 1997 and 7 of 1997. Counsel for the parties are agreed that the facts of the case be picked up from IT Ref. No. 8 of 1996 (CIT vs. Smt. Pratima Saha). In the said IT Ref. No. 8 of 1996 the following questions have been referred :

Asst. yr. 1987-88

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in theassessment of the spouse under s. 64(1)(ii) of the Act?

Whether, on the facts and in the circumstances of the case, and on a correct interpretation of s. 27 of the IT Act, 1961, the assessee could be deemed to be the owner of the house property which was transferred by her spouse to her ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that bank interest is assessable in the hands of the assessee?

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 IT Ref. No. 9 of 1996 (CIT vs. Smt. Pratima Saha), the assessing authority assessed the assessee for the asst. yrs. 1986-87 and 1988-89 and the following questions have been referred by the Tribunal :

Asst. yr. 1986-87

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in directing the AO to assess the income of Rs. 44,870 disclosed by the assessee on regular basis as against on protective basis done by the AO ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in theassessment of the spouse under s. 64(1)(ii) of the Act?” Asst. yr. 1988-89 “1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the salary income of the assessee from the firm in which her spouse has substantial interest is not includible in the assessment of the spouse under s. 64(1)(ii) of the Act?

Whether, on the facts and in the circumstances of the case and on a correct interpretation of s. 27 of the IT Act, 1961, the assessee could be deemed to be the owner of the house property which was transferred by her spouse to her ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that bank interest is assessable in the hands of the assessee?”

In the aforesaid reference it is clear that the assessing authority decided the case of the assessee pertaining to two assessment years, i.e., 1986-87 and 1988-89.

In IT Ref. No. 2 of 1997 (CIT vs. Dr. M.L. Saha), the husband of Pratima Saha who was the assessee in the aforesaid two references is the assessee and the following questions have been referred to us : Asst. yr. 1986-87 :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the AO to exclude the income of Rs. 44,878 disclosed by his spouse from the assessment of the assessee ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the salary income of the spouse of the assessee from the firm in which the assessee has substantial interest is not includible in the assessment of the assessee under s. 64(1)(ii) of the Act ?”

In IT Ref. No. 7 of 1997 (CIT vs. Dr. M.L. Saha), again the husband of Smt. Pratima Saha who is the assessee in IT Ref. Nos. 8 of 1996 and 9 of 1996, is the assessee and thefollowing questions pertaining to the asst. yr. 1987-88 have been referred to us : Asst. yr. 1987-88

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the salary income of the spouse of the assessee from the firm in which the assessee has substantial interest is not includible in the assessment of the assessee under s. 64(1)(ii) of the Act?

Whether, on the facts and in the circumstances of the case, and on a correct interpretation of s. 27 of the IT Act, 1961, the assessee could not be deemed to be the owner of the house property which was transferred by him to his spouse?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the bank interest is not assessable in the hands of the assessee ?

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 question of law referred to us by the Tribunal the facts of the IT Ref. 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 who has been paid the salary by the firm for rendering service by her as nurse-cum-supervisor. Admittedly, the assessee did not furnish any certificate evidencing that she has undergone any training in any institution. However, she was having a degree of B.Sc. in Bio Science. She was admittedly receiving salary right from the asst. yr. 1983-84. The basic question which arose for determination before the AO, the appellate authority and the Tribunal was whether the salary and remuneration paid to the assessee is to be clubbed in the hands of Dr. M.L. Saha in the light of the provisions of s. 64(1)(ii) of the IT Act, 1961 (for short, “The Act”). The AO held that the income declared by the assessee deserved to be clubbed with the income of her husband. On appeal the CIT(A) reversed the order of the AO. The order of the appellate authority was confirmed by the Tribunal.

In order to determine the question of law whether the salary and remuneration received by the assessee is to be clubbed in the hands of Dr. M.L. Saha as required by s. 64(1)(ii) of the Act and whether the benefit of the proviso is available to the assessee to avoid clubbing of income and further whether the income of the assessee is to be assessed in her hands as a protective or substantive measures, it is necessary to have a look at the bare provision of s. 64 of the Act. We extract the relevant provision which reads as under : “64. Income of individual to include income of spouse, minor child etc.—(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 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…..”

5. Counsel for the Revenue has strenuously argued that the salary and remuneration paid to the wife from the firm should be included in the income of 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” in the second part of the proviso. There cannot be any scope for mixing up two parts of the proviso, according to counsel. In support of the submissions, counsel has placed reliance upon two decisions, one of the Bombay High Court in Dr. J.M. Mokashi vs. CIT (1993) 115 CTR (Bom) 73 : (1994) 207 ITR 252 (Bom) : TC 42R.700 and the other of the Karnataka High Court in the case of CIT vs. D. Rajagopala (1984) 41 CTR (Kar) 5 : (1985) 154 ITR 375 (Kar) : TC 42R.710. Counsel for the assessee, Mr. Ranjan Gogoi, while arguing the case with equal vehemence has submitted that the legislature has not confined the expressions “technical or professional qualifications” and “technical or professional knowledge and experience” as appearing in the proviso to any degree or diploma obtained from a university. According to Mr. Gogoi, the words degree or diploma being absent from the statute, the same cannot be inserted and in case this Court is to follow the view of the Bombay and Karnataka High Courts, it would amount to introducing the two words of degree or diploma in the proviso which should not be done. Mr. Gogoi has further argued that even the Bombay High Court in Dr. Mokashi’s case (supra) at p. 264 has observed that technical and professional qualification would depend on the facts of each case. Counsel has further argued that the Bombay High Court has wrongly disagreed with the view of the Andhra Pradesh High Court in Batta Kalyani vs. CIT (1985) 46 CTR (AP) 45 : (1985) 154 ITR 59 (AP) : TC 42R.696 the Madhya Pradesh in CIT vs. Madhubala Shrenik Kumar (1989) 79 CTR (MP) 136 : (1990) 181 ITR 180 (MP) : TC 42R.699 and the Kerala High Court in CIT vs. Sorabji Dorabji (1987) 65 CTR (Ker) 260 : (1987) 168 ITR 598 (Ker) : TC 42R.713 on the point that the second part of the proviso cannot be used to interpret the first part and with this proposition of law this Court is not concerned in the present case. It has further been argued that even the Bombay High Court has nowhere laid down that in order to avoid the clubbing, the assessee must possess a degree or diploma and this is not the requirement of law either. Mr. Gogoi has drawn pointed attention of the Court to an intendedamendment by the legislature of the existing proviso to s. 64 (1)(ii) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, reported in (1988) 169 ITR (St) 89, at p. 102 which reads as below : “Provided that nothing in this clause shall apply in relation to pay such income arising to the spouse from a firm carrying on any such profession as is referred to in sub-s. (1) of s. 44AA, where the spouse possesses any technical or professional qualification in the nature of a degree or diploma of a university within the meaning of cl. (c) of the Explanation below sub-s. (2B) of s. 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 (supra), Madhubala Shrenik Kumar’s case (supra) and Sorabji Dorabji’s case (supra). Before adverting to the arguments of cousnel for the parties and interpreting the bare provisions of s. 64(1)(ii) and the proviso we propose to discuss the case law cited at the Bar. In Dr. J.M. Mokashi’s case (supra), 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 of Rs. 8,100 by her husband. The amount paid was included in the income of the husband-assessee by the ITO by the AAC as well as by the Tribunal. The Bombay High Court while interpreting the provisions of s. 64(1)(ii) and the proviso held that in order to claim the benefit of the proviso to avoid clubbing of income both the conditions specified in the proviso have to be satisfied. It was observed that the first condition relates to the spouse of the individual who must possess technical or professional qualifications and in case the said condition was not satisfied that proviso would not apply and in that situation reference to the second requirement would not be necessary. It was on satisfaction of the first condition that it would be necessary to refer to the second condition which pertains to the income that would not be clubbed. Even in the case of a spouse possessing technical or professional qualification, it was held that only that much income arising to such spouse which is solely attributable to the application of his or her technical or professional knowledge and experience will be out of the purview of s. 64(1)(ii) and not the whole of the income of such spouse. The following observations of the Bombay High Court can be reproduced with advantage (headnote) : “In order to claim the benefit of the proviso to avoid clubbing of income under s. 64(1)(ii) of the Act, both the conditions specified in the proviso must be satisfied. The first condition relates to the spouse of the individual who must possess “technical or professional qualifications’.If this condition is not satisfied, the proviso will not apply and reference to the second requirement will be unnecessary. If the first condition in regard to the qualification of the spouse is satisfied, it will be necessary to refer to the second condition which pertains to the income that will not be clubbed. Even in the case of a spouse possessing technical or professional qualification, only the income arising to such spouse which is solely attributable to the application of his or her technical or professional knowledge and experience will be out of the purview of s. 64(1)(ii) and not the whole of the income of such spouse. It is in this context that the words ‘technical or professional knowledge and experience’ have been used in the latter part of 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 s. 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 s. 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 s. 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 carrying on the particular profession. A spouse, well-versed in law and experienced in theworking of the legal profession, cannot be said to be in possession of professional qualification for carrying on the legal profession if he or she does not possess the requisite degree or diploma. Payments made to a spouse in such a case for any legal services cannot be brought within the purview of the proviso to s. 64(1)(ii) by reference to the words ‘knowledge and experience’ occurring in the latter part thereof. Therefore, the possession of technical or professional qualification is a condition precedent on fulfilment of which that part of the income which falls in the second part of the proviso is excluded from the operation of the clubbing provision. The two conditions mentioned by the proviso are cumulative and not alternative. They deal with two different aspects-one pertains to the eligibility of the spouse to claim benefit of the proviso, the other to the income which would qualify for exclusion from clubbing. Both are relevant and equally important. There is no scope for mixing up the two and diluting the first condition relating to qualification of the spouse by reference to the expression ‘knowledge and experience’ in the second condition. Any attempt to do so will go counter to the clear language, scheme and object of the proviso and the well-accepted rule of interpretation that one part of a section or clause should not be construed in such a manner as to render the other part redundant. There is no conflict between the two requirements of the proviso.” The Bombay High Court after laying down the law as reproduced above upheld the decision of the Tribunal by holding that the salary paid by Dr. Mokashi to his wife had to be included in his total income.

10. The Karnataka High Court in D. Rajagopala’s case (supra) assessed the salary of the husband in the hands of his wife who was a partner of the firm where her husband worked as managing director having only graduation as the qualification. The following observations were made by the Court : “The proviso is an exception to cl. (ii). It must, therefore, be strictly construed. The proviso contemplates two conditions : (1) the spouse must possess technical or professional qualification; and (2) the income derived by him or her must be attributable to the application of such technical or professional 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 s. 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 of his spouse.” It may be recalled that the view taken in the aforesaid judgment by the Karnataka High Court found favour with the Bombay High Court in Dr. Mokashi’s case (supra).

11. Coming to the case law cited by counsel for the assessee, the Andhra Pradesh High Court in Batta Kalyani’s case (supra) has held that the words “technical or professional qualifications” occurring in the first part of the proviso to s. 64(1)(ii) of the Act do not necessarily relate to technical or professional qualifications acquired by obtaining a certificate, diploma or degree or in any other form from a recognised body like university or an institute. It was further held that the intention of the legislature was clear from the use of the expression “knowledge and experience” in the latter part of the proviso, as otherwise it would have been permissible for the legislature to use the same expression as occurring in the first part of the proviso to s. 64(1)(ii) of the Act. The Andhra Pradesh High Court was of the view that a harmonious construction of the two parts of the proviso shows 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 be possessing any qualification from a recognised body. The aforementioned proposition was laid down while dealing with the case of an assessee who was running a hardware and paint shop and employed her husband to manage the business and paid him the salary. The ITO included the salary of the husband in the total income of the assessee by holding that he did not possess any technical or professional qualification and the income derived by him was not solely attributable to the application of the technical or professional knowledge and experience. In other words, the ITO held the proviso not to be applicable. The appellate authority allowed the assessee’s appeal and held that the sum paid by way of salary was governed by the proviso to s. 64(1)(ii) of the Act and, therefore, the salary paid to the husband of the assessee was not liable to be included in her total income. On appeal, the Tribunal agreed with the Revenue on the ground 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. 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.

12. In CIT vs. Sorabji Dorabji (supra), the Division Bench of the Kerala High Court while upholding the view which helps the assessee in the present case has observed as follows (headnote) : “The context in which the crucial words ‘technical or professional qualifications’ or ‘technical or professional knowledge or experience’ occur in the proviso to s. 64(1)(ii) of the IT 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 ‘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. A harmonious construction of the two parts of the proviso implies that if a person possesses technical or professional knowledge and that 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.” The aforementioned proposition of law was laid down by the Kerala High Court in the case of an assessee who paid salary to his wife and the salary so paid was included in the income of the husband-assessee by the ITO as he had substantial interest in the company where his wife worked as a director. The ITO held that the wife did not possess any technical or professional qualification. In appeal, the AAC held that the assessee’s wife had been a director of the company from the very inception and that she was actively engaged in the business of the company and, therefore, acquired professional skill and qualification by virtue of her long experience as a director of the company and in such circumstances the salary paid to her was attributable to the application of her professional knowledge and experience. The appeal of the Revenue failed before the Tribunal which concurred with the view of the appellate authority. The High Court while agreeing with the view of the Tribunal decided the question referred to it against the Revenue and in favour of the assessee by making the observations which have been reproduced above.

13. The Madhya Pradesh High Court in CIT vs. Madhubala Shrenik Kumar (supra) has taken a somewhat similar view as has been taken by the Kerala High Court by making the following observations (headnote) : “The words “technical or professional qualifications’ occurring in the first part of the proviso to s. 64 (1)(ii) of the IT Act, 1961, 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 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 proviso to cl. (ii) of s. 64 (1) of the Act were satisfied and the remuneration paid to S, the husband of the assessee could not be clubbed with her income.” Before we proceed to discuss the application of the case law noticed above, it is necessary to interpret the bare provisions of the statute extracted earlier. Sec. 64(1)(ii) deals with computation of total income of any individual (assessee). In other words, it provides for clubbing with income of an individual, the income earned by the spouse of such individual by way of salary, commission, fees or any other form of remuneration from a concern in which such an individual has substantial interest. However, the clubbing of the income of the spouse with an individual could be avoided if the conditions laid down in the proviso are satisfied. The proviso on its bare reading lays down that nothing contained in the aforementioned clause shall apply in relation to any income which has arisen to the spouse where he or she possesses technical or professional qualifications and the income is solely attributable to the condition of his or her technical or professional knowledge and experience. In other words, if a spouse possesses technical or professional qualifications and the income earned by him or her is solely attributable to the application of his or her technical or professional knowledge and experience, such income which is solely attributable would not be clubbed with the income of an individual (assessee). The proviso can be bifurcated into two and both the conditions must co-exist in order to attract its applicability. The spouse must possess technical or professional qualifications. If this condition is not satisfied, the Court of law does not have to go to the second condition and must allow the clubbing of the income as laid down in s. 64(1)(ii). However, if the first condition, i.e. possession of technical or professional qualification is satisfied, the Court of law would further examine whether the income earned by such a spouse is solely attributable to the application of his or her technical or professional knowledge and experience or not. While seeing the application of the second part of the proviso, the Court of law can only avoid the clubbing of that much of income which is solely attributable to the application of his or her technical or professional knowledge and experience. 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 under go 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 or her acquiring a skill while remaining with individual, she can perform the job of a surgeon. In such a case possession of degree is essential. Take another case of a mechanical or electrical engineer. If a spouse is appointed as mechanical or electrical engineer, the possession of technical or professional qualification in the shape of a degree or diploma would be essential and one cannot successfully contend that such a skill has been acquired by virtue of long experience or knowledge. A person may be having sufficient knowledge of law but until and unless he possesses law degree he cannot be appointed by any individual to deal with cases. However, no degree or diploma may be needed in certain ordinary business of general merchandise business or grocery shop.

If the case law is examined in the light of the aforementioned observations made by us, it would appear that there is hardly any conflict in the judicial pronouncements cited by counsel for the parties during the course of arguments. The view of the Bombay High Court in Dr. J.M. Mokashi’s case (supra), on the facts cannot be faulted, inasmuch as, the spouse of the assessee had only passed first year Arts and surely the income arising to her as a receptionist-cumaccountant could not be said to be solely attributable to the application of her technical or professional knowledge and experience. She could also not be said to be possessing any technical or professional qualifications. The Bombay High Court has nowhere laid down that possession of a degree or diploma from a recognised institution was mandatory. Similarly, the Karnataka High Court also did not lay down that in order to attract the applicability of the proviso, the spouse must possess a degree or diploma. On the facts it was found that the assessee was only a graduate and did not possess any professional qualification for working as managing director of the company where his wife was working as a partner and, therefore, his income was assessed in the hands of his wife. We are in respectful agreement with the view taken by the Bombay and Karnataka High Courts. At this stage it has again become necessary to advert to the case law cited by Mr. Gogoi. But before doing so we straightaway agree with him that the words “degree, certificate or diploma” do not figure in the proviso and further that the intended amendment by the legislature 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(supra), it has already been seen by us that while it was firmly held in that judgment that possession of a degree or diploma was not essential in order at attract the applicability of the proviso, the case was ultimately decided in favour of the Revenue on its own facts by holding that the High Court was not satisfied that the second part of the proviso stood complied with.

Having given our deep thought to the entire case law cited by Mr. Gogoi, learned counsel for the assessee, we are of the firm view that neither the Andhra Pradesh High Court nor the Madhya Pradesh High Court, or the Kerala High Court has held that the Court cannot insist on the production of certificate, degree or diploma even if the nature of employment of the spouse is of a highly technical nature. All the three High Courts were dealing with the cases in their hands on peculiar facts and while doing so it was held that possession of a degree, diploma or certificate from a recognised body was not essential in order to attract the applicability of the proviso. We hasten to add at this stage that if any such proposition of law has been laid down by the said High Courts that whatever be the nature of employment, the possession of a degree, diploma or certificate would stand dispensed with in all cases, we with great respect, are disinclined to take such an extreme view. We are of the firm opinion that in order to attract the applicability of the proviso, the possession of technical or professional qualification by the spouse of the individual is necessary. This first condition relates to the spouse of the individual and if this condition is not satisfied, one need not go to the second requirement. Whether such technical or professional qualification need be provided or exhibited by possession of a degree or diploma or certificate from a recognised university would depend upon the facts of each case. In other words, for determining this question the nature of the employment of the spouse will have to be seen. If the first condition is satisfied, the Court would go to the second condition and determine whether in a particular given case the income earned by the spouse can be said to be solely attributable to the application of his or her technical or professional knowledge and experience. It is only when the second condition is satisfied, the proviso would stand attracted. This, in our view, 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 s. 64(1)(ii) and its proviso the following propositions can be summed up: (i) Sec. 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 mentioned above is not satisfied, reference to the second condition would not be necessary; (v) it is only after satisfaction of the first condition about possession of technical or professional qualification that the spouse becomes entitled to claim benefit of such income which is solely attributable to the application of his or her technical or professional knowledge and experience; (vi) the words “technical or professional qualifications” do not necessarily mean the possession of any certificate, degree or diploma from a recognised institution. However, in view of the nature of employment of the spouse a degree, certificate or diploma in some cases may be insisted upon; (vii) the spouse becomes eligible to claim benefits only if he or she possesses technical or professional qualification and not otherwise.

21. In the light of the aforementioned propositions, let us examine the present case. The assessee is a Bachelor of Science (Bio-Science). She has admittedly not produced any certificate of degree or diploma from any recognised institute where knowledge of nursing is imparted. Sec. 11 and the Schedule of (The Indian) Nursing Council Act, 1947, provides that professional nursing qualification is a must for acting as a nurse. In view thereof, the assessee cannot be termed as a nurse as she did not possess the professional and basic qualification of a nurse. As the assessee has failed to satisfy the first condition to claim benefit, the income claimed by her as salary as nurse- cumsupervisor is required to be added to the income of her husband. We therefore, hold that the salary income of the assessee Pratima Saha is includible in the assessment of the spouse under s. 64(1) (ii) of the Act. Question No. 1 of IT Ref. No. 8 of 1996 is answered against the assessee and in favour of the Revenue.

22. Now coming to question No. 2. It was submitted during the course of arguments that its decision would depend upon the question whether the assessee, Smt. Pratima Saha could be deemed to be the owner of the house property which was transferred to her by her spouse. The land in question is situated at Salt Lake in Calcutta. The husband of the assessee took the said land on a 99-year lease from the Government of West Bengal in the year 1977 and in the year 1983 he transferred the said land to his wife. The assessee thereafter made construction 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 s. 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 CIT(A) 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. Question 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 affirmative. As a consequence of the decision taken by us in IT Ref. No. 8 of 1996, question No. 2 in IT Ref. No. 9 of 1996 pertaining to the asst. yr. 1986-87 is answered against the assessee and in favour of the Revenue. As regards question No. 1 in the said reference pertaining to the asst. yr. 1986-87, counsel for the parties agreed during the course of hearing that the same did not arise out the order of the Tribunal. Adverting to the asst. yr. 1988-89 in IT Ref. No. 9 of 1996, question No. 1 is answered on the same lines as question No. 1 of IT Ref. No. 8 of 1996. The answer to question No. 2 would also be the same as for question No. 2 in IT Ref. No. 8 of 1996. Similarly, the answer to question No. 3 would also be same as in IT Ref. No. 8 of 1996. At this stage IT Ref. No. 2 of 1997 needs to be adverted to. Question No. 1 did not arise as was conceded by counsel for the parties during the course of arguments. As regards question No. 2, it is held in the light of our decision to question No. 1 in IT Ref. No. 8 of 1996, that the salary income of the wife is includible in the assessment of the husband-assessee under s. 64(1)(ii) of the Act and, therefore, it stands answered against the assessee and in favour of the Revenue. As regards the decision of IT Ref. No. 7 of 1997 is concerned, all these four questions would stand answered as per the decision in IT Ref. No. 8 of 1996. In other words, the decision in question No. 1 would stand answered against the assessee and in favour of the Revenue Nos. 2,3 and 4 would stand answered in favour of the assessee and against the Revenue.

[Citation : 239 ITR 570]

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