Madhya Pradesh H.C : The income of the Wife was rightly clubbed in the hands of the appellant

Counsel Appeared

S.C. Goyal, for the Assessee : R.C. Mukati, for the Revenue

G.G. SOHANI, J.:

By this reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as ” the Act”), the 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 holding that the income of the Wife was rightly clubbed in the hands of the appellant ? “

The material facts giving rise to this reference, briefly, are as follows: The assessment year in question is 1979-80 for which the accounting period ended on Diwali, 1978. Till July 31, 1978, the assessee was a partner in a firm carrying on the business in the name and style of Jardar Banali. The said firm consisted of two partners. The other partner of the firm was one Salim Ali. After July 31, 1978, the wife of the assessee became a partner of the said firm. In framing the assessment of the assessee for the asst. yr. 1979-80, the ITO held that the provisions of s. 64(1)(i) of the Act were attracted and he, therefore, clubbed the income arising to the wife from the partnership firm with the income of the assessee. Aggrieved by the order of assessment, the assessee preferred an appeal which was dismissed. A second appeal preferred by the assessee before the Tribunal was also dismissed. Hence, at the instance of the assessee, the aforesaid question of law has been referred to this Court for its opinion.

The short question that arises for consideration in this case is whether the provisions of s. 64(1) (i) of the Act are attracted to the facts of the case. The material provisions of s. 64(1) of the Act are as follows : “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— (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.”

From a perusal of the aforesaid provision, it is clear that income arising to the spouse of an individual from membership in a firm is includible in the total income of that individual only when that individual is also a partner in the firm in which his spouse is a partner. In the instant case, it has been found that the assessee was a partner of the firm till July 31, 1978. The wife of the assessee became a partner of the firm after July 31, 1978, Therefore, the assessee was not a partner in the firm in which his wife had a share and hence her share of profits in the firm could not be included in the total income of the assessee. The provisions of s. 64(1)(i) of the Act were, therefore, not attracted. The reference to the provisions of s. 187 of the Act was not warranted in the circumstances of the case. That provision is attracted in dealing with the assessment of a firm, where, at the time of making an assessment, it is found that a change has occurred in the constitution of the firm. The provisions of s. 187 cannot be imported in considering the applicability of the provisions of s. 64(1)(i) of the Act. In our opinion, therefore, the Tribunal was not justified in holding that the income of the wife of the assessee from the firm was rightly included in the total income of the assessee.

For all these reasons, our answer to the question referred to this Court is in the negative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.

[Citation : 170 ITR 424]