K THOMAS VARGHESE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Cochin Bench, has referred the following question for decision of this Court under S.256(1) of the Income Tax Act.

(2.) The assessee and his wife are both doctors by profession and are partners of the firm by name M/s. K.T.C.M. Hospital. The firm is constituted of three partners with effect from 1-4-1959. The third partner is the assessee's father who is not a doctor by profession. The relevant Clause.1 to 13 of the partnership deed are extracted in the statement of the case forwarded to this Court by the Tribunal. We need advert only to the salient features of these clauses relating to the firm. The objects of the firm are for carrying on General Medical Practice including Surgery and for that purpose to run a medical dispensary and do all other activities conducive to the proper conduct of a pucca hospital. The assessee's father shown as first partner has invested capital for land, has contributed capital investments including land, buildings, equipments etc. The assessee and his wife being qualified doctors are to contribute their professional services for running the hospital. The assessee's father is in charge of the accounts and registers and other documents relating to the partnership. The firm is to be managed by the assessee and he will be in charge of all matters relating to the administration of the hospital. The assessee and his father are each entitled to 45 per cent of the net profits of the firm. The assessee's wife is entitled to the remaining 10 percent besides a fixed remuneration at the rate of Rs. 500/- per mensem.

(3.) The Income Tax Officer as per separate orders of assessment relating to the three assessment periods held that the firm is carrying on a business in which both the assessee and his wife are partners, and the income derived by the wife from the firm is to be aggregated with the income of the assessee under S.64(1)(i) of the Act. The Appellate Assistant Commissioner held that the firm is not one carrying on business and S.64(1)(i) cannot be applied to the facts of the case. In appeal at the instance of the Revenue, the Tribunal held that for the reason of joinder of the assessee's father as a partner of the firm, it cannot be said that the firm is one carrying on a profession. It would therefore fall under clause (i) of sub-s.(1) of S.64 of the Act as a firm carrying on business and the share of income due to the wife including the remuneration received by her is to be aggregated with the income of the assessee for the purpose of computing his total income under the Act.