INCOME-TAX OFFICER Vs. A R BALAKRISHNAN

JUDGEMENT

(1.) In this appeal by the revenue the short point for consideration is whether the remuneration received by the assessees wife Smt. Savitha Balakrishnan from Girinath Agencies (P.) Ltd, in which she is also a director holding 50 per cent share of the limited company is to be clubbed or not. During the previous year ending on 31-3-1979 which is the first year of the business, Smt. Savitha Balakrishnan was paid remuneration of Rs. 12,000 per annum, as director of the company which was clubbed by the ITO under section 64(1) (ii) of the Income-tax Act, 1961 (the Act). According to the ITO, the remuneration was paid not for professional or technical qualifications or knowledge and, therefore, the proviso to section 64(1) (ii) was not applicable. The clubbing was done in the hands of the assessee as he had higher income than his spouse. On appeal, the AAC was of the view that as proprietrix, she possessed technical knowledge and experience in the business consisting of building materials and, therefore, held that the ITO was no justified in clubbing the income. Consequently, he directed the exclusion of Rs. 12,000 clubbed by the ITO.

(2.) The learned representative for the assessee contended that Smt. Savitha Balakrishnan had experience in the business of building materials and, therefore, proviso to section 64(1) (ii) was applicable. He further contended that the amendment in Explanation 1 was made with effect from 1-4-1980 and, therefore, such amendment was not applicable for the assessment year 1979-80. In other words, he contended that the clubbing of remuneration of assessees spouse was not warranted by Explanation 1.

(3.) The learned departmental representative, on the other hand, justified the clubbing on the ground that the clubbing was always intended by law and the only remedy was in the proviso which could save such clubbing of income of spouse.