YASHWANT CHHAJTA Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Since common questions of law and facts are involved in both these Appeals, the same were taken up together for hearing and are being disposed of by a common judgment. Essential facts necessary for the adjudication of these appeals are that the appellant-assessee (hereinafter referred to as the "assessee" for convenience sake) is engaged in the business of civil construction. He had claimed deduction on account of salary paid to his wife Smt. Nanda Chhajta at Rs. 1,20,000/- for the assessment year 2003-04 and at Rs. 1,44,000/- for the assessment year 2004-05. The assessee was provided an opportunity to show cause why provisions of section 61 (1) (ii) of the Income Tax Act, 1961 may not be invoked to disallow the salary paid to Smt. Nanda Chhajta during the course of assessment proceedings. The Assessee filed reply to the show cause notice. According to him, Smt. Nanda Chhajta is an Engineer by profession and looks after plans for execution of the work allotted to the assessee. She also helps in making administrative decisions. The Assessing Officer has disallowed the salary for the assessment years 2003-2004 and 2004-2005 vide order dated 7.11.2006. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Shimla against the order dated 11.7.2006. The Commissioner of Income Tax (Appeals) allowed the appeal on 5.10.2007. The Revenue preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh Bench 'A' Chandigarh against the order dated 5.10.2007. The Income Tax Appellate Tribunal Chandigarh Bench 'A' Chandigarh Bench allowed the appeal preferred by the Revenue on 11.7.2008. Hence, these two appeals against the common order dated 11.7.2008 passed by the Tax Appellate Tribunal, Chandigarh Bench in ITA No. 1052 of 2007 and 1053 of 2007 for the assessment years 2003-2004 and 2004-2005.

(2.) The assessee's wife is holding degree of Electronics Telecommunication. The assessee is engaged in the business of civil construction. The assessee has not placed tangible evidence on record to establish that Smt. Nanda Chhajta is actually involved in the business of her husband. He has also not placed on record any material to substantiate in what manner his wife is looking after the plans for execution of the work and taking administrative decisions. He has not even filed any affidavit. It was for the assessee to establish that income earned by his wife falls within the ambit of proviso to section 61 (1) (ii) of the Income Tax Act, 1961. Section 61 (1) (ii) reads thus:

(3.) The learned Single Judge of the Karnataka High Court in Commissioner of Income Tax, Karnataka versus D. Rajagopal, 1985 154 ITR 375 had the occasion to consider section 64 (1) (ii) of the Income Tax Act, 1961. According to the learned Single Judge, the proviso to clause (ii) of section 61 (1) of the Act is an exception to the clause and must be strictly construed. The proviso contemplates two conditions: