Decided on November 11,1982



V. Balasubramanian, Vice President - (1.) THE assessee-individual held 2020 shares out of 16,400 shares in a company Diamond Shamrock (I) Ltd. His wife held 282 shares in the same company, whereas his daughter and son held 2,898 and 3,000 shares, respectively. Both the wife and the husband thus had substantial interest in this company as defined in Section 64 of the Income-tax Act, 1961 ('the Act'). In another company Speciality Formulations (P.) Ltd., the assessee held 1,250 and his wife 3,735 out of the total 5,000 shares of the company. In this company also the assessee and his wife thus had substantial interest.
(2.) For the assessment year 1978-79 under appeal in working out the total income of the assessee, the ITO included the salary received by the assessee of Rs. 82,800 from Diamond Shamrock (1) Ltd. and, under Section 64(1)(ii) of the Act, two amounts of Rs. 33,000 each totalling up to Rs. 66,000 being the salary income of the assessee's wife in the two companies Diamond Shamrock (I) Ltd. and Speciality Formulations (P.) Ltd. The assessee's claim before the ITO that only the income of his spouse can be included in his total income and not his own income of Rs. 82,800 was rejected by the ITO. On appeal this alleged claim 'clubbing on reciprocal basis' was rejected by the Commissioner (Appeals) also. Hence the assessee's appeal before us.
(3.) THE learned counsel for the assessee has pointed out that undisputably both the assessee and his wife had substantial interest in the two limited companies. Under the provisions of Section 64(1)(ii) as it applied for the assessment year under appeal, i.e., prior to the amendment of the section by referring to clause (ii) in the Explanation 1 inserted with effect from 1-4-1980, only the income of the other spouse was assessable in an assessee's case. According to the learned counsel a direct application of the provisions of Section 64(1)(ii) to the assessee's case required that only the sum of Rs. 66,000 representing his wife's income from the two companies should be assessed in his hands, whereas his own income of Rs. 82,800 should be assessed in the hands of the wife. During the relevant assessment year Explanation 1 remained unamended to the extent of the reference made to Clause (ii) in that Explanation. THE income of any person, therefore, was only assessable in the hands of his or her spouse and not in his own hands. This type of assessment is referred to by the learned counsel as the reciprocal clubbing of the income of spouses. THE amendment with effect from 1-4-1980 of Explanation 1, only brought in for the first time, the question of clubbing the spouse's income in the hands of the person having the larger income and also the question of the department's exercising an option in this regard relevant to the assessment of consecutive years. THE department has followed the very same method in the preceding years and it was not proper for the department to go back on this method correctly followed by it from year to year. Thus, referring to the assessment year 1976-77, it is pointed out that in the assessment of the assessee's wife her own income of Rs. 57,000 salary assessed in the hands of the husband under Section 64(1)(ii) was not assessed whereas the salary of the husband of Rs. 76,200 was assessed. Likewise for the assessment year 1977-78 in the assessee's own assessment the salary received by him of Rs. 82,800 which was assessed in the hands of his wife under Section 64(1)(ii) was not included, whereas the wife's income of Rs. 72,000 was assessed in his hands. THE department, thus, according to the learned counsel, was following strictly the correct legal method of assessing one's spouse's income in the other's hands and vice versa. THEre was no reason to give up this method and include in the assessee's assessment for the year under appeal both his income and his wife's income. It is also pointed out that his income of Rs. 82,800 has already been assessed in his wife's hands. THEre was thus a clear double assessment for which there was no justification at all. THE doubly taxed amount of Rs. 82,800, therefore, it is claimed, should be deleted from the assessee's total income.;

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