T N Pandey: When spouse's income can be clubbed

CHAT ROOM

Section 64 of the Income-Tax Act mentions the situations relating to clubbing of incomes in the spouse's hands. The circumstances, when clubbing can be done, are:

• Salary, commission, fees or any other remuneration received directly or indirectly whether in cash or in kind by a person from a concern in which his or her spouse has substantial interest, subject to certain exceptions, shall be clubbed in the hands of the spouse having substantial interest (Section 64(1)(ii)).
• An income received from an asset, which has been transferred directly or indirectly by the spouse without adequate consideration or without an agreement to live apart, shall be clubbed in the hands of the transferor subject to the provisions of Section 27(1) (Section 64(1) (iv)).
• In a case any asset is transferred to a person or association of persons for the immediate or deferred benefit of the spouse without adequate consideration then income arising from such assets shall be clubbed in the hands of the transferor to the extent it is for the immediate or deferred benefit of the spouse (Section 64(1) (vii)).

Provisions of Section 64 apply only to individuals. It does not cover the case of a "karta" of a Hindu undivided family (HUF) gifting co-property to his wife as held by the Supreme Court in the case of L Hirday Narain vs Income Tax Office, (1970) 78 ITR 26 (SC).

Amounts payable towards provident fund contributions have been paid by the company before the date of filing the return, as required under Section 43B, but the assessment officer proposes to disallow the payment on the ground that the same has not been paid before the due date for payment. Is the assessment officer correct?

To avail the benefit of deduction in respect of contributions to the provident fund, superannuation fund, gratuity fund or any other fund for the welfare of the employees, sums are not only required to be actually paid before the end of the relevant previous year but are also required to be paid within the time stipulated under the relevant statute, notification, standing order, awa-rd, contract or rules. The Rajasthan High Court's order in the Commissioner of Income Tax Vs Udaipur Distillery Co-mpany Ltd case, (2004) 187 CTR (Raj) 369, may be seen.

I am being assessed as an individual. In the building owned by me, where business is being carried on, two rooms have been added to meet the growing needs for space because of expansion of business.

But the local body has termed the construction unauthorised and not made according to the sanctioned plan. Not making the construction according to the authorised plan is an offense under the Municipal Corporation Act.

The corporation has charged Rs 25,000 as compounding fee to regularise the unauthorised construction. Is the sum so paid allowable as deduction in computing the taxable income from business?

No. It cannot be said that once the violation is compounded, no offense was committed or that the offense committed has been wiped off.

Explanation to Section 37(1) prohibits deduction of expenditure incurred by an assessee for any purpose, which is an offense, or which is prohibited by law. Compounding of the offense cannot take away the rigour of explanation to Section 37(1).

Whether sales tax collected in connection with higher purchase agreement constitutes business receipts?

Sales tax collected from hire-purchaser at the time of entering into a hire-purchase agreement is trading receipt chargeable to tax in the relevant assessment year unless the property in the goods passed to the hire-purchaser in the same financial year in which the amounts were collected.

In the case of hire purchase, the sale takes place only at the time mentioned in the hire-purchase agreement, or at the option of the hirer.

Assessee can claim a deduction when sale takes place (see the Chowringhee Sales Bureau (P) Ltd vs Commissioner of Income Tax case, 1973 CTR (SC) 44, and the Sinclair Murray & Company (P) Ltd vs Commissioner of Income Tax case, 1974 CTR (SC) 283.

My friend gave me a loan of Rs 50,000 by cheque. What he did was that he deposited cash of Rs 50,000 in his bank account and issued me a cheque for this amount on the same day.

The assessment officer has doubted the genuineness of the transaction and asked me to produce the lender in person, which I could not do, as my friend was in London and could not come to depose on the date fixed.

The assessment officer made enquires from the bank regarding the encashment of the cheque, which confirmed about the same. But in spite of this situation, the loan amount has been treated as my income. Is the assessment officer's action correct ?

No. Onus, which was on the assessee, prima facie, stands discharged. Merely because the lender could not be produced, the genuineness of the loan cannot be doubted.

Only ground for addition being that cash was deposited and cheque issued to assessee on the same day could create a suspicion but not proof (see the Commissioner of Income Tax vs Daulat Ram Rawatmall case, 1972 CTR (SC) 411, the Sreelekha Banerjee & Others vs Commissioner of Income Tax case, (1963) 49 ITR 112 (SC), the Commissioner of Income Tax vs Laxmi Trading Company case, (1979) 117 ITR 439 (Cal), and the Dhakeshwari Cotton Mills Ltd vs Commissioner of Income Tax case, (1954) 26 ITR 775 (SC).