Commissioner of Income Tax vs Datta V. Gaitonde

Ranjana Desai, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following question of law to this court for opinion, at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that even income from profession or salary earned on employment is assessable in the hands of the members of the communion in the ratio of 50 : 50, notwithstanding the fact that such income is attributable to personal exertion being earned by the individual and not the communion ?"

The assessee is a practising doctor at Mapusa. He is also a partner in Mapusa Polyclinic .He follows the accounting year ending on March 31. The assessee declared 50 per cent. of the income from salary/profession/house property, business and-other sources in the, individual return filed as the spouses were governed by the Portuguese Civil Code according to which husband and wife have equal interest in the assets and communion of property which comes into existence on the marriage unless there is an ante-nuptial contract to the contrary. The Assessing Officer assessed the income from salary and profession in the hands of the individual by holding that it is earned out of personal exertion. He rejected the assessee''s claim that these items of income have to be assessed in the hands of the husband and wife in the ratio of 50 : 50. On appeal, the Commissioner of Income Tax (Appeals) accepted the assessee''s claim holding that since the assessee is governed by the Portuguese Civil Code, the income from salary and profession also formed an integral part of the communion and has to be assessed in the hands of each of the spouses in the ratio of 50 : 50. The Tribunal following its own order in the assessee''s case confirmed the decision of the Commissioner of Income Tax (Appeals). It is against this background that the present reference is made to this court.

We have heard learned counsel for the parties. The controversy in this case now stands concluded by the amendment of the Income Tax Act, 1961, by the Finance Act, 1994, by insertion of Section 5A with retrospective effect from April 1, 1963. Section 5A provides that income from all sources, except from salary should be apportioned equally between the husband and the wife and such income shall not be assessed as income of the community of property (whether treated as an association of persons or body of individuals). Even the income from profession will be apportioned equally between the husband and the wife. The income so apportioned shall be included separately in the total income of the husband and of the wife. Salary and income will however continue to be assessed in the hands of the spouse, who has actually earned it. Section 5A reads thus :

"5A. Apportionment of income between spouses governed by Portuguese Civil Code.--(1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as ''COMMUNIAO DOS BENS'') in force in the State of Goa and in the Union Territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head ''Salaries''), shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.

(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head ''Salaries'', such income shall be included in the total income of the spouse who has actually earned it."

However, since in the present matter, the statement of the case is not clear as to whether the income in this case is income from profession or income from salary, the matter is remitted to the Tribunal to decide afresh in accordance with the provisions contained in Section 5A of the Income Tax Act, 1961.

The reference is disposed of accordingly with no order as to costs,