The Commissioner of Income Tax vs Smt. Mridul Agarwal

Sushil Harkauli and Sudhir Agarwal, JJ.—The following question has been referred for the opinion of this Court:

Whether on the facts and in the circumstances of the case the Hon''ble ITAT was correct in law in holding that only net income after deduction under Chapter VI-A and Section 80L in particular was incudible on account of Section 64(1A) of the I. T. Act, 1961?

From the side of the appellant department, reliance has been placed on the decision of a Division Bench of the Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-III Vs. P.N. Ramaswamy, . In that case, the Madras High Court has held that deductions would not be allowed u/s 80L to the wife of the assessee before the income of the wife was clubbed to be income of the assessee u/s 64(1)(iii). The reason given by the Madras High Court is that deductions u/s 80L are available only to an "assessee", and in the case being decided by the Madras High Court, the wife was not an ''assessee'' and only her husband was an ''assessee''.

On the same logic, the ITAT Delhi ''B'' Bench has taken a similar view in the case of Income Tax Officer v. Kuldeep Jain in ITA No. 100/Del/1995 decided on 2.1.2002. The said decision has been reported in (2004)89TTJ (Del) 276 : (2002)81 ITD 379 (Del).

As against the aforesaid argument from the department''s side, the assessee has relied upon the decision of a Division Bench of the Karnataka High Court in the case of Commissioner of Income Tax, Karnataka-I Vs. S.K. Nayak, . The short decision takes the view, upon examining only the question of standard deduction u/s 16(1) and holds that the ''income'' should be computed after allowing the ''standard deduction" u/s 16(1). Basically, the issue being examined by the Kamataka High Court was whether, for the purpose of clubbing, the ''income'' of the wife should be (a) the ''gross income'' or (b) the ''net income'' after allowing the expenses and standard deductions. The only logic given by the Karnataka High Court is that if the wife had been the assessee she would have been entitled to a standard deduction and according to the Karnataka High Court, there is no good reason why the standard deduction should not be allowed before clubbing of the income.

The Karnataka High Court was not examining Chapter VI A, and has therefore not taken into consideration that Section 80L allows the deductions only to ''assessees''. The minor children not being ''assessees'' are not entitled to the deduction u/s 80L.

We are in respectful agreement with the reasoning in the decision of the Madras High Court referred above.

Accordingly, we answer the question referred by holding that the Tribunal was not correct in holding that only net income, after deduction under Chapter VI-A and Section 80L in particular, was includible u/s 64(1A).

Reference is answered accordingly.