Commissioner of Income Tax vs Navneet Priya Das

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (the ''Act''):

Whether there was sufficient material before the Tribunal on the basis of which it could legally hold that the proviso to Section 64(1)(ii) of the Act as added by the Taxation Laws (Amendment) Act, 1975, was applicable to the facts of this case and as such the salary paid to the assessee''s wife was not includible in his income under the provisions of said Section?

The present reference relates to assessment year 1978-79.

Briefly stated the facts giving rise to the present case are referred as follows:

Assessee is proprietor of Priya Picture Palace at Alinagar, Gorakhpur. Return of income for assessment year 1978-79 was filed on 29-5-1978 declaring an income of Rs. 21,020 besides agricultural income of Rs. 5,000. As per copies of Trading- cum-Profit and Loss account enclosed with the return, assessee had claimed payment of salary of Rs. 12,300 to his wife, Smt. Indu Agarwal. The assessment was originally made u/s 143(3) but it was set aside by the Appellate Assistant Commissioner, Gorakhpur vide his order dated 18-4-1981 and fresh order was passed u/s 144 on 31-3-1984 on total income of Rs. 55,880 which included salary payment of Rs. 12,300 also and which was disallowed for the same reasonings as in past years. The order u/s 144 was cancelled u/s 146 and a fresh order was passed u/s 143(3) on 30-3-1987. Salary payment of Rs. 12,300 to Smt. Indu Agarwal was disallowed as per following observations:

Salary to spouse:

The assessee has paid salary of Rs. 12,300 to his wife, Smt. Indu Agarwal. It was stated that she is Managing Officer and looks over all the affairs of the concern and administration operation of bank account, procure the firm and contact with her distributors, checking of accounts etc. The assessee alleges that all types of work has been allowed to her but when he was required to produce documents or evidence in support of his contention, he failed to furnish any evidence. In the past years too, such alleged salary was disallowed. Though the assessee succeeded on this issue in Tribunal but the matter is still pending before reference by the department. As such on the basis of discussion made in the order u/s 143(3), dated 28-3-1980 for the assessment year 1977-78, the salary is disallowed.

Assessee again went in appeal and the Appellate Assistant Commissioner Gorakhpur vide his order dated 16-4-1987 deleted the addition of Rs. 12,300 following his earlier order dated 20-7-1983 in appeal No. 68-A/82-83/GKP for assessment year 1977-78 in this case.

Thereafter, the matter was brought by the revenue before the Tribunal and its appeal was dismissed with the following observations:

After hearing both the parties and perusing record, it is seen that the appeal is required to be rejected on account of the base adopted by the Appellate Assistant Commissioner for deciding the issue against the revenue and more so on account of order dated 20-6-1986 of ''B'' Bench of the ITAT, Allahabad, Camp at Varanasi in ITA Nos. 238 & 239/Alld./1984, for the assessment years 1977-78 and 1980-81, in the assessee''s own case, whereby the said base is seen to have been confirmed. We do the same.

We have heard Shri A.N. Mahajan, learned Counsel for the revenue. It has been stated by Shri Mahajan that this court in ITR No. 120 of 1981 in the case of the same assessee in has held that the finding of appellate Tribunal that the1997 UP TC 363 wife of the assessee acquired professional knowledge and qualification is not a question of law as it is a question of fact and had subsequently returned the reference respectfully for aforesaid decision. We are also returning the question unanswered as it is basically a question of fact.