PUSHPA DEVI BHARALAWALA,CHOUDHURY BAZAR vs. ACIT,CIRCLE-2(1), CUTTACK, CUTTACK

The solitary issue involved in this appeal of assessee is that addition of Rs.10,80,000/- was made out of salary payment by the assessee to her spouse and father-in-law of Rs.6,00,000/- & Rs.4,80,000/-, respectively. While doing so, the AO observed that the assessee had failed to file the details of services rendered by them and invoked the provisions of Section 64(1)(ii) of the Act for making addition as undisclosed income of the salary paid to spouse. The salary paid to father-in-law is treated as bogus expenditure. Ld. CIT(A) though had accepted the genuineness of the payment made, however, for the sole reason that the assessee was failed to provide the details of nature of services rendered by filing the documentary evidence, has confirmed the disallowance so made.

Before us, ld. AR of the assessee contended that the assessee is engaged in the business of trading and installation of solar equipments by providing door to door service to the customers residing at remote places. The services of the spouse and father-in-law were obtained for this purpose. Besides this, the father-in-law of the assessee is also looking after the day-to-day business activities by attending the customers on regular basis. He further submits that both the recipients i.e. spouse of the assessee, namely, Shri Ratan Kumar Bharalawala and Shri Rameswarlal Bharalawala, who is the father-in-law of the assessee had filed their return of the income for the impugned assessment year wherein they have declared the salary income received by the assessee and the same has been accepted by the department without any doubts. Copies of the ITRs and computation of income were also placed in the file. He submitted that the husband of the assessee is science graduate and having vast experience in the field of installation of Solar Power Plants and therefore, falls under the provisio to Section 64(1)(ii) of the Act. Regarding salary to the father-in-law of the assessee, the AO has failed to point out as to why the same is unreasonable or excessive more particularly when the income declared by him is accepted and any addition of such income in the hands of assessee would tantamount to double taxation of an income. Accordingly, he prayed for deletion of the disallowance so made by the ld. AO and as confirmed by the ld.CIT(A).

4. Per Contra, ld. Sr. DR supported the orders of the lower authorities and stated that assessee’s husband does not possess any technical qualification, therefore, his salary paid by the assessee deserves to be disallowed. He further submitted that despite of repeated requests the assessee has failed to submit the evidences of the services rendered by both the persons. Therefore, ld. Sr. DR prayed that the disallowance made by the lower authorities needs to be upheld.

We have considered the rival submissions. From the record, it is seen that the payment made to the assessee’s husband and father-in-law have not been doubted as the ld. CIT(A) in para 6.3 of the order has also observed that there is no iota of doubt on payment made to them. Only issue remained about the qualification and experience of spouse and services rendered by both of them. From the perusal of the financial statements and also stated by the ld. AR that during the year under consideration salary of Rs.18,39,524/- was paid to total four persons. Out of them, two were the non-related parties and remaining amount of Rs.10,80,000/- was paid to assessee’s husband and father-in-law. It is also accepted fact that the assessee’s business is of providing solar equipments to the customers residing in remote places for which frequent visits and close supervision is a pre-condition for making these supplies to the satisfaction of the buyer. All these activities of pursuing and supervision on day-to-day basis is a necessary element and her husband was looking after all these activities. Spouse of the assessee, is a science graduate and having good experience of installation of Solar Power Plants. Further, the turnover declared by the assessee could not be achieved without the services rendered by spouse of assessee of frequent inspection and supervision. These services have not been denied by the lower authorities, who simply asked for the evidences which were available in the shape of the turnover achieved. However, the total salary claimed was of Rs.18,39,524/-, out of which the salary paid to the non-related parties i.e. for two employees was also not doubted. The wages paid to workers was also not denied. The proviso to Section 64(1)(ii) of the Act lays down two conditions and it is on satisfaction of both the conditions, the same can be applied. Both the conditions are cumulative and not alternative. First condition talks about the technical or professional qualifications. Here the word “Technical or professional qualification” does not mean the possession of any degree or diploma from recognized institute. It depends upon the nature of employment of spouse, based on which the degree or diploma can be insisted upon. In the present case as observed above, the spouse of assessee holds science degree of graduation and having good experience of installation of solar power plants as he was looking after the business of the assessee since inception. Thus, by virtue of experience his services can be termed as covered under the proviso to section 64(1)(ii) of the Act. In this regard, reliance is placed on the judgment of Hon’ble M.P. High Court CIT Vs. Smt. Madhubala Shrenik Kumar, reported in (1990) 181 ITR 180 (Madhya Pradesh High Court), wherein it is held as under :- 3. Now, the Tribunal, in the instant case, has found that the husband of the assessee had requisite experience as a salesman, that the firm in question was entirely dependent upon the salesmanship of the husband of the assessee as the firm had not employed any other salesman and that the amount of salary paid to the husband of the assessee by the firm was for his professional experience which was utilised by the firm in the conduct of the business of the firm. In view of these findings, the conditions requisite for the applicability of the proviso to cl. (ii) of s. 64(1) of the Act are satisfied and the income of the spouse of the assessee could not be clubbed with the income of the assessee. The words "technical or professional qualifications" occurring in the aforesaid proviso cannot be construed to mean obtaining a degree or diploma from a recognised body. In this connection, the following observations of the Andhra Pradesh High Court in Batta Kalyani vs. CIT (1985) 154 ITR 59 are pertinent: "We find considerable force in the submission of Learned Counsel for the assessee that the words 'technical or professional qualifications' occurring in the first part of the proviso, do not necessarily relate to the technical or professional qualifications acquired by obtaining a certificate, diploma or a degree or in any other form from a recognised body like university or an institute. That this was not the intention of the Legislature is clear from the use of the expression 'knowledge and experience' in the latter part of the proviso, as otherwise it would have been perfectly permissible for the Legislature to use the same expression as occurring in the first part. The harmonious construction of the two parts of the proviso, in our opinion, would be that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not possess any qualification issued by a recognised body. In our opinion, the Tribunal erred in coming to the conclusion that unless recognised body conferred a qualification, it should not be considered that a person possessed technical or professional qualifications. It is enough, in our opinion, for the purpose of the proviso, if the recipient of the salary possesses the attributes of technical or professional qualifications, in the sense that he has got expertise in such profession or technique. If, by the use of that expertise in the profession or technique, the person concerned earns salary, then the latter part of the proviso is also satisfied."

We respectfully agree with the aforesaid observations. In our opinion, therefore, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the remuneration paid to the husband of the assessee was not assessable in the hands of the assessee under s. 64 (1) (ii) of the Act.

Further reliance is placed on the decision rendered by the Hon’ble Kerala High Court in the case of CIT Vs. Sorabji Dorabji, reported in 168 ITR 598, wherein it is held as under :- 5. Having heard the rival contentions of the parties, we are of the view that the Tribunal was justified in holding that Mrs. Sorabji Dorabji has sufficient professional knowledge and experience entitling her to a salary of Rs. 700 per mensem as a director. She has been a director of the company from 1963 onwards. She should have acquired sufficient experience in the line. We do not think that the context in which the crucial words in the proviso to s. 64(1)(ii) occurs, namely, "Technical or professional qualifications "Or "Technical or professional knowledge or experience ", requires a degree or diploma of a university or other similar institution. The practical experience acquired by Mrs. Sorabji Dorabji by virtue of her being a director in the line for a sufficiently long number of years will be sufficient to hold that she has professional knowledge and experience in the line. In this context, we would usefully quote the observations of the Andhra Pradesh High Court in the decision in Batta Kalyani vs. CIT (1985) 154 ITR 59 , at p.

Delivering the judgment of the Bench, Anjaneyulu J. observed as follows : “We find considerable force in the submission of the Learned Counsel for the assessee that the words ‘technical or professional qualifications , occurring in the first part of the proviso do not necessarily relate to the technical or professional qualifications acquired by obtaining a certificate, diploma or a degree or in any other form from a recognised body like a university or an institute. That this was not the intention of the Legislature is clear from the use of the expression ‘knowledge and experience' in the latter part of the proviso, as otherwise it would have been perfectly permissible for the Legislature to use the same expression as occurring in the first part. The harmonious construction of the two parts of the proviso, in our opinion, would be that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not possess any qualification issued by a recognised body. In our opinion, the Tribunal erred in coming to the conclusion that unless a recognised body conferred a qualification, it should not be considered that a person possessed technical or professional qualifications. It is enough, in our opinion, for the purpose of the proviso, if the recipient of the salary possesses the attributes of technical or professional qualifications, in the sense that he has got expertise in such profession or technique. If by the use of that expertise in the profession or technique, the person concerned earns salary, then the latter part of the proviso is also satisfied. "

The question as to whether Smt. Soonoo Sorabji (Mrs. Sorabji Dorabji) had sufficient technical or professional knowledge and experience is ordinarily a question of fact. As the final fact-finding authority, the Tribunal has found that she has such technical or professional knowledge and experience. It has not been shown that the said finding is in any way irrational or unsustainable. In the circumstances, we answer the question referred to us in the affirmative, against the Revenue and in favour of the assessee.

In view of these facts and circumstances, we had no agitation to hold that the services had been rendered by both the persons in day-to- day business affairs of the assessee and the services rendered by spouse of assessee are fallen under the proviso to Section 64(1)(ii) of the Act, therefore, the salary paid to them deserves to be allowed. As a result, the disallowance made by the ld. AO and as confirmed by the ld. CIT(A) is hereby deleted.

In the result, appeal of the assessee is allowed. Order dictated and pronounced in the open court on 29/04/2024.