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Income Clubbing and Spousal Employment under Section 64(1)(ii) ITA: An Indian Advocate Case Law

Facts of the Case:

Advocate Mr. Madhu operates a law firm where his wife, Mrs. Roja, is an employee and draws a salary of Rs. 25,000 per month. While calculating Mr. Madhu's total income for taxation purposes, the Assessing Officer (AO) clubbed the salary of Mrs. Roja with Mr. Madhu's income.


  1. Is the clubbing of Mrs. Roja's salary with Mr. Madhu's income justified under the Income Tax Act, 1961?

  2. What are the income tax implications if a spouse is employed by the other?

Rule of Law: Income Clubbing Section 64(1)(ii)

Section 64(1)(ii) of the Income Tax Act, 1961 governs the taxation implications of a salary earned by a spouse from a business controlled by the other spouse. The section stipulates that if an individual's spouse is employed in a business where the individual has a substantial interest, and salary is paid to the spouse, then such salary income is liable to for clubbing with the individual's income, unless the employment and remuneration are justified on the grounds of technical or professional knowledge or experience.

The significant condition here is the determination of 'substantial interest.' An individual is said to have a 'substantial interest' in a business if his/her capital contribution or voting power in the firm is not less than 20%.

Application of Law and Discussion:

In the present case, Mr. Madhu, as the owner of the law firm, has 'substantial interest,' and Mrs. Roja, his spouse, is employed in this firm and is drawing a salary.

Now, the critical point to consider is whether Mrs. Roja's employment and the salary paid to her are justified by her technical or professional knowledge or experience. If Mrs. Roja is professionally competent, such as being a law graduate or having relevant work experience or expertise that adds value to the firm, then her salary income should not be clubbed with Mr. Madhu's income as per the provisions of Section 64(1)(ii).

The Indian judiciary has, in several cases, upheld the non-clubbing of income where the spouse's employment is justified by their professional competence. For instance, in the case of "Smt. Kanta Goel vs. CIT" (1971), the spouse's professional qualifications justified her salary, and the income was not clubbed with her husband's income.


In light of the above analysis, the clubbing of Mrs. Roja's salary with Mr. Madhu's income by the Assessing Officer would be valid if her employment is not justifiable on the grounds of technical or professional competence. However, if Mrs. Roja possesses the requisite qualifications, knowledge, or experience that adds value to the law firm, the clubbing of her income with that of Mr. Madhu's is not warranted.

In either case, the income clubbing under section 64 provisions' application depends on several subjective aspects, such as Mrs. Roja's contribution to the firm and her professional qualifications. Therefore, it is essential for Mr. Madhu and Mrs. Roja to maintain substantial evidence to substantiate the genuine nature of her employment and her salary's reasonableness if they wish to challenge the Assessing Officer's decision.

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