Sec.64(1)(i) of the Income-tax Act, 1961, can be invoked only when the income arises to the spouse of the individual member in a firm carrying on business in which such individual is also a partner.

1. This order will dispose of Income-tax Reference No.91 of 1977 relating to the assessment year 1972-73 and Income-tax Reference No.17 of 1978, relating to the assessment year 1973-74, in which the question referred to this court at the instance of the revenue is the same as in the earlier reference. The question referred in Income-tax Reference No.91 of 1977 is as under : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share income of the assessees wife from the firm, M/s. Vinod Trading Co. , could not be clubbed with his income under Sec.64 (1) (i) of the Income-tax Act, 1961?"

2. Briefly stated the facts are that Shri Anand Sarup was assessed in the status of an individual prior to the assessment year 1970-71. The assessee was a partner in the firm, M/s. Vinod Trading Co. , Ludhiana. During the assessment year 1970-71, the assessee, vide declaration dated 10th September, 1969, had impressed all his capital in the aforesaid firm together with all rights, title and interest in the aforesaid firm, with the character of a HUF, consisting of his wife and five sons. Thus, he ceased to be the partner of M/s. Vinod Trading Go. from the assessment year 1970-71, He simply represented the HUF in the firm from that year onwards. In respect of the share in the firm, M/s. Vinod Trading Co. , the ITO took the status of the assessee as that of an individual and in view of Sec.64 (1) (i), he clubbed the share income of the assessee and of his wife in the formers hands. When the matter was challenged before the AAC by the assessee, the AAC accepted his plea that he represented the HUF in the said firm and, accordingly, ordered the deletion of the share income which was assessed in the hands of the assessee. The AAC accepted the status of the HUF in that respect but on the question of clubbing the income of the assessees wife in the hands of the assessee, he took the view that that was rightly clubbed under Sec.64 in his hands. However, on second appeal by the assessee before the Appellate Tribunal, the assessees contention was accepted and the Tribunal found as under : "the limited question for consideration is whether or not Sec.64 has been rightly invoked by the lower authorities, as respects the income which accrued to the assessees wife from the firm, M/s. Vinod Trading Co. Clause (i) of Sec.64, Sub-section (1), can be invoked only when the income arises to the spouse of the individual member in a firm carrying on business in which such individual is also a partner. The contention of the assessee is that he is not a partner, of the firm, M/s. Vinod Trading Co. , and, therefore, any income accruing to his wife from the said firm cannot be assessed in his hands. We agree with the contention of the assessee. It is clear from Clause (i) of Sec.64, Sub-section (1), that both the indivi dual as well as the spouse, whose income is to be clubbed with the indivi- duals income, should be the partners of the firm. The assessee ceased to be the partner of M/s. Vinod Trading Co. after he impressed his entire capital and other interest in the said firm with the character of HUF during the assessment year 1970-71. This fact has been accepted by the AAC, inasmuch as he deleted the share income which was considered to be the income of the assessee by the Income-tax Officer. In respect of the share income which was included in the hands of the assesssee, the Appel late Assistant Commissioner held that that belonged to the HUF and not to the assessee. , This finding clearly shows that the assessee ceased to be the partner in his individual capacity. He is only representiug the HUF in the firm, M/s. Vinod Trading Co. , at present. In these circumstances, the income accruing to assessees wife from the said firm cannot be assessed in the hands of the assessee, because he is not a partner the firm, M/s. Vinod Trading Co. We, therefore, think that Sec.64, (sic) Secction (1), Claus