JUDGMENT
1. The following question has been referred for the opinion of this court by the Income-tax Appellate Tribunal for the assessment year 1976-77 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in accepting the assessee's claim for standard deduction under Section 16(i) in respect of his wife's salary income included in his total income by virtue of the provisions of Section 64(1)(ii) of the Income-tax Act, 1961 ?"
2. The facts are that the wife of the assessee received salary, being a director of the company, Ashok Udyog Private Limited of which the assessee was the managing director. The income of the assessee's wife was included in the hands of the assessee under Section 64(1)(ii) of the Income-tax Act, 1961, without allowing standard deduction. The question arose whether the net income after allowing standard deduction is to be included in the income of the assessee under Section 64(1)(ii) or the gross income.
3. Exactly the same controversy came up before the Karnataka High Court in CIT v. S.K. Nayak [1984] 145 ITR 791. There, the Karnataka High Court held as follows (page 792) ;
"It seems to us that this question should not detain us longer. If the wife herself had been the assessee, there would not have been any doubt as to her right to compute her net income. She is entitled to the standard deduction and other expenses. If that is so, we fail to see any good reason why gross income should be clubbed with the income of her husband under Section 64. It would be contrary to the scheme of the Act itself not to allow deductions before clubbing the income."
We are in agreement with the view taken by the Karnataka High Court.
4. Following the aforesaid decision of the Karnataka High Court, we answer the aforementioned question in the affirmative, that is, in favour of the assessee and against the Revenue.