Income tax: Can your business income be clubbed with your husband’s? ITAT ruling offers relief to woman

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has ruled in favour of a woman whose timber-trading business was treated by tax authorities as a benami concern of a family-owned firm, holding that the department had failed to establish a connection between the two businesses.

In Meena Garg vs Deputy Commissioner of Income Tax, ITA Nos. 1165 to 1170/CHD/2013, the tribunal set aside the order of the Commissioner of Income Tax (Appeals), which had upheld the department’s decision to treat the income of Garg’s proprietorship, Punjab Timber Trading Company, as income belonging to Punjab Plywood Industries.

The ruling, pronounced on 26 February 2014, covered six assessment years from 2002-03 to 2007-08.

Why did the Income Tax Department question her business?

The dispute arose following a search conducted on the family group in March 2007. During the search, Garg told tax officials that she was a housewife, depended on her husband for household expenses and was not running any business. She also said she had no knowledge of Punjab Timber Trading Company or its books of accounts.

However, during subsequent assessment proceedings, Garg acknowledged that she had an independent timber-trading business. She said she had started it in 1997 after her husband suggested the idea, employed a worker and signed cheques presented by her husband, although she did not manage the business directly.

The assessing officer relied on her initial statement during the search to conclude that the proprietorship was merely operating in her name, while Punjab Plywood Industries was its actual owner. The officer consequently treated the business income as belonging to the family firm.