Normally, a person is taxed in respect of income earned by him only. However, in certain special cases income of other person is included (i.e. clubbed) in the taxable income of the taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as well as income of other person too. The situation in which income of other person is included in the income of the taxpayer is called as clubbing of income. E.g., (1) Income of minor child is clubbed with the income of his/her parent (2) Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband. Section 60 to 64 gives various provisions relating to clubbing of income.
SEC.
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NATURE OF TRANSACTION
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CLUBBED IN THE
HANDS OF |
CONDITIONS/
EXCEPTIONS
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RELEVANT REFERENCE
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60
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Transfer of Income without transfer of Assets.
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Transferor who transfers the income.
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Irrespective of:
1. Whether such transfer is revocable or not. 2. Whether the transfer is effected before or after the commencement of IT Act. |
1. Income for the purpose of Section 64 includes losses. [P. Doriswamy Chetty 183 ITR 559 (SC)] [also see Expl. (2) to Section 64]
2. Section 60 does not apply
if corpus itself is transferred. [Grandhi Narayana Rao 173 ITR 593 (AP)] |
61
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Revocable transfer of Assets.
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Transferor who transfers the Assets.
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Clubbing not applicable if: 1. Trust/transfer irrevocable during the lifetime of beneficiaries/transferee or2. Transfer made prior to 1-4-1961 and not revocable for a period of 6 years.Provided the transferor derives no direct or indirect benefit from such income in either case.
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Transfer held as revocable
1. If there is provision to re-transfer directly or indirectly whole/part of income/asset to transferor;
2. If there is a right to reassume power, directly or indirectly, the transfer is held revocable and actual exercise is not necessary.
[S. Raghbir Singh 57 ITR 408 (SC)]
3. Where no absolute right is
given to transferee and asset can revert to transferor in prescribed circumstances, transfer is held revocable. [Jyotendrasinhji vs. S. I. Tripathi 201 ITR 611 (SC)] |
64(1)(ii)
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Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest.
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Spouse whose total income (excluding income to be clubbed) is greater.
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Clubbing not applicable if:Spouse possesses technical or professional qualification and remuneration is solely attributable to application of that knowledge/qualification.
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1. The relationship of husband and wife must subsist at the time of accrual of the income. [Philip John Plasket Thomas 49 ITR 97 (SC)]
2. Income other than salary,
commission, fees or remune- ration is not clubbed under this clause |
64(1)(iv)
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Income from assets transferred directly or indirectly to the spouse without adequate consideration.
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Individual transferring the asset.
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Clubbing not applicable if, The assets are transferred;
1. With an agreement to live apart.
2. Before marriage.
3. Income earned when relation does not exist.
4. By Karta of HUF gifting co-parcenary property to his wife.
L. Hirday Narain vs. ITO 78 ITR 26 (SC)
5. Property acquired out of pin money. [R.B.N.J. Naidu vs. CIT
29 ITR 194 (Nag.)] |
1. Income earned out of Income arising from transferred assets not liable for clubbed.
[M.S.S. Rajan 252 ITR 126 (Mad)]2. Cash gifted to spouse and he/she invests to earn interest. [Mohini Thaper vs. CIT 83 ITR 208 (SC)]
3. Capital gain on sale of
property which was received without consideration from spouse [Sevential M. Sheth vs. CIT 68 ITR 503 (SC)]
4. Transaction must be real.
[O.N. Mohindroo 99 ITR 583 (Delhi)] |
64(1)(vi)
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Income from the assets transferred to son’s wife.
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Individual transferring the Asset.
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Condition:
The transfer should be without adequate consideration. |
Cross transfers are also covered
[C.M.Kothari 49 ITR 107 (SC)] |
64(1)(vii),(viii)
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Transfer of assets by an individual to a person or AOP for the immediate or deferred benefit of his:
(vii) – Spouse. (viii) – Son’s wife. |
Individual transferring the Asset.
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Condition:
1. The transfer should be without adequate consideration.
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1. Transferor need not necessarily have taxable
income of his own. [P. Murugesan 245 ITR 301 (Mad)]2. Wife means legally wedded wife. [Executors of the will of T.V. Krishna Iyer 38 ITR 144 (Ker)] |
64(1A)
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Income of a minor child [Child includes step child, adopted child and minor married daughter].
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1. If the marriage subsists, in the hands of the parent whose total income is greater; or;
2. If the marriage does not subsist, in the hands of the person who maintains the minor child.
3. Income once included in the total income of either of parents, it shall continue to be included in the hands of some parent in the subsequent year unless AO is satisfied that it is necessary to do so (after giving that parent opportunity of being heard)
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Clubbing not applicable for:—
1. Income of a minor child suffering any disability specified u/s. 80U.
2. Income on account of manual work done by the minor child.
3. Income on account of any activity involving application of skills, talent or specialized knowledge and experience.
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1. Income out of property transferred for no consideration to a minor
married daughter, shall not be clubbed in the parents’ hands. [Section 27]2. The parent in whose hands the minor’s income is clubbed is entitled to an exemption up to Rs. 1,500 per child. [Section 10(32)] |
64(2)
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Income of HUF from property converted by the individual into HUF property.
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Income is included in the hands of individual & not in the hands of HUF.
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Clubbing applicable even if:
The converted property is subsequently partitioned; income derived by the spouse from such converted property will be taxable in the hands of individual. |
Fiction under this section must
be extended to computation of income also. [M.K. Kuppuraj 127 ITR 447 (Mad)] |
* An individual shall deemed to have substantial interest in a concern for the purpose of Section 64(1)(ii).
IF THE CONCERN IS A COMPANY
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IF THE CONCERN IS OTHER THAN A COMPANY
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Person’s beneficial shareholding should not be less than 20% of voting power either individually or jointly with relatives at any time during the Previous Year. (Shares with fixed rate of dividend shall not be considered)
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Person either himself or jointly with his relatives is entitled in aggregate to not less than 20% of the profits of such concern, at any time during the previous year.
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Note : The clubbed income retains the same head under which it is earned.
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