Understanding the Provisions of Clubbing of Income

ABOUT Understanding the Provisions of Clubbing of Income

Chapter 1. Introduction
Clubbing of Income Means …………………………………………………………………………..1
For example: …………………………………………………………………………………………………1
Its Object ………………………………………………………………………………………………………1
The Legislative Changes ……………………………………………………………………………….1
Scope of the Provisions of Section 64 …………………………………………………………….2
Clubbing under relevant head ……………………………………………………………………..3
Glossary………………………………………………………………………………………………………..3
Sections covered under Clubbing of Income: ………………………………………………..3
Chapter 2. Transfer of Income Without Transfer of Asset
Nature of Transaction……………………………………………………………………………………6
Income to be clubbed in the hands of ……………………………………………………………6
Conditions…………………………………………………………………………………………………….6
Chapter 3. Income Arising from Revocable Transfer of Assets
Meaning of Revocable Transfer [Section 63]………………………………………………..13
Specified Person ………………………………………………………………………………………….13
Specified Scenario ……………………………………………………………………………………….13
Clubbing of Income …………………………………………………………………………………….13
Conditions…………………………………………………………………………………………………..14
Exception to Section 61 [Section 62] …………………………………………………………….14
Chapter 4. Exceptions where Clubbing Provisions are not Attracted even
in Case of Revocable Transfer……………………………………..42
Chapter 5. “Transfer” and “Revocable Transfer” Defined …………………. 59
Chapter 6. Transfer of Assets – for Benefit of Spouse Etc.
Clubbing of share income from firm……………………………………………………………72
Spouse as Partner Through a Trustee ………………………………………………………….73
Professional Income Escapes Clubbing Provisions………………………………………73
Chapter 7. Income by Way of Salary, Commission, Fees or Remuneration
Paid to Spouse from a Concern in which an Individual has
Substantial Interest
‘Substantial Interest’ by an Individual – Meaning………………………………………..83
Exception – No Clubbing if Remuneration is due to Technical or
Professional Qualifications: ………………………………………………………………….84
Technical or Professional Qualification: ……………………………………………………..85
Where both Husband and Wife have Substantial Interest and both are
getting Remuneration from the concern……………………………………………….87
When both Husband and Wife have Substantial Interest…………………………….88
x Contents
Exceptions to clubbing ……………………………………………………………………………….89
Conditions…………………………………………………………………………………………………..90
Chapter 8. Income of Individual to Include Income of Spouse, Minor
Child, Etc……………………………………………………………………………109
Chapter 9. Income Arising to the Spouse from an Asset Transferred
Without Adequate Consideration
Statutory requirement ……………………………………………………………………………….122
Asset Transferred to Spouse [Section 64(1)(iv)] …………………………………………123
Income to be clubbed in the hands of ………………………………………………………..124
Capital Gain on Sale of Transferred Assets………………………………………………..126
Appropriation when transferred asset is invested in a Business………………..126
Income arising from Accretions to Transferred Assets ………………………………126
Applicability to Second Generation Income ………………………………………………126
When section 64(1)(iv) is not applicable [i.e., Exceptions to clubbing] ………127
Frequently Asked Questions (FAQ) …………………………………………………………..132
Chapter 10. Income of Individual to include Income of Spouse………. 159
Chapter 11. Income Arising to Son’s Wife (i.e., Daughter-In-Law) from
the Assets Transferred Without Adequate Consideration by
the Transferor, i.e., Father-In-Law/Mother-In-Law
Transfer to Son’s Wife [Section 64(1)(vi)] …………………………………………………..171
Income to be clubbed in the hands of ………………………………………………………..172
Exceptions to clubbing ……………………………………………………………………………..172
Chapter 12. Clubbing of Income from Assets Transferred to a Person for
the Benefit of Spouse
Specified scenario : ……………………………………………………………………………………185
Income to be clubbed in the hands of ………………………………………………………..185
Conditions…………………………………………………………………………………………………186
Chapter 13. Income from Assets Transferred to a Person or Association of
Persons for the Benefit of Son’s Wife
Income to be clubbed in the hands of ………………………………………………………..194
Chapter 14. Minor Child’s Income Clubbed with the Income of Parent
The Object of introducing Section 64(1A)…………………………………………………..197
The interim report on Tax Reforms for December, 1991, submitted
by Dr. Raja J. Chelliah Committee reads as under (at para 6.38
of the Report): …………………………………………………………………………………….198
Section 64(1A) not violative of articles 14 and 19 of the Constitution
of India……………………………………………………………………………………………….200
Child in relation to an individual [Section 2(15B)]……………………………………..201
Minor child’s income (less than 18 years old) clubbed in the hands of
that parent whose total income (excluding the income of the minor)
is greater…………………………………………………………………………………………….201
Contents xi
Chapter 15. Conversion of Self-Acquired Property into the Property of a
Hindu Undivided Family
“Any sum of money” is property – Clubbing provisions of section 64(2)
can be said to be applicable to the HUF in respect of sum of money
received without consideration…………………………………………………………..223
Transfer of Asset to Hindu Undivided Family (HUF) ……………………………….223
Nature of Transaction ……………………………………………………………………………….224
Clubbed in the Hands of …………………………………………………………………………..224
Conditions/ Exceptions ……………………………………………………………………………224
Chapter 16. Liability of Person in respect of Income Included in the
Income of Another Person
Applicability …………………………………………………………………………………………….252
Impact ………………………………………………………………………………………………………252
Chapter 17. Exceptions to Clubbing – When Minor Income will not be
Clubbed…………………………………………………………………………. 255
Income of a disabled child (disability of the nature specified in
section 80U)………………………………………………………………………………………..255
Income earned by manual work done by the child ……………………………………255
Income earned by a minor child on account of manual work done……………255
Income earned by minor child on account of application of any skill,
talent or specialised knowledge and experience………………………………..255
Chapter 18. Cases in which Clubbing of Income is not applicable ….. 256
Income transferred before marriage…………………………………………………………..256
Income derived from clubbed income ……………………………………………………….256
Saved money is not asset transferred…………………………………………………………256
Chapter 19. Claiming TDS for Income under Clubbing Provisions .. 257
Chapter 20. Clubbing of Income – Set-Off of Loss
Income includes loss………………………………………………………………………………….259
Clubbing of Negative Incomes (Losses) …………………………………………………….259
Chapter 21. Clubbing of Income – Section 263 …………………………………. 263
Chapter 22. Clubbing of Agricultural Income of the Minor
Agricultural income of minor son of assessee has to be included in
income of assessee for purpose of determining rate of income-tax
applicable to income of assessee…………………………………………………………266
Agricultural income of minor children cannot be clubbed in hands of
assessee (parent) ………………………………………………………………………………..267
Chapter 23. Applicability of Clubbing Provisions to Family Trusts
Clubbing of Income and Private Trusts……………………………………………………..269
Clubbing with Spouse – Section 64(1) (iv) Gift to the spouse – Directly
or Indirectly – through Trust………………………………………………………………269
Dissolution ……………………………………………………………………………………………….270
xii Contents
Chapter 24. Computation of Income to be Clubbed
Clubbing Head …………………………………………………………………………………………277
Deduction under Chapter VIA ………………………………………………………………….277
Clubbing of Negative Income ……………………………………………………………………278
Chapter 25. Interplay of Clubbing Provisions and Capital Gain Provisions
‘Income’ includes capital gains – The word ‘income’ in section 64(1)(iv)
includes capital gains arising from sale of transferred assets …………….280
Chapter 26. Frequently Asked Questions (FAQ) ………………………………. 282