Clubbing of Income

1. Sec. 60 Income arising from assets not transferred :

If income is transferred without transfer of asset yielding such income, such income will be clubbed in the hands of transferor.

2. Sec. 61 Revocable transfer of asset :

As per sec. 61 all income arising to any person by virtue of a revocable transfer of assets shall be clubbed in the income of the transferor.

Meaning of revocable transfer (sec.63) : A transfer shall be deemed to be revocable if :

(i)      It contain any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor; or

(ii)     It, in any way, give the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets.

Sec. 62 : In the following situations, even though there is revocable transfer of asset, provisions of Sec. 61 will not be applicable.

a.      If transfer is by creation of a trust, and if this is irrevocable during the life time of beneficiary, clubbing will not be done so long as the beneficiary is alive.

b.      If assets are directly transferred which is irrevocable during the life time of the transferee same as (a) above.

c.      If transfer is effected, before 1.4.61 and this was irrevocable at least for a period of more than six years, clubbing will not be done so long as the power to revoke does not arise.

3. (a)     Sec. 64 (1) (ii) Spouse having substantial interest :

If a spouse has a substantial interest in a company (i.e. holding equity shares with 20% of more voting rights either alone or along with relatives) or such interest in non company concern (i.e. being entitled to 1/5th share of profit or more either alone or along with relatives) and if the other spouse receives by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from that by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from that concern. Such receipt will be clubbed in the hands of the spouse having substantial Interest. However, if the other spouse has acquired some technical or professional qualification which is being utilised in the post where this spouse is posed then 64(1)(ii) becomes inapplicable.

Where both have substantial interest the remuneration from such concern will be included in the total

income of the spouse whose total income excluding such remuneration is higher.

Where such income is once included in the total income of either spouse, such income arising in later years shall not be included in the total income of other spouse unless the A.O. is satisfied that it is necessary, and A.O., will do so only after giving a hearing to that other spouse.

C.I.T. Vs. S.K. Nayak — Where an assessee was a Managing Director of the Company and his wife who was working as a whole time Director in that Company was paid the remuneration by the assesse, the clubbing provisions of Section 64 would be applicable to the net income i.e. after taking Sec. 16(i) standard deduction C.I.T. Vs. Smt. R. Bharati — A person having skill, experience and competence in a line of work can be regarded as professionally qualified for the propose of Sec. 64(i) (ii) proviso. A model in the light of above is having skill, competence and experience in her line and is thus professionally qualified.

b)      Sec. 64(1)(iv) Assets transfer to Spouse :—

         If one spouse transfers assets for inadequate consideration to the other, otherwise than in connection with an agreement to live apart, income from transferred asset will be clubbed in the hands of the transferor.

         R.B.N.J. Naidu Vs. C.I.T. — Income from saving out of pin-money i.e. an allowance given to wife by husband for her dress and usual household expenses is not included in the taxable income of the husband.

(c)     Sec. 64(1)(vi) Assets transferred to son’s wife :

         If assets are transferred to assessee’s son’s wife after 31.5.73 otherwise than for adequate consideration, income there from will be clubbed in the hands of the transferor.

(d)     Sec. 64(1)(vii) Assets trnasferred to person or AOP for the benefit of spouse:

         If assets are transferred for inadequate consideration to a person or association of persons, the income on which is for immediate or deferred benefit of the spouse that income will be clubbed in the hands of the transferor.

(e)     Sec. 64(1)(viii) Assets transferred to person or AOP for the benefit of son’s wife :

         If assets are transferred for inadequate consideration to a person or association of person after 01.06.73, the income on which is for immediate or deferred benefit of son’s wife, that income will be clubbed in the hands of the transferor.

(f)      Sec. 64(2) Conversion of self acquired property in HUF property :

If self acquired property is transferred otherwise than for adequate consideration, directly on indirectly to the HUF hotchpot the income in full from the transferred property will be clubbed in the hands of the transferor. However, if actual partition takes places before the end of the p.y., only the income on the assets attributable to the assessee and his spouse shall be clubbed in the hands of the transferor.

Example :

X owns a house property from which he derives an income of Rs.50000 per annum. W.e.f. 1-4-09, he converts

this property as the property of an Huf of which he is member.

Although the income shall henceforth be received by the Huf but it shall to be individual income of X and shall be included in computation of his total income under the head “income from house property”.

4. Sec. 64(1A) Income of minor child :

All income arising to a minor child (other than a minor child suffering from any disability mentioned u/s 80U) shall be clubbed with the income of the parent, except where — 

i)              Income is arising on account of manual work done by him or

      ii)       Income is arising on account of any activity involving application of his skill, talent or specialised knowledge & experience.

iii)      Orphan

The income of minor shall be clubbed —

a)         Where the marriage of his parents subsists, with the income of that parent whose total income (excluding such income) is greater, or

b)         Where the marriage of his parents does not subsists, with the income of the parent who maintain the minor child in the p.y.

c)         Where any such income is once clubbed with the total income of either parent, any such income arising any latter years shall not be clubbed with the total income of the other parent, unless the A.O. is satisfied after giving that parent an opportunity of being heard, that it is necessary to do so.

Important :

According to Sec. 10(32) — Income upto Rs. 1,500/‑ is exempt in respect of each minor child whose income is to be clubbed.

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