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Income of Other Persons included in Assessee’s Total Income Notes

CA Final Advanced Auditing and Professional Ethics Important Revision Questions (PDF)

Clubbing of Income

Income transferred without transfer of asset (Section 60)

When a person transfers the income accruing to an asset without the transfer of the asset itself, such income is to be included in the total income of the transferor, whether the transfer is revocable or irrevocable.

Income arising from revocable transfer of assets (Section 61)

Such income is to be included in the hands of the transferor.

A transfer is deemed to be revocable if it –

  1. contains any provision for re-transfer of the whole or any part of the income or assets to the transferor; or
  2. gives right to re-assume power over the whole or any part of the income or the asset.

Income arising to spouse by way of remuneration from a concern in which the individual has substantial interest (Section 64(1)(ii))

Such income arising to spouse is to be included in the total income of the individual.

However, if remuneration received is attributable to the application of technical or professional knowledge and experience of spouse, then, such income is not to be clubbed.

Income arising to spouse from assets transferred without adequate consideration (Section 64(1)(iv))

Income arising from an asset(other than house property) transferred otherwise than for adequate consideration or not in connection with an agreement to live apart, from one spouse to another shall be included in the total income of the transferor.

However, this provision will not apply in the case of transfer of house property, since the transferor-spouse would be the deemed owner as per section 27.

Income arising to son’s wife from an asset transferred without adequate consideration (Section 64(1)(vi))

Income arising from an asset transferred otherwise than for adequate consideration, by an individual to his or her son’s wife shall be included in the total income of the transferor.

Income arising from transfer of assets for the benefit of spouse or son’s wife (Section 64(1)(vii)/ 64(1)(viii))

All income arising to any person or association of persons from assets transferred without adequate consideration is includible in the income of the transferor, to the extent such income is used by the transferee for the immediate or deferred benefit of the transferor’s spouse or son’s wife.

Income of minor child (Section 64(1A))

All income arising or accruing to a minor child (including a minor married daughter) shall be included in the total income of his or her parent.

The income of the minor child shall be included with the income of that parent, whose total income, before including minor’s income, is higher.

Where the marriage of the parents does not subsist, the income of the minor will be includible in the income of that parent who maintains the minor child in the relevant previous year.

The parent, in whose total income, the income of the minor child or children are included, shall be entitled to exemption of such income subject to a maximum of Rs. 1,500 per child under section 10(32).

The following income of a minor child shall, however, not be clubbed in the hands of his or her parent –

  1. Income from manual work done by him or activity involving application of minor’s skill,talent or specialized knowledge and experience; and
  2. Income of a minor child suffering from any disability specified in section 80U.

Conversion of self-acquired property into the property of a Hindu Undivided Family (Section 64(2))

Where an individual, who is a member of the HUF, converts his individual property into property of the HUF of which he is a member, directly or indirectly, to the family otherwise than for adequate consideration, the income from such property shall continue to be included in the total income of the individual.

Where the converted property has been partitioned, either by way of total or partial partition, the income derived from such converted property as is received by the spouse on partition shall also be included in the total income of the individual who effected the conversion of such property.

Note: As per Explanation 2 to section 64 ‘income’ includes ‘loss’. Therefore, clubbing provisions would be attracted in all the above cases, even if there is a loss and not income.

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