Income/Assets Transferred to Spouse Taxable In the Hands of Transferor Spouse

Under Section

Transaction  Nature

Applicable Clubbed In The
Hands Of

Relevant Reference

Exceptions/ Conditions

U/S  64(1)(ii)

Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest.

Spouse whose total income (excluding income to be clubbed) is greater.

1. Income other than salary,
commission, fees or remune-
ration is not clubbed under
this clause.

2. The relationship of husband and wife must subsist at the time of accrual of the income. [Philip John Plasket Thomas 49 ITR 97 (SC)]

Clubbing not applicable if: Spouse possesses technical or professional qualification and remuneration is solely attributable to the application of that knowledge/ qualification.

U/S 61

Revocable transfer of Assets.

Transferor who transfers the Assets.

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)]

In the below case Clubbing not applicable if:

1. 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.

2. Trust/ transfer irrevocable during the lifetime of beneficiaries/ transferee or

U/S 64(2)

Income of HUF from property converted by the individual into HUF property.

Income is included in the hands of individual & not in the hands of HUF.

Fiction under this section must
be extended to computation of
income also. [M.K. Kuppuraj
127 ITR 447 (Mad)]

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.

U/S 64(1A)

Income of a minor child [Child includes step child, adopted child and minor married daughter].

1. If the marriage does not subsist, in the hands of the person who maintains the minor child.

2. If the marriage subsists, in the hands of the parent whose total income is greater; or;

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)

1. 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)]

2. Income out of property transferred for no consideration to a minor
married daughter, shall not
be clubbed in the parents’
hands. [Section 27]

In the below case Clubbing not applicable for:—

.

1. Income on account of any activity involving application of skills, talent or specialized knowledge and experience.

2.Income on account of manual work done by the minor child.

3. Income of a minor child suffering any disability specified u/s. 80U

U/S 64(1)(iv)

Income from assets transferred directly or indirectly to the spouse without adequate consideration.

Individual transferring the asset.

1. Income earned out of Income arising from transferred assets not liable for clubbed.
[M.S.S. Rajan 252 ITR 126 (Mad)]

2. Transaction must be real.
[O.N. Mohindroo 99 ITR 583
(Delhi)]

3. Cash gifted to spouse and
he/she invests to earn
interest. [Mohini Thaper vs.
CIT 83 ITR 208 (SC)]

4. Capital gain on sale of
property which was received
without consideration from
spouse [Sevential M. Sheth
vs. CIT 68 ITR 503 (SC)]

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.)]

U/S 64(1)(vi)

Income from the assets transferred to son’s wife.

Individual transferring the Asset.

Cross transfers are also covered
[C.M.Kothari 49 ITR 107 (SC)]

Condition:
The transfer should be without adequate consideration.

U/S 60

Transfer of Income without transfer of Assets.

Transferor who transfers the income.

1. Section 60 does not apply
if corpus itself is transferred.
[Grandhi Narayana Rao 173
ITR 593 (AP)]

2. Income for the purpose of Section 64 includes losses. [P. Doriswamy Chetty 183 ITR 559 (SC)] [also see Expl. (2) to Section 64]

Irrespective of:
1. Whether the transfer is effected before or after the commencement of IT Act.

2. Whether such transfer is revocable or not.

U/S 64(1)(vii),(viii)

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.

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)]

Condition:

1. The transfer should be without adequate consideration.

IF THE CONCERN IS OTHER THAN A COMPANY

IF COMPANY IN CONCERN

A 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.

A 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 a fixed rate of dividend shall not be considered)