This presentation for Clubbing of Incomes and Deemed Incomes

1. `

2. COURSE TEACHER
Dr.K.Chellapandian
Assistant Professor of Commerce
Vivekananda College.

3. Dr.K.CHELLAPANDIAN
M.Com., MBA., M.Sc (Psy)., M.Phil., B.Ed., PGDCA., DGT., Ph.D., NET
Assistant Professor of Commerce
Vivekananda College
Tiruvedakam West
Madurai

4. Income Tax - Law & Practice - iI

5. Income Tax - Law & Practice - iI

6. TAX-MEANING
Tax is the financial charge imposed by the
Government on Income, Commodity or Activity.
Tax is a price which each citizen pays to the
state to cover his share of the cost of the
general public services which he will consume.

7. Tax
Direct
Tax
Indirect
Tax
TYPES OF TAXES
Tax can be classified in to two types…..

8. CLASSIFICATION OF TAX
Government Imposes two types of taxes namely Direct Taxes
and Indirect Taxes.
 A direct tax is a form of tax is collected directly by the
government from the persons who bear the tax burden.
Examples of direct tax is IT (Income Tax)

9. CLASSIFICATION OF TAX….
Government Imposes two types of taxes namely Direct Taxes
and Indirect Taxes..
An indirect tax is a form of tax collected by mediators who
transfer the taxes to the government, and also perform
functions associated with filing tax returns. The customers
bear the final tax burden.
Examples of indirect taxes are GST (Goods and Services
Tax) & Custom Duty.

10. INCOME TAX….
1. Direct Tax: Income is a Direct Tax. Direct Tax means
such tax which is paid by a person who bears tax burden.
2. Central Tax: Income Tax is imposed and recovered by
Central Government.
3. Tax on Total Income: Income Tax is calculated on total
income. Total income is also called taxable income.
Total income is calculated according to the provisions of
Income Tax Act.

11. BASIS OF CHARGE OF INCOME TAX
(SEC. 4)
 Income tax is an annual tax on income.
 Income of Previous Year is taxable in the next following Assessment Year
at the rate or rates applicable to that assessment year.
 Tax rates are fixed by the Annual Financial Act.
 Tax is charged on every person as defined in section 2(31).
 It is charged on the Total Income of every person for the previous year.
 Total Income is to be computed as per the provisions of the Act.
 Income tax is to be deducted at source or paid in advance wherever
required under the provision of the Act.

12. Heads of Income
1.Salaries
3.Business &
Profession
2.House property
4.Capital Gains
5. Other Sources
Aggregate of all the 5 heads of income is
known as gross total income

13. COMPUTATION OF TOTAL INCOME
The total income is computed on the basis of the
residential status of the assessee. The income is
classified into the following five heads:
1. Income from Salaries Sec 15 to 17
2. Income from House Property Sec 22 to 27
3. Profits and Gains of Business or Profession Sec 28 to 44
4. Income from Capital Gains Sec 45 to 55
5. Income from Other Sources Sec 56 to 59

14. COMPUTATION OF GTI & TI
1. INCOME FROM SALARIES - Sec 15 to 17 XXXX
2. INCOME FROM HOUSE PROPERTY – Sec 22 to 27 XXXX
3. PROFITS AND GAINS OF BUSINESS OR PROFESSION- Sec 28 to 44 XXXX
4. INCOME FROM CAPITAL GAINS - Sec 45 to 55
(A) LONG TERM CAPITAL GAINS ****
(B) SHORT TERM CAPITAL GAIN **** XXXX
5. INCOME FROM OTHER SOURCES
(A) CASUAL INCOMES
(LOTTERY,CARD GAME, etc) **** - Sec 56 to 59
(B)OTHER INCOMES – CLUBBING **** - Sec 60 to 65 XXXX
LESS: SET OFF AND CARRY FORWARD LOSSES – Sec 70 to 79 XXXX
GROSS TOTAL INCOME (GTI) XXXXX
LESS: DEDUCTIONS U/S 80 C to 80 U XXX
TOTAL (OR) TAXABLE INCOME (TI) XXXXX


15. SEMESTER – IV
(For those who joined in June 2018 and after)
PART – III : Core Course Theory
Course Title : INCOME TAX LAW & PRACTICE – II
Course Code: 04CT42 Hours per week: 5 Credit: 4
CIA: 25 Marks ESE: 75 Marks Total Marks: 100
Preamble
To Enable the students to learn the various provisions of heads of
income and assessment procedures of individuals and firm.
Course Outcomes
After the completion of the course, students will be able to
No. Course Outcomes Knowledge Level
CO 1 Compute the profits and gains from business / profession and capital gains. K1, K2, K3
CO 2 Apply the provisions of clubbing of income and set-off and carry forward of
losses.
K1, K2,K3
CO 3 Apply the various deductions from Gross Total Income. K1, K2, K3
CO 4 Assess the income of individuals and firms. K1, K2, K3
CO 5 Explain the powers of various income tax authorities and assessment
procedure.
K1, K2, K3

16. UNIT-I [15 Hours]
Computation of Profits and Gains from Business / Profession – Capital Gains.
UNIT-II [15 Hours]
Income of other Persons including Assessee’s Total Income -Aggregation of
Incomes and Set-off and Carry Forward of Losses.
UNIT-III [15 Hours]
Deductions from Gross Total Income.
UNIT-IV [15 Hours]
Assessment of Individual – Assessment of Firm.
UNIT-V [15 Hours]
Income Tax Authorities -Different Types of Assessments.
Pedagogy
Power point presentations, Group Discussion, Seminar, Quiz , Assignment,
Experience Discussion, Brain storming, Activity, Case Study

17. TEXT BOOK:(Current Edition Relevant to the Assessment Year)
Dr. Mehrotra and Dr. Goyal., “Income-tax Law and Accounts”, Sahitya Bhavan
Publication, Agra.
REFERENCE BOOKS: (Current Edition Relevant to the Assessment Year)
1. T.S. Reddy & Y.Hari Prasad Reddy, “Income Tax Theory, Law & Practice”, Margham
Publications, Chennai.
2. Dr. Vinod K. Singhania., “Direct Taxes – Law and Practice”, Taxman publication, New
Delhi.
3. B.B. Lal., “Direct Taxes”, Konark Publisher (P) ltd, New Delhi.
4. Bhagwathi Prasad., “Direct Taxes – Law and Practice”, Wishwa Prakashana, New
Delhi.
5. Gaur V.P., and Narang D.B., “Income Tax Law and Practice”, Kalyani Publishers, New
Delhi.
Note:
 Questions shall be set as between theory and problems in the ratio of 40% and 60%
respectively
 Amendments made upto 6 months prior to the date of examination is to be followed

18. Income of other Persons including Assessee’s Total Income
CLUBBING OF INCOMES
AND
DEEMED INCOMES
(AGGREGATION OF INCOMES)

19. CLUBBING OF INCOMES
To find out the total income of an assessee the following
incomes are aggregated:
1. Incomes of the assessee (already discussed).
2. Income of other persons includible in the income of the
assessee. This is known as the clubbing of incomes.
3. Deemed incomes.
4. Share of a member in the association of persons or body of
individuals.
5. Income from the firm.

21. Introduction…
There is a growing tendency on the part of the tax-payers
either not to disclose certain assets or investments in the records
maintained by them or to disclose it at a figure lower than its
cost. Further, they dispose off their property or income in such a
way that tax liability may be avoided or reduced.
An assessee, therefore, attempts to shift his income to others
so that he :nay keep his tax liability to the minimum. For this
purpose, he arranges to shift an income legally, which in fact
belongs to him, to some other person.

22. Introduction…
To counteract such practices, special provisions relating to
clubbing of incomes have been made in sections 60 to 65. As per
these sections, the income of other persons shall be included in
the assessee's total income.
Such inclusion of income of other person in the income of the
assessee is called 'Clubbing of Income'. Income of Other Persons
included in the Assessee's Total Income : (Sees. 60 to 65)

23. What is clubbing of income?
Generally an assessee is taxed in respect of his own income. But
sometimes in some exceptional circumstances this basic principle
is deviated and the assessee may be taxed in respect of income
which legally belongs to somebody else.
 Earlier the taxpayers made an attempt to reduce their tax
liability by transferring their assets in favour of their family
members or by arranging their sources of income in such a way
that tax incidence falls on others, whereas benefits of income is
derived by them .

24. What is clubbing of income?
So to counteract such practices of tax avoidance, necessary
provisions have been incorporated in sections 60 to 65 of the
Income Tax Act Hence, a person is liable to pay tax on his own
income as well as income belonging to others on fulfillment of
certain conditions.
Inclusion of other’s Incomes in the income of the assessee
is called Clubbing of Income and the income which is so included is
called Deemed Income.

25. Objectives of studying clubbing of income
Circumstances when income of some other person is
included in the income of assessee.
Provisions when these sections will be applicable.
Under what head and in whose income it will be
included.

26. Terms
Transferor- The person who transfers any of his
belongings, specifically his assets/income to another
person is known as Transferor.
Transferee-The person to whom the transferor
transfers his / her assets is known as transferee.

27. Terms...
Revocable- he right to reacquire or take back anything
legally which was given earlier under an agreement or
settlement.
Minor- A person who is below the age at which he or
she legally becomes an adult. In India at present a
person becomes adult at the age of 18 years.

28. Clubbing of Income
Income of other persons is included in assessee's total
income in the following cases:
(1)Transfer of income without transfer of the asset: Section 60
When a person transfers to another person his income from an
asset without transferring the ownership of the asset, such
income is included in the total income of the transferor.

29. (2) Revocable transfer of assets: Section 61
When a person transfers to another person his
income from an asset as well as makes a revocable
transfer of the ownership of the asset such income is
included in the total income of the transferor except
when it is not revocable during the lifetime of the
beneficiary.

30. (3) Income of Spouse: Section 64
(a) Income of spouse by way of salary, commission,
etc., in which such individual has a substantial
interest is included in the total income of such
individual.
(b) When an individual transfers an asset to his or her
spouse without adequate consideration or in
connection with an agreement to live apart, any
income from such asset will be deemed to be the
income of the transferor.

31. (4) Any income of daughter-in-law from assets
transferred to her by the individual after 31st May,
1973 without adequate consideration is included in the
total income of the transferor. Section 64 (1) (iv)

32. (5) Any income arising from assets transferred by the
individual to any person or association without adequate
consideration for the benefit of his or her spouse is
included in the total income of the transferor.
Section 64 (1) (viii)

33. (6) Any income arising to any person or association
from assets transferred to it by the individual after
31.5.1973 under the circumstances stated in (5) above,
for the benefit of son's wife is included in the total
income of the transferor. Section 64 (1) (viii)

34. 7) If an individual transfers any asset to the spouse
or son's wife and such assets are invested by the
transferee in any business, a proportionate amount of
profit share of transferee will be included in the
income of the transferor. Section 64 (1) (viii)

35. (8) Any income of a minor child shall be included in
the income of that parent whose total income is
greater if the marriage subsists or in the income of
the parent who maintains the minor child if the
marriage does not subsist. The parent in whose total
income minor's income is included is entitled to
exemption on the income so included or Rs. 1,500 per
minor child, whichever is less. However, the income of a
physically or mentally handicapped minor child cannot
be included in the income of either of his parents.
Section 64 (1A)

36. (9) Any income of H.U.F. from the self-acquired
property of a member of the H.U.F. converted into the
property of his H.U.F. will be included in the total
income of the member concerned.
Section 64 (2)

37. (10) Benami transactions:
When a person enters into a transaction in the name of a
person other than the real person in order to avoid tax, it is called
a benami transaction, and the person in whose name the transaction
is effected is called benamidar. If, in the opinion of the Assessing
Officer, a transfer is benami, he will treat the income of that
transaction as the income of the real person and tax shall be levied
on him for that transaction. No tax shall be levied on the benamidar
for a benami transaction.

38. Deemed Incomes
In certain cases, some amounts are deemed as income in the
hands of the assessee, though they are actually not in the nature
of income. The object of deeming the amount as income is to
check tax evasion.
The following are the deemed incomes:
1. Cash credits.
2. Unrecorded and unexplained investments.
3. Unrecorded and unexplained money, etc.
4. Amount of investments, etc. not fully disclosed in books of
account.
5. Unexplained expenditure, etc.
6. Amount borrowed or repaid on hundi.

39. (1) Cash Credits: (Sec. 68)
If any sum is found credited in the books of an assessee
maintained for the previous year and the assessee offers no
explanation about its nature and source or the explanation
offered by him is not satisfactory, the sum so credited may be
charged to income tax as the income of the assessee for the
previous year.

40. Cash Credits…..
The following shall also be treated as deemed income under
section 68 :
Where a closely held company credits any sum in its books as
share application money, share capital, securities premium reserve, etc., it
shall be deemed unexplained unless:
(i) the resident person in whose name such credit is recorded in the
books of such company also offers an explanation about the nature
and source of such sum so credited; and
(ii) such an explanation in the opinion of A.O. is satisfactory.
However, this provision shall not apply if the amount is recorded in
the name of a venture capital fund or a venture capital company.

41. (2) Unrecorded and Unexplained Investments :
If in the relevant previous year the assessee has made
investments which are not recorded in the books of account and
the assessee offers no explanation about the nature and source
of money invested or the explanation offered by him is not
satisfactory, the value of the investments may be deemed to be
the income of the assessee for such previous year. (Sec. 69)

42. (3) Unrecorded and Unexplained Money etc:
If in any financial year the assessee is found to be the owner
of any unrecorded money, bullion, jewellery or valuable articles,
and offers no explanation about the nature and source of
acquisition of these items or the explanation offered by him is
not satisfactory, the money and the value of the bullion,
jewellery or other valuable articles may be deemed to be the
income of the assessee for such financial year. (Sec. 69 (A)

43. (4) Amount of investments not fully disclosed in books of accounts:
If in any financial year the assessee has made investment or
is found to be the owner of any bullion, jewellery or other
valuable articles and the Assessing Officer finds that the actual
sum spent on these items is more than what is recorded in the
books of account and the assessee either offers no explanation
about such excess amount or the explanation offered by him is
not satisfactory, the excess amount may be deemed to be the
income of the assessee for such financial year.

44. (5) Unexplained Expenditure:
If in any financial year an assessee has incurred any
expenditure and the assessee is unable to explain properly the
source of such expenditure or part thereof, the amount of such
unsatisfactorily explained expenditure will be treated as the
income of the assessee for the financial year in which the
expenditure is incurred. (Sec. 69C)

45. (6) Hundi borrowals and Repayments:
Borrowals on hundies and repayments thereof must be made by
Account Payee cheques otherwise the amount so borrowed or
repaid will be treated as the income of the person borrowing or
repaying the amount for the previous year in which such borrowal
or repayment is made. The amount paid shall include the amount
of interest on the amount borrowed. If any amount borrowed on
hundi has been deemed to be the income of the borrower, he shall
not be liable to be assessed again in respect of such amount on
repayment of such amount. (Sec. 69D)

46. Taxation of Deemed Incomes (Assessment Year 2020-21)
(Sec. 115 BBE)
Where the total income of an assessee includes any deemed income under
sections 68, 69, 69A, 69B, 69C or 69D, whether reflected in the return of
income furnished Uls 139 or determined by the Assessing officer, the tax
payable shall be the aggregate of :
(i) On deemed income :
Income tax @ 60%,
Surcharge @ 25%,
Health and Education Cess @ 4%.
Further, no deduction in respect of any expenditure or allowance or set-
off of any loss shall be allowed to the assessee in computing deemed income
under the aforesaid sections.
(ii) On balance of income as per other provisions of the Act.

47. SHARE OF A MEMBER IN THE ASSOCIATION OF
PERSONS OR BODY OF INDIVIDUALS (Sec. 86)
An association of persons or body of individuals is assessed separately. The
share of income received by its members from the association or body shall be
dealt with as under:
(1) If an association of persons or body of an individual is taxed at the maximum
marginal rate or any higher rate, the share of a member shall not be included
in his total income at all.
(2) If no income tax is chargeable on the total income of the association or body the
share of a member therein shall be chargeable to tax as part of his total
income, and no rebate will be allowed.

48. SHARE OF A MEMBER IN THE ASSOCIATION OF
PERSONS OR BODY OF INDIVIDUALS (Sec. 86)
An association of persons or body of individuals is assessed separately. The
share of income received by its members from the association or body shall be
dealt with as under:
(3) If tax has been paid by the association or body at a normal rate, income tax
shall not be payable in respect of such share, although it shall form part of
the total income of the member. It means on such share income tax relief
shall be allowed at the average rate of tax.
Note: If a member's share in AOP or BOI is a loss, he can not set-off this loss out
of his any personal income.

49. INCOME FROM FIRM
The following incomes shall be included in the income of a partner
from the firm:
(a) Remuneration : Wherever any salary, bonus, commission or other
remuneration is received by a partner as per the provisions of the
partnership deed [but not exceeding as provided in section 40(b)], it is not
taxable under the head 'Salaries' because a partner of the firm is not an
employee of the firm.
Hence, this amount is taxable under the head 'Profits and Gains of
Business or Profession'.

50. INCOME FROM FIRM
The following incomes shall be included in the income of a partner
from the firm:
(b) Interest: When any interest is received by a partner as per the
provisions of the partnership deed [but not exceeding 12% p.a. such income
is also treated as a part of the business income and included under the
head 'Profits and Gains of Business or Profession'.
Share of Profit: The share of profit of a partner in the firm is exempt
under section 10(2A). Hence, it will not be included in his income.