Who is an assessee? Extract of sec 2(7)(a) Assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of HIS income or of the Income of any other person in respect of which he is assessable or of the loss sustained by him or by such other person or of the amount of refund due to him or to such other person

1. Income Of Other Persons, Included
In Assesses Total Income
P.V.Harini
1st Year Intern
M/s SBS and Company LLP
harinip@sbsandco.com
+91 9059488338
by
SBS Hyderabad
27-01-2018
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Extract of sec 2(7)(a)
 Assessee means a person by whom any tax or any other sum of money is
payable under this Act, and includes
 every person in respect of whom any proceeding under this Act has been
taken for the assessment of HIS income or
 of the Income of any other person in respect of which he is assessable
 or of the loss sustained by him or by such other person
or of the amount of refund due to him or to such other person
Who is an assessee ?

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Governing Sections – Clubbing of Income
SECTION Nature Of Transaction
60 Transfer of Income where there is no transfer of Assets.
61 Revocable transfer of Assets.
64 Income of Individual to include income of Spouse, minor child etc
64(1)(ii) - Remuneration from A Concern In Which Spouse Has Substantial Interest.
64(1)(iv) - Income From Assets Transferred To Spouse.
64(1)(vi) - Income From Assets Transferred To Son’s Wife.
64(1)(vii) - Income From Assets Transferred To A Person For The Benefit Of Spouse.
64(1)(viii)- Income From Assets Transferred To A Person For The Benefit Of Son’s Wife.
64(1)(A) - Income Of Minor Child
64(2) - Income of HUF from property converted by the individual into HUF property.
65 Liability of Person in respect of income included in the income of another person

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 Any person Transfers the Income only without transfer of Asset.
 Taxable Person: Income is to be included in the Total Income of Transferor
 The section is applicable Irrespective of:
 Whether the transfer is revocable or not.
 Whether the transfer is effected before or after the commencement of IT Act.
Example : Mr.A owns a motor car and the same is given to the company on
hire at a monthly rent of Rs.20,000.Mr.A declared that henceforth the
monthly hire charges on the car shall belong to his wife though ownership
remains with Mr.A
 In this case income shall be included in the income of …………………….
Sec 60-Transfer Of Income where there is no
Transfer Of Asset

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 Transfer – Settlement, Trust ,Covenant ,Agreement/Arrangement
 What is Revocable Transfer ?
 If it contains any Provision to re-transfer directly or indirectly whole/part of
income/asset to transferor or
 If there is a right to reassume power, directly or indirectly, over income or
asset.
(The above definition is applicable for purpose of sec 60, 61 & 62)
 Therefore we can say that Section 60 basically reiterates the basic
principle of Income tax Act that income is taxable at the point where it
arises and subsequent application of same is immaterial.
What is Transfer & Revocable Transfer ? (sec 63)

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 Any Income arising to any person from Revocable Transfer of Assets(refer previous slide)
is to be clubbed in the hands of transferor.
 Taxable Person : Income is to be included in the Total Income of Transferor.
Example : X transferred house property permanently to Y with a condition that 25%
of the income from such property is handed over to him.
Exceptions to Revocable Transfer (sec 62)
 Trust/transfer irrevocable during the lifetime of beneficiary or transferee.
Example : A transferred house property to B with a condition that B could enjoy
the Income from such property during his Life Time.
 In the above case Income shall be chargeable in the hands of B. However on
expiry of life time of B, the income from such House Property shall be included in
the total income of A.
Sec 61 - Revocable Transfer Of Assets

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 Transfer made prior to 1-4-1961 and not revocable for a period of 6 years.
 The transferor derives no direct or indirect benefit from the transfer.
 However the income shall again be included in the hands of transferor when the
power to revoke the transfer arise.
Revocable Transfer Of Assets

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 Any Salary, Commission, Fees or any other form of Remuneration whether in cash
or in kind paid to the Spouse from a Concern in which an Individual has a
Substantial Interest.
 Taxable Person : Individual having Substantial Interest.
 Concern – Business or Professional concern
 Substantial Interest = Interest of Individual + Interest of Relatives.
Relative - Husband, Wife, Brother, Sister, lineal ascendant or descendent of the Individual. Sec 2(41)
Sec 64(1)(ii)-Remuneration To Spouse
In case of a
Company
• An Individual holds ≥20 % voting power of equity shares at
any time during the previous year.
In case other than a
Company
• An Individual is entitled to ≥20 % of the profits at any time
during the previous year.

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 Note : Where both the husband and wife have a substantial interest in a concern
and both are in receipt of the remuneration from such concern BOTH the
remunerations will be included in the Total Income of Spouse whose total income,
excluding such remuneration, is greater (refer example).
(circular no.258,dated 14.06.1979)
 Condition : The relationship of husband and wife must subsist at the time of
accrual of the income
Exception:
 Clubbing of Income is not applicable if Spouse Possesses Technical or Professional
qualification & Remuneration is solely Attributable to application of that
knowledge/qualification.
Remuneration To Spouse

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 Technical or Professional Qualification do not need any diploma or any formal
degree from a recognized body like university or an institute.
(Batta Kalyani v/s Commissioner of Income Tax).
 A person can be said to be in requisite technical qualification when by virtue
thereof he is eligible to perform that function.
 Professional qualification means qualification necessary for carrying on particular
profession.
Other Points:
 Any Income once included in Total Income of either of the spouse, any such income
arising thereafter shall not be included in the total income of other spouse unless
A.O is satisfied, after giving that spouse an opportunity of being heard.
Remuneration To Spouse

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 A & B (A’s wife),whose other incomes are Rs.60,000 & Rs.80,000 respectively are both
employed in X ltd and getting remuneration of Rs. 10,000 pm and Rs.8,000 p.m. The
Shareholdings are A – 10%, B – 5%, A’s brother – 6%, B’s brother – 8%
 In this case A & B both having Substantial interest in the company and is determined as
under
 For A - 21 % (His own share 10% + B’s share - 5% + A’s brother share - 6%)
 For B - 23 % (Her own share 5% + A’s share - 10% + B’s brother share - 8%)
Remuneration To Spouse - Example
A’s Total Income B’s Total Income
Other Income Rs.60,000 Other Income Rs.80,000
His Own Salary Income (8,000*12) = Rs.96,000
A’s Salary Income (10,000*12) = Rs.1,20,000 Rs.2,16,000
Total Income Rs.60,000 Total Income Rs.2,96,000

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Event
• Where an asset (Other than House Property as it is covered u/s 27(1)) is transferred by
an Individual to his/her spouse without adequate consideration.
• Either directly or Indirectly (Cross Transfers)
Taxable
Person
• The income from such asset shall be deemed to be the income of the Transferor.
Cross
Transfers
-Eg
• Mr. A gifts Rs. 5,00,000 Mrs. B (W/o Mr. A brother) for purchase of the land.
• Mr. B gifts shares of Foreign Company to Mr’s. A
Tax Treatment in
Case of Cross
Transfers
• Income arising to Mr’s. B from House Property should be clubbed in the total income of Mr. B
• Dividend form shares transferred to Mr’s. A would be taxable in the hands of Mr. A.
64(1)(iv) - Gift To Spouse

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Gift To Spouse
Exceptions:-
 If assets are transferred for adequate consideration.
If asset is transferred for inadequate consideration, then the proportionate
amount of income attributable to inadequate consideration shall be added to the
income of transferor.
Example - Mr. X transfers piece of land worth Rs. 1,50,000 to his wife for
Rs.1,00,000. Income earned from letting out of land is Rs.30,000.Here inadequate
consideration is Rs. 50,000/- Therefore income included in total income of
 Mr. X – Rs.10,000 (30,000*50,000/1,50,000)
 If assets are transferred in connection with an agreement to live apart.
 If assets are transferred before marriage. (Eg : Mr. K makes a gift to his fiancé,
then the income arising form such gifts shall not be taxable in the hands of
Mr.K)

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Gift To Spouse
 If on the date of accrual of income, transferee is not spouse of the transferor.
(Eg : Mr.L makes a gift to his wife and later on divorces his wife, then the income
arising after divorse shall not be clubbed with income of Mr.L).
i.e,The relationship of husband and wife must subsist both at the time of transfer of
asset and at the time of accrual of the income [Philip John Plasket Thomas 49 ITR
97 (SC)].
 If property is acquired by the spouse out of pin money (R.Dalmia v/s CIT)
Other Points:
 Where assesse made payments on premium on policy taken in name of his wife,
the maturity proceeds of LIC policy were invested by the wife, the income
earned thereon in the name of wife, shall be clubbed in the hands of the
husband (Damodar K Shah v/s CIT).

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Gift To Spouse
 The clubbing provisions of this section will apply even if the form of asset
is changed by the transferee-spouse
Eg : Where cash is gifted by an assessee to his wife & she invest same in
deposits, then interest income is includable in assessee’s Total Income.
 Where asset transferred to Spouse/Son’s wife are invested by the
transferee.
 In partnership firm by way of Capital Contribution – Any Interest receivable
by the transferee attributable to such investment shall be clubbed.
 In any business – Proportionate income arising to transferee attributable to
such investment will be eligible for clubbing.(in ratio of capital contribution as
on 1st day of relevant previous year).

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 Asset Transferred directly or indirectly on or after 1st June,1973 by an
Individual to their son’s wife, without adequate consideration.
64(1)(vi) - Gift or Transfer to Son’s Wife
Taxable person : The income from such asset will be clubbed with the income of the
individual (i.e., transferor being father-in-law/mother-in-law)
•Exception : If the asset is transferred before marriage of son or
If the asset Is transferred for adequate consideration.

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Transfer of assets, directly or indirectly without adequate
consideration by an individual to a Person/Trust/AOP for the
immediate or deferred benefit of his/her Spouse.
Individual Transferring the Asset.
Relation should subsist both at the time of Transfer of Asset and at
the time when Income is accrued.
Transfer is made for Adequate Consideration.
64(1)(vii) - Gift to Person/Trust/AOP for
benefit of Spouse

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Transfer of assets, directly or indirectly on or after 1st June, 1973
without adequate consideration by an individual to a
Person/Trust/AOP for the immediate or deferred benefit of his
Son’s wife
Individual transferring the Asset
Transfer is made for Adequate Consideration.
64(1)(viii)-Gift to Person/Trust/AOP for benefit
of Son’s Wife

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 Any Income arises or accrues to a minor child is included in Total Income of
parent whose income is higher. (excluding minor’s income)
 Child : step child, adopted child, minor married daughter
 If the marriage of parents does not sustain, then minor’s income will be clubbed
with the income of parent who maintains the minor in the previous year.
Exceptions:
 Income of minor child earned on account of manual work or
 Any activity involving application of his/her skill, knowledge, talent, experience,
etc.
 any income of a minor child suffering from disability specified under section
80U.
64(1A) - Income of Minor Child

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 Benefit Availed : Exemption upto Rs. 1,500/- p.a per child is availed.
Note:
 Income of minor child will not be clubbed if he attains majority before end of
the PY
 Income once included in Total Income of either parent, any income arising
further shall not be included in the total income of other parent unless it is
necessary to do so (upon satisfaction A.O after giving that parent an
opportunity of being heard).
Income of Minor Child

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64(2) - Conversion of Self Acquired property
into Joint Property (HUF)
Income arising (u/s 64(2)) is taxable in the
hands of Transferor when ?
Member of HUF has Converted / Transferred Self
Acquired property into Joint family Property for
Inadequate Consideration.
Converted property is Subsequently partitioned
among members of HUF and the Income derived
form such converted property is received by
Spouse of the Transferor.

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 Income earned out of the income arising from transferred asset is not to be
clubbed.(CIT v/s M.S.S.Rajan)
 Mr.X Transferred his flat to his wife, who derives rental income therefrom and such
rental income is assessed in X’s name.
 Wife invested such rental income in FD’s and interest derived from such FD’s
cannot be clubbed in X’s.
 Can negative income be clubbed – YES (since income includes loss also)
Section 65 - Wherever Clubbing provisions is attracted, the person in whose name
the asset stands (Transferee) shall be liable to Pay Tax levied on the assesse on the
service of notice of demand.
 Where any asset is jointly held by more than one person, they shall be jointly
liable to pay tax in respect of Income from such asset.
Other Important Points

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Thank you!!!
P.V.Harini
1st Year Intern
M/s SBS and Company LLP
harinip@sbsandco.com
+91 9059488338
SBS Hyderabad
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