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Chapter 9: Clubbing of Income (Section 61 To 64) : Advance Direct Tax and Service Tax (Sub Code: 441)

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Chapter 9 : Clubbing of Income

(Section 61 to 64)

Advance Direct Tax and Service Tax


[Sub code : 441]
Learning Objectives
• Transfer of Income Where There is no
Transfer of Assets
• Transfer – Revocable & Irrevocable
• Income of Individual to Include Income of
Spouse, Minor Child etc.
• Treatment of Income of Spouse

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TRANSFER OF INCOME WHERE THERE IS NO TRANSFER
OF ASSETS [Section 60]
• All income arising to any person by virtue of a transfer shall,
where there is no transfer of the assets from which the
income arises, be chargeable to income-tax as the income
of the transferor and shall be included in his total income.
• Only where the income is transferred but not the asset,
then Section 60 is applicable.
• Section 60 has no application in a case where the corpus or
the asset itself is transferred.
Example –
Where Mr. A transfer income from the asset belonging to
him to Mr. B without transferring that asset, in this case the
income is still taxable in hands of Mr. A only.
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Transfer
• Here the meaning of “transfer” is not limited to the strict
meaning as given in the Transfer of Property Act or other
Acts.
• A beneficial transfer would be just sufficient.
• The transfer may be here revocable or irrevocable and it
may be effected before or after the commencement of this
Act.
• All income arising to any person by virtue of a revocable
transfer of assets shall be chargeable to income-tax as the
income of the transferor and shall be included in his total
income. (Section 61)
• A revocable transfer is revocable upon happening of some
event (it may be mere wish of the transferor).
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Transfer irrevocable for a specified period [Section 62]
• The provisions of section 61 shall not apply to any income
arising to any person by virtue of a transfer –
 by way of trust which is not revocable during the lifetime of the
beneficiary, and,
 in the case of any other transfer, which is not revocable during
the lifetime of the transferee;
In such a case as above, the transferor shall not derive any
direct or indirect benefit from such income in either case and
therefore the income is not taxable in the hands of transferor.
 However, notwithstanding anything contained above, all
income arising to any person by virtue of any such transfer
shall be chargeable to tax as the income of the transferor as
and when the power to revoke the transfer arises, and shall
then be included in his total income.
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What is "Transfer" and “Revocable Transfer" Section 63]
A transfer shall be deemed to be revocable if –
 it contains any provision for re-transfer directly or
indirectly of the whole or any part of the income or
assets to the transferor, or
 it, in any way, gives the transferor a right to re-
assume power directly or indirectly over the whole
or any part of the income or assets;

“Transfer" includes any settlement, trust, covenant,


agreement or arrangement.

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INCOME OF INDIVIDUAL TO INCLUDE INCOME OF
SPOUSE, MINOR CHILD, ETC. [Section 64]
Income Received Nature of Income Income from Ultimately Taxable in the
by - Hands of -

Spouse of any Salary, Commission, A concern in which the No clubbing, if spouse


Individual fees or any other individual has a possess technical or
remuneration in cash or substantial interest professional qualification
kind and the income is arise only
for application of that
technical or professional
qualification
Spouse of any Salary, Commission, A concern in which the If NO technical or
Individual fees or any other individual has a professional qualification
remuneration in cash or substantial interest then in the hands of that
kind Individual.
Spouse of any Income from the asset Payer may be any of the In the hands of Transferor
Individual transferred directly or spouse
indirectly to the spouse
without Adequate
Consideration or in
agreement to live apart

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Contd…
Income Received by - Nature of Income Income from Ultimately Taxable in
the Hands of -
Son’s Wife of any Income from the asset Payer may be any In the hands of
Individual (Daughter-in- transferred directly or one Transferor
Law) indirectly to the spouse
without Adequate
Consideration

Any Person or AOP – Income from the asset Payer may be any In the hands of
Who received the transferred directly or one Transferor
income for the indirectly to the spouse But the income must
immediate or deferred without Adequate be arise only from
benefit of his/her spouse Consideration to the Person asset so transfer
OR his son’s wife or AOP

Income accrue or arise to Any income arising through Payer may be any To be clubbed with
Minor Child (Not being transfer of the Asset by one that Parent’s income
suffered by decease as Parents whose income is
specified under section higher.
80U)

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Contd…
Income Received by - Nature of Income Income from Ultimately Taxable in
the Hands of -

Income accrue or arise Any income to Minor from Payer may be any one NO Clubbing of such
to Minor Child (Not – income received by
being suffered by Manual work done by him Minor
decease as specified OR
under section 80U) Any activity involving
application of his skill,
talent or specialized
knowledge

Income to HUF: Income from such Payer may be any one In the hands of
Where an individual converted / transferred Transferor
transfer his separate property
asset to the HUF

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Conclusion
• For the purposes of clubbing under section 64, the
term “Income" includes “Loss”.
• Therefore, just as the income is to be clubbed, the
losses arising to the transferee are also to be clubbed
in the hands of the transferor.
• If income is transferred without transfer of asset,
income is chargeable at the hands of Transferor.
• Income of spouse or minor child from assets
transferred by a person continues to be that person's
income.

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