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    For Dec 2013 ICWAI Stage I Examination (Paper 7): Clubbing of Income


    Following income must be included in the total income of the transferor
    Section 60: Transfer of income without transfer of assets
    Section 61: Revocable transfer of assets
    Transfer is said to be revocable:
    Ø  If it contains provision for re-transfer of whole or any part of the income to the transferor.
    Ø  It gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets.
    However, as per section 62(1), the provisions of revocable transfer, discussed above, shall not apply in following circumstances:
    ü  Transfer by way of trust
    ü  In case of any other transfer, the transfer is not revocable during the life time of the transferee;
    ü  If transfer is made before 1-4-1961, the transfer is not revocable for a period exceeding 6 years.

    Income of an individual (Transferor) to include income of spouse, minor child, etc. Section 64
    Section 64(1) (ii): Remuneration of spouse from a concern in which the other spouse has substantial interest.
    Ø  Clubbed in the hands of the spouse who has a substantial interest in that concern.
    Ø  No clubbing if remuneration is due to technical or professional qualifications of spouse.
    Ø  If husband and wife both have substantial interest in the concern and  both are in receipt of remuneration from the concern: remuneration of both shall be clubbed + whose income before remuneration is greater.

    Meaning of substantial interest:
    Ø  For company: At least 20% equity shares are held by individual along with his relatives.
    Ø  For any other case: At least 20% of the profits of such concern held by individual along with his relatives.
    Here, Relative means the husband, wife, brother or sister or any lineal ascendant or descendant of the individual.
                   
    Section 64(1)(IV): Income from assets other than House Property transferred to spouse included in Total income of Transferor.
    But not included if,
    Ø  if the transfer is for adequate consideration;
    Ø  the transfer is under an agreement to live apart;
    Ø  If the relationship of husband and wife does not exist, either at the time of transfer of such asset or at the time of accrual of the income.

    Section 64(1)(vi): Income from assets transferred to son's wife , otherwise than for adequate consideration, shall be included in the income of the transferor.
    Section 64(1)(vii): Income from assets transferred to any person for the benefit of the spouse of the transferor is included to the extent of benefit
    Section 64(1)(viii): Income from assets transferred to any person for the benefit of son's wife is included to the extent of benefit

    Section 64(1A): Clubbing of income of a minor child
    Ø  Income of a minor Child (Including Step or Adopted) in excess of Rs. 1,500 p.a.(After all deduction)  is clubbed  with the total income of parent whose income is higher and continuously clubbed with his income unless the AO is satisfied to change.
    Ø  If parents are living separately: club with the income of guardian
    Ø  If incomes of parents are identical: club with income of any of the parents which is beneficial.
    Ø  If parents are not alive, a separate return is to be filed, Cannot be clubbed with guardian’s income
    Ø  But income of minor cannot be clubbed if:
    Child suffering from any disability
    Income arises on account of any manual work done by him
    Income arises on account of  skills, talent or specialized knowledge and experience of minor


    Section 64(2): Income from self acquired property converted to joint family property (HUF) otherwise than for adequate consideration
    Ø  then the income from such property shall continue to be included in the total income of the individual.
    Ø  Subsequent partition: Income derived from such converted property as is received by the spouse on partition, shall be clubbed in the hands of the transferor.

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