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` Sec 60-Transfer of income without transfer of assets
` Sec 61- Revocable Transfer of Assets` Sec 62-Exceptions under revocable transfer of Assets` Sec 64- Remuneration Of Spouse
Income from Assets transferred tospouseIncome from Assets transferred toson¶s wifeIncome from assets transferred to a person for benefitof son¶s wife
(2) - Conversion of Self-acquired Property into Joint-family Property and Subsequent Partition
- Transfer by a member to HUF without adequateconsideration- Income from the accretion to assets
Sec 64 - Clubbing of Negative Income
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If any person transfers income without transferring
the ownership of the asset, such income is taxable
in the hands of the transferor. It will not make any
difference whether the transfer is revocable or irrevocable or it was effected before or after the
commencement of the Act.
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(a) A transfer shall be deemed to be revocable if-(i) It contains any provision for the re-transfer directly or indirectly of the whole or any part of theincome or assets to the transferor, or
(ii) It, in any way, gives the transferor a right to re-assume power directly or indirectly over the wholeor any part of the income or assets;
³Transfer" includes any settlement, trust,covenant, agreement or arrangement
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Illustration:
A owns Debentures worth Rs 10,00,000 of X
Ltd., (annual) interest being Rs. 100,000. On April 1, 2009, he transfers interest income to P,
his friend without transferring the ownership of
these debentures.
Although during 2009-10, interest of Rs.
1,00,000 is received by P, it is taxable in the
hands of A as per Section 60.
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Any income arising to any person by virtue of a
revocable transfer of assets is chargeable to tax
as the income of the transferor . This is subject tothe following two exceptions laid down by section
62
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` Exceptions under Sec. 62:
Where the income arises to any person by virtue of a
transfer by way of trust which is not revocable during the
lifetime of the beneficiary and, in case of any other
transfer, which is not revocable during the lifetime of the
transferee.
Where the income arises to any person by virtue of atransfer made before Apr il 1, 1961, which is not
revocable for a period of 6 years of more.
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An individual is chargeable to tax in respect of anyremuneration received by the spouse from aconcern in which the individual has substantialinterest.
1. When clubbing is not attr acted- Remunerationsolely attributable to the application of technical or
professional knowledge and experience of thespouse is not clubbed, irrespective of the fact
whether such remuneration is received form a firmor any other person
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Substantial Inter est ± An individual is deemed to
have substantial interest, if he (individually or
along with his relatives) beneficially holds equityshares carrying not less than 20% voting power in
the case of a company or is entitled to not less
than 20% of the profits in the case of a concern
other than a company at any time during theprevious year.
Remuneration of Spouse
(Sec. 64(1)(ii))
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³Relative´ in relation to an individual, means the
husband, wife, brother or sister or any lineal
ascendant or descendant of that individual.
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2.When both husband and wife have a substantial
inter est in a concer n ±
Where both husband and wife have a substantial
interest in the concern and both are in receipt of remuneration from such concern, remuneration will
be included in the total income of husband or wife
whose total income excluding such remuneration is
greater.
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` Income eligible for clubbing ± Income to be
clubbed in the hands of individual is limited to
salary, commission, fees, or any other
remuneration received by the spouse, directly or indirectly, whether in cash or in kind. Any other
income, not covered by the aforesaid categories
is, however, outside the scope of this section even
if it accrues to the spouse from a concern in whichthe individual has a substantial interest
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Illustration:
X has a substantial interest in A Ltd. and Mrs.X is employed by A Ltd. without any technical or
professional qualification to justify the
remuneration.
In this case, salary income of Mrs. X shall be
taxable in the hands of X as per section 64 (1)
(ii)
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Where an asset (other than house property) is
transferred by an individual to his spouse directly
or indirectly, otherwise than for adequate
consideration or in connection with an agreement to live apart , any income from such asset is
deemed to be the income of the transferor.
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Illustration:X transfers 500 debentures of IFCI to his wife
without adequate consideration.
Interest income on these debentures will be
included in the income of X as per section 64(1)(IV)
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If an individual, directly or indirectly, transfers
assets after May 31, 1973, without adequate
consideration to son¶s wife, income arising from
such assets is included in the total income of thetransferor.
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Where an asset is transferred by an individual,
directly or indirectly, on or after June 1, 1973,
without adequate consideration to a person or an
association of persons for the immediate or
deferred benefit of Son¶s wife, income arising,
directly or indirectly, from the transferred assets is
included in the total income of the transferor to the
extent of such benefit.
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Illustration:
Mr. Raman is a C.A. in practice. He engages hiswife Sita as an employee for audit work andpays a sum of Rs20,000 p.m. towards salary.Sita before marriage has completed her C.A.
article ship training and is presently awaitingresult of the final examination.
Therefore, the remuneration paid will not be
subject to clubbing as per Sec 64(1) since Sitahas not yet acquired the qualification andexperience.
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` All income which arises or accrues to the minor shall be clubbed in the income of his parent.
Exception: All income derived from manual work or
from activity involving his talent or specializedknowledge and experience and income of minor
child suffering from any disability of the nature
specified in section 80 U will not be included in the
income of his parent.
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` The income of minor will be included in the income of that parent
whose total income is greater and where marriage of parents does
not subsist, the income of minor will be includable in the income of
that parent who maintains the minor child in the relevant previousyear.
` Where any such income is once included in the total income of
either parent, any such income arising in any succeeding year shall
not be included in the total income of the other parent (unless theassessing officer is satisfied after giving that parent an opportunity
of being heard that it is necessary to do so).
` Exemption of Rs.1500 ± if income of individual includes income of
his minor child exceeding this amount. If <1500 exemption shall berestricted.
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` Where a member of a Hindu undivided family hasconverted his self-acquired property into jointfamily property after December 31, 1969, income
arising from the converted property will be dealtwith as follows: The entire income from the converted property is taxable
as the income of the transferor
If the converted property is subsequently partitioned
amongst the members of the family, the income derivedfrom such converted property, as is received by thespouse of the transferor will be taxable in his hands.
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` Where an individual makes a direct or indirect gift
of his separate property to the HUF of which he is
a member or where he transfers his separate
property to his family for less than its Fair MarketValue, the provisions of Section 64(2) will be
applied and the income form such separate
property(which is deemed to be converted
property) will be included in the total income of the
individual.
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` Income arising to the transferee from the property
transferred is taxable in the hands of the
transferor. However, income arising to the
transferee from the accretion of such property or from accumulated income of such property is not
includible in the total income of the transferor.
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Illustration:
Mr. A gifts a sum of Rs50 lakhs on the occasion of
wedding anniversary. Mrs A invests this sum in a fixed
deposit, which derives interest income of Rs25,000 p.m.
The interest so derived shall be clubbed in the hands of
Mr. A, despite the fact that it is the income from
converted asset.
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` The Finance Act 1979, has inserted an
explanation to Sec. 64 to the effect that, for the
purposes of including the income of specified
persons in the income of the individual, the word³income´ will include a loss.
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` Taxmann¶s Direct Taxes Ready Reckoner
` Caclubofindia.com
` Investopedia.com
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