1. BY CLUBBING OF INCOME
Sections 60 – 65Sections 60 – 65
1
Shankar Bose
Inspector of Income-tax
MSTU, Puri

2. Transfer of Income without Transfer
of Assets[Sec. 60]
Section 60 is applicable if the following conditions are
satisfied:
The taxpayer owns an asset.
The ownership of asset is not transferred by him.
The Income from the asset is transferred to any
person under a settlement, trust, covenant,
agreement/ arrangement.
The transfer may be revocable or may not be
revocable.
The transfer may be effected at any time.
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3. In such cases, the income from the asset would be
taxable in the hands of the transferor (the person who
transfer the asset).
Section 60 has no application where corpus itself is
transferred .
 CIT vs GRANDHI NARAYANA RAO[1988] 173 ITR
593 (AP).
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4. Revocable Transfer of Assets [Sec. 61]
By virtue of Section 61, if an asset is transferred under
a “revocable transfer”, income from such asset is
taxable in the hands of the transferor.
The transfer for this purpose includes any settlement,
trust, covenant, agreement or arrangement.
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5. S. 61 says that,
 if a person
(i) makes a revocable transfer of assets, and
(ii) such asset generates income,
 then such income will be taxed at the hands of thesuch income will be taxed at the hands of the
transferortransferor even if the income-earning asset was standing
at that point of time in the name of the transferee.
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6.  Sec. 62 says that even if transfer of an asset is revocable, then also the
income from such asset will not be taxed (contrary to S. 61) in the hands of
transferor
 If
 (a) the revocable transfer is made to a trust and the transfer is not
revocable at least during the lifetime of beneficiary.
 Or
 (b) the revocable transfer is made to persons other than trust and
such
transfer is not revocable at least during lifetime of the transferee
person.
 Or
 (c) the transfer was made before 1.4.1961 and the same was not
revocable for a period exceeding six years.
 And
 (d) the transferor does not derive any benefit from such income.
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7. S. 63 says that a transfer will be deemed to be revocable
If
 (i) there is any provision for re-transfer ever of the
income or asset in any way whatsoever to the transferor
And
 (ii) there is any provision through which transferor
can reassume the power over whole/part of the income or
asset.
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8. The underlying principle of S. 61 read with 62 and 63 is not
different from S. 60.
Here, even if asset is transferred, income will continue to be taxed
at transferor’s hands in the following three situations :-
 (i) when there is any clause in the instrument of transfer to
revoke the transfer during lifetime of the transferee under any
circumstances or for any reason whatsoever
Or
 (ii) when the transfer is not revocable during lifetime of
transferee, true, but transferor derives some benefit directly or
indirectly from the income
Or
 (iii) though initially at the time of transfer neither the
transferor derived any benefit nor there was any clause for
revocation of transfer of asset during lifetime of transferee/
beneficiary, subsequently the transferor revokes it by any measure
and income arises to him from such revoked asset.
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9. The Calcutta High Court, in Chunilal Mulji
Motani vs. CIT (1983) 139 ITR 166,176 (Cal), held
that if a transfer is revocable then not only such part
of income from transferred asset which went to the
benefit of transferor but the entire income will be
taxed in the hands of the transferor.
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10. If,
The taxpayer is an individual.
He/she has a substantial interest in a concern.
Spouse of the taxpayer(i.e. husband/wife of the taxpayer)
is employed in the above-mentioned concern.
Spouse is employed in the concern without any technical
or professional knowledge or experience.
Then, Salary Income of the spouse will be taxable in
the hands of the taxpayer.
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An Individual is assessable in respect
of remuneration of spouse.[Sec. 64(1)
(ii)]

11. Income to be clubbed in the hands of the individual is
limited to salary, commission, fees or any other
remuneration received by the spouse, directly or
indirectly, whether in cash or in kind.
If the husband and wife both have substantial interest in
the concern and both are in receipt of remuneration
from the concern, then the remuneration of both shall be
clubbed in the hands of that spouse whose total income,
before including such remuneration, is greater. [Circular
no. 258, dated 14.06.1979].
Remuneration which is solely attributable to the
application of technical or professional knowledge and
experience of the spouse will not be clubbed.
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12. Meaning of “Substantial Interest”
In the case of a company - If an individual beneficially
holds (individually, or along with his relatives) 20% or
more of equity shares in a company at any time
during the previous year.
In case of a concern other than company – If an
individual is entitled to 20% profit in a concern
(individually, or along with his relatives) at any time
during the previous year.
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13. Regard must, therefore, be had to the nature of the
business carried on by the concern, the nature of the
technical or professional qualifications, knowledge
and experience possessed by the spouse to whom the
payment is made from that concern for the services
rendered by that person.
CIT vs. R.JAYALAKSHMI [1988] 101 TAXMAN
350(MAD.).
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14. INDIVIDUAL ASSESSABLE IN RESPECT OF INCOME
FROM ASSETS TRANSFERRED TO SPOUSE. [Sec.
64(1)(iv)
If an IndividualIndividual taxpayer transfers an asset, other
than a house property, to his/her spouse directly or
indirectly otherwise than (a) for adequate
consideration, or
(b) in connection with
an agreement to live apart
(the asset may held by the transferee-spouse in the
same form or in a different form),
any income arising from such asset shall be deemed
to be the income of the taxpayer who has transferred
the asset. DTRTI_KOLKATA 14

15. This provision is not applicable toThis provision is not applicable to
House Property because in thatHouse Property because in that
case the transferor is deemed to becase the transferor is deemed to be
the owner of the House Propertythe owner of the House Property
and the annual value of theand the annual value of the
property is taxed in the hands of theproperty is taxed in the hands of the
transferor as per section 27transferor as per section 27..
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16. Where a House Property is transferred without an
adequate consideration by an individual to his/her
spouse, although the transferor shall be the deemed
owner of the house property and shall be subject to
tax under the head “Income from House Property”,
but if there is any Capital Gain on the transfer of
such House Property, such capital gain shall first
be computed in the hands of the transferee and
thereafter the same will be clubbed with the income
of the transferor as per the provisions of this
section i.e. Section 64(1)(iv).
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17. HOW TO COMPUTE?
The Income from assets transferred must be regarded in
the same way as it would be if the asset has not been
transferred.
CIT vs. Maharaj Kumar Kamal Singh [1973]89 ITR 1
(SC).
Exemption, deduction or tax incentives in respect of such
income can be claimed by the transferor.
 G.B.Banerjee vs. CIT[1979]117 ITR 446(Cal).
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18. EXCEPTIONS
The income from the transferred assets shall not be
clubbed in the following cases:
If the transfer is for adequate consideration;
The transfer is under an agreement to live apart;
If the relationship of husband and wife doesn’t exist, either
at the time of transfer of such asset or at the time accrual of
the income. Philip John Plasket Thomas vs. CIT (1963)
49 ITR 97 (SC).
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19. EXAMPLE….
If “A” makes a gift to his fiancée then the
income arising on the amount so gifted,
shall not be taxable in the hands of “A”,
even after their marriage, as the
relationship of husband and wife doesn’t
exist at the time of making the gift.
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20. WHERE PART AMOUNT IS CONTRIBUTED
BY SPOUSE.
In KUMARA RAO (DR. N.) VS. CIT (1988) 169 ITR
128(AP), the wife of the assessee constructed a House
and spent a sum of Rs. 96,502 thereon. In that cost of
construction, the assessee contributed a sum of Rs.
34,500.
It was held, on facts, that the income from the house
property in proportion of 34.5/96.5 was includible in
the assessee’s income as the same could be said to be
attributable to Rs. 34,500 out of total cost of
construction of Rs. 96,502.
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21. The assessee made payments of premium on policy taken
in the name of his wife. The maturity proceeds were
invested and income earned thereon in the name of his
wife.
The Assessing Officer clubbed such income in the hands
of the assessee.
The Gujrat High Court upheld such action. The Court
held that proximity between asset and income had to be
considered irrespective of time lag between transfer of
asset and income had to be considered irrespective of
time lag between transfer of asset and actual income
derived. DAMODAR K. SHAH vs. CIT (2001) 119
TAXMAN 882(GUJ.).
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22. INDIVIDUAL ASSESSABLE IN RESPECT OF
INCOME FROM ASSETS TRANSFERRED TO SON’S
WIFE [SEC. 64(1)(vi)
Any income which arises from assets
transferred directly or indirectly by an
individual to his son’s wife after 1st
June,
1973, otherwise than for adequate
consideration, shall be included in the
income of the transferor.
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23. WHEN TRANSFERRED ASSET IS
INVESTED IN BUSINESS………….
In cases where the asset is transferred to spouse
/son’s wife, the transferred asset may be utilised in
the business of the transferee and in that case the
transferred asset becomes an indistinguishable part of
the capital employed in the business and the income
generated by that part of capital employed is also
difficult to determine.
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24. In such case the clubbable income is determined as
below:
 amount of investment out
of transferred asset in the
business as on the first day of X total profit earned
previous year. in the Business.
total investment in the business
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25. It becomes further difficult when the transferred asset is
invested in partnership firm because others’ money are
also invested. So in that case clubbable income is :-
amount of capital out of Interest( i.e. income )
transferred asset invested receivable by the
in the firm as on first day of XX transferee from
the previous year the firm.
total capital employed by the partner-transferee
in the firm as on first day of previous year
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26. INDIVIDUAL ASSESSABLE IN RESPECT OF INCOME FROM
ASSETS TRANSFERRED TO ANY PERSON FOR THE BENEFIT
OF THE SPOUSE OF THE TRANSFEROR [SEC. 64(1)(vii)]
The income from such assets shall be included in the
income of the transferor to the extent to which the
income is for the immediate or deferred benefit of
his/her spouse.
In the case of such transfer, only the portion of income
that is set apart for the benefit of spouse is taxable in the
hands of settler.
CIT vs ARVIND H. DALAL (1999) 105 TAXMAN 24
(BOM).14/05/13
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27. INDIVIDUAL ASSESSABLE IN RESPECT OF INCOME FROM
ASSETS TRANSFERRED TO ANY PERSON FOR THE BENEFIT
OF THE TRANSFEROR’S SON’S WIFE [SEC. 64(1)(viii)]
Where an individual transfers any assets, after 1st
June,
1973, to any person or association of persons,
otherwise than for adequate consideration, the
income from such assets shall be included in the
income of the transferor to the extent to which the
income is for the immediate or deferred benefit of
his/her’s son’s wife.
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28. Section 64(1)(vii) and (viii) will be
attracted if transferor makes a
declaration of trust and appoints
himself as the trustee.
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29. CLUBBING OF INCOME OF MINOR
CHILD [SEC. 64(1A)]
If any income accrues to the minor child of an individual
then such income will be clubbed at the hands of such
individual even if there is no transfer of asset / income
etc. as stated in earlier provisions.
Exception to this happens only if the minor earns the
income by DOING MANUAL WORK OR APPLYING
HIS SKILL, TALENT OR SPECIALISED
KNOWLEDGE/ EXPERIENCE, OR THE MINOR
CHILD IS SUFFERING FROM ANY DISABILITY OF
THE NATURE SPECIFIED IN SECTION 80U LIKE
PHYSICALLY DISABLED, TOTALLY BLIND ETC.
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30. The minor’s income will be clubbed at that parent’s
hand whose total income is more - if parents’
marriage is subsisting.
If they are separated, it will be clubbed at that
parent's hands who maintains the minor child.
Once such parent is decided, the same will continue
and the A.O. has to give opportunity of hearing to
the other parent if he wants to club it at his/her
hands.
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31. Where the income of a minor child
has been included in the total income
of a parent, such parent shall be
entitled to an exemption to thean exemption to the
extent of such income or Rs.extent of such income or Rs.
1,500(Ss 10(32))1,500(Ss 10(32)) whichever is less, in
respect of each minor child whose
income is so included.
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32. Minor child generally means, as per Indian Majority
Act, 1875 whose age is 18 years or less. But if minor’s
person and/or property is at the hands of guardian/court
of wards, then he attains majority only on completion of
21 years.
If father gives loan to minor son it would be very much
‘transfer’ because essence of loan is enforceable contract
and a minor cannot contract a loan as per Indian
Contract Act, 1872. So it is to be treated as transfer of
assets by father (CIT V Mriduhari Dalmia (1982) 133
ITR 0550 (Del).
If child was minor throughout the year but on the last
day of previous year attained majority, income accruing
to him cannot be clubbed.
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33. If both the parents of the minor child are not alive then
the income of minor child cannot be clubbed and the
guardian of the minor child shall file the return of such
income on behalf of the minor. It will not be includedIt will not be included
in the income of the guardian if the guardian is not ain the income of the guardian if the guardian is not a
parentparent.
What is to be clubbed is the income before allowing
deduction under chapter VIA.
ITO vs KULDEEP JAIN (2002) 81 ITD 379 (DEL. –
TRIB.).
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34. CLUBBING OF INCOME FROM PERSONAL PROPERTY
CONVERTED INTO PROPERTY OF HUF [SEC. 64(2)]
When an individual converts, after 31.12.69, his self-
acquired separate property into property of HUF to
which he belongs, then the entire income arising from
such property shall be deemed to be the transferor
individual’s income, and
if on partition of family, part of such property is received
by transferor’s spouse, then income from such portion of
property of spouse shall be included in the transferor
individual’s total income.
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35. Liability for payment of tax even though income
has been taxed at else’s hands [Sec. 65]
When an asset stands in one’s name but income
therefrom is taxed at somebody else’s hands due to
provisions of Ss. 60 to 64, then too the former
(owners of assets) will be liable to pay the tax on that
extent of income if the A.O. serves demand notice on
them.
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