As per Section 61(1)
If a person transfers any asset (except house property)
to spouse for inadequate consideration
Otherwise than in an agreement to live apart,
then income of asset will be clubbed in hands of transferor
However if house property transferred, then Section 27(1) applicable (Of Income from House property) and not clubbing provisions
Sale of Assets
If the spouse sell the asset and purchase any other asset and earns some income on such asset then also income will be clubbed
Asset Transferred Used for Business by Transferee
Proportionate Income arising from business will be treated as total income of transferor
Proportionate Investment=Value of Asset Transferred/Total Investment
as on first day of previous year
EXAM QUESTION 1
Mr. Vaibhav started a proprietary business on 01.04.2014 with a capital of Rs 5,00,000. He incurred a loss of Rs 2,00,000 during the year 2014-15. To overcome the financial position, his wife Mrs. Vaishaly, a software Engineer, gave a gift of Rs 5,00,000 on 01.04.2015, which was immediately invested in the business by Mr. Vaibhav. He earned a profit of Rs 4,00,000 during the year 2015-16. Compute the amount to be clubbed in the hands of Mrs. Vaishaly for the Assessment Year 2016-17. If Mrs. Vaishaly gave the said amount as loan, what would be the amount to be clubbed?
View AnswerValue of Gift=500000
Value of Vaibhav Capital=500000-200000=300000
Total investment=500000+300000=8000000
Proportionate Investment by Vaishali=500000/800000=5/8
Income Earned=400000
Income to be clubbed in hands of Vaishali
=5/8*400000
=250000
Balance Income taxable in hands of Vaibhav
=400000-25000=150000
EXAM QUESTION 2
A proprietary business was started by Smt. Rani in the year 2013. As on 1.4.2014 her capital in business was Rs 3,00,000. Her husband gifted Rs 2,00,000 on 10.4.2014, which amount Smt. Rani invested in her business on the same date. Smt. Rani earned profits from her proprietory business for the Financial year 2014-2015, Rs 1,50,000 and Financial year 2015-16 Rs 3,90,000. Compute the income, to be clubbed in the hands of Rani‟s husband for the Assessment year 2016-17 with reasons.
View AnswerFor FY 2014-15-
As on 1/4/14
Value of Gift=0
Value of Rani Capital=300000
Total Capital=300000
Proportionate Investment=0/300000=0
Hence no clubbing will be done
Whole Income earned will be taxable in hands of Rani
For FY 2015-16
As on 1/4/15
Value of Gift=200000
Value of Rani Capital=300000+150000 Profit=450000
Total Capital=650000
Proportionate Investment=200000/650000=20/65
Income earned=390000
Income clubbed in hands of husband-20/65*390000=120000
Remaining Income earned will be taxable in hands of Rani=390000-120000=270000
Note
CASES WHERE NO CLUBBING DONE
- If assets given for adequate consideration,no clubbing
- The relationship of husband and wife should exist both at the time of transfer of property and at the time of earning of income (Gift to fiancee-No clubbing
- If person purchased an assets from out of Pocket Money given by spouse then no clubbing shall be done.
