8.

Clubbing of Income

1. Transfer of Income Without Transfer of Asset [Section 60]

 Clubbing Provision: If a person transfers the income from an asset to another

without transferring the asset itself, the income is taxed in the hands of the
transferor.

 Example: Mr. A confers the right to receive rent from his house property to his wife,
Mrs. A, without transferring the house. In this case, the rent received by Mrs. A will
be clubbed with the income of Mr. A.

2. Income Arising from Revocable Transfer of Assets [Sections 61 to 63]

 Clubbing Provision: Income from a revocable transfer of assets is included in the

total income of the transferor.

o Revocable Transfer (Sec. 63): A transfer is deemed revocable if:

 It includes a provision for the retransfer of full or part of the income or

assets back to the transferor, directly or indirectly.

 It gives the transferor a right to reassume control over the income or

assets, directly or indirectly.

o Note: If part of the income benefits the transferor directly or indirectly, the
entire income is included in their total income.

 Exception (Sec. 62):

o Non-application of Clubbing:

 Transfer via an irrevocable trust during the beneficiary's lifetime.

 Any transfer that is irrevocable during the transferee's lifetime.

o Post-Beneficiary’s Lifetime: After the beneficiary’s lifetime, the income is

taxable in the hands of the transferor.

3. Remuneration to Spouse in the Individual’s Concern [Section 64(1)(ii)]

 Clubbing Provision: Any remuneration (salary, commission, fees, etc.), in cash or

kind, received by the spouse of an individual from a concern in which the individual
has substantial interest is included in the income of the individual.

 Exceptions:
 o Technical/Professional Qualification Exception: If the spouse possesses
technical or professional qualifications, and the income is solely attributable
to the application of their knowledge or experience, the income is taxable in
the spouse’s hands.

o Substantial Interest of Both Spouses: If both spouses have substantial

interest in the concern and both are earning income, the income will be
included in the hands of the spouse with the higher total income.

 Substantial Interest:

o Company: Beneficial ownership of ≥ 20% of the voting power at any time

during the year.

o Other Concerns: Entitled to ≥ 20% of the profits at any time during the year.

4. Income Arising to Spouse from Transfer of Assets [Sections 64(1)(iv) & 64(1)(vii)]

 Clubbing Provision (Sec. 64(1)(iv)): When an asset (other than house property) is
transferred from one spouse to another, without adequate consideration, any
income from the asset is clubbed with the transferor's total income.

o Exception: Clubbing does not apply if the asset is transferred under an

agreement to live apart.

o Income from Transferred Asset Used for Spouse's Benefit (Sec. 64(1)(vii)): If
any income arises from an asset transferred without adequate consideration,
and the asset is used for the spouse’s benefit, it is clubbed in the hands of the
transferor.

 No Clubbing on Accretion: Income from the accretion of the transferred asset is not
subject to clubbing. For example, if the rent received from a transferred vacant land
is invested by the spouse in a bank FD, only the rent is subject to clubbing, not the
interest earned on the FD.

 Transferred Asset Invested in Business: If the transferee spouse invests the

transferred asset in a business, the proportionate income from the investment is
clubbed in the transferor's income. The proportionate income is calculated as:

Proportionate Income=Value of Transferred Asset on Day 1 of RPYTotal Business Investment×

Business Income\text{Proportionate Income} = \frac{\text{Value of Transferred Asset on Day
1 of RPY}}{\text{Total Business Investment}} \times \text{Business
Income}Proportionate Income=Total Business InvestmentValue of Transferred Asset on Day 1
of RPY×Business Income
  For Capital Contributions in Firms: The proportionate interest earned by the
transferee from capital contributions in firms is also clubbed.

5. Clubbing of Income Arising to Son's Wife [Sections 64(1)(vi) & (viii)]

 Same clubbing provisions as those applicable to the spouse.

 Note: If assets are transferred without consideration or for inadequate consideration,

then gift provisions under Section 56(2)(x) apply in the hands of the transferee.

6. Clubbing of Minor's Income [Section 64(1A)]

 Clubbing Provision: The income of a minor child is included in the income of the
parent whose total income is higher, excluding the minor's income.

o Consistency: Once clubbing is done with one parent in a particular year, it

continues in subsequent years unless the A.O. changes it based on the
circumstances.

 For House Property (HP) Transferred Without/Inadequate Consideration:

o Section 27 applies, and the transferor is deemed the owner for tax purposes.

o Note: HP transferred to a minor married daughter is not covered under

Section 27, but clubbing applies under Section 64(1A).

 Exemption Limit [Section 10(32)]: The parent is entitled to an exemption of ₹1,500

per minor child under the optional tax regime.

 Exceptions (No Clubbing):

o Income derived from:

 Manual work.

 Any activity involving skill, talent, or experience.

o Income of a minor suffering from disability under Section 80U is taxed in the
minor's hands and not clubbed.

7. Cross Transfers

 Case Reference: CIT v. Keshavji Morarji [1967] 66 ITR 142.

 If two transactions are interconnected and form part of the same transaction in a
circuitous manner to evade tax, clubbing provisions are applicable.
8. Conversion of Self-Acquired Property into HUF Property [Section 64(2)]

 Clubbing Provision: When an individual who is a member of an HUF converts their

self-acquired property into HUF property or transfers it to the HUF without adequate
consideration, the income from the converted property is included in the individual’s
total income.

 Partition of Converted Property: If the converted property is later partitioned, any

income derived by the spouse from the property is included in the total income of
the individual who converted the property.

 Exclusion from HUF or Spouse: Once the income from the converted property is
taxed in the individual’s total income, it is excluded from the income of:

o The HUF.

o The spouse (if applicable).

9. Income Includes Loss

 Explanation 2 to Section 64: The term 'income' includes 'loss'. Therefore, the loss
from a transferred asset is also subject to the clubbing provisions discussed.

10. Distinction Between Section 61 and Section 64

 Section 61:

o Applies only to revocable transfers of assets.

o Can be invoked for transfers made by any person, not limited to individuals.

 Section 64:

o Covers both revocable and irrevocable transfers.

o Applies specifically to transfers made by individuals.

Clarification on Accretion of Income:

 Clubbing Provisions: Income arising from the transferred asset is clubbed, but
income arising from the accretion of that income is not clubbed, except in the case
of a minor child’s income.

📘 Set-off & Carry Forward of Losses (Sec 70 to 80) – CA Inter DT Notes

🔹 1. Intra-head Adjustment – Sec 70

 Loss from one source can be set-off against income from another source under the
same head of income (except exceptions).

 Example:

o Income from House Property 1: ₹1,20,000

o Loss from House Property 2: ₹(80,000)

o Net Income from House Property = ₹40,000

❌ Exceptions:

1. Speculative business loss → Can’t be set off against non-speculative business

income.

2. Loss from specified business (Sec 35AD) → Can’t be set off against any other
business income.

3. Long-term capital loss → Only against LTCG.

4. Casual income (e.g., lottery winnings) → No set-off allowed.

5. Loss from owning/running race horses → Only set off against similar income.

🔹 2. Inter-head Adjustment – Sec 71

 After intra-head, remaining loss can be set-off against income from other heads,
subject to conditions.

✅ Allowed:

 Business Loss (Non-speculative) → Can be set off against salary, HP, capital gains,
other sources, etc.

❌ Not Allowed:

1. Loss under Capital Gains → Can’t be set-off against other heads.

2. Loss under Business → Can’t be set-off against Salary.

3. Loss from Horse races or lotteries → No inter-head set-off.

4. HP loss can be set off against any income (limit: ₹2,00,000 for set-off against income
from other heads).
🔹 3. Carry Forward of Losses – Sec 72 to 80

🔸 a. House Property Loss (Sec 71B)

 Can be carried forward up to 8 A.Y.

 Set off only against House Property Income.

 Allowed even if return not filed on time.

🔸 b. Business Loss (Sec 72)

 Non-speculative only.

 Carry forward for 8 A.Y.

 Can be set-off only against business income.

 Only if ROI filed u/s 139(1).

🔸 c. Speculative Business Loss (Sec 73)

 Carry forward for 4 A.Y.

 Set off only against speculative gains.

 File ROI u/s 139(1).

🔸 d. Specified Business Loss (Sec 73A)

 No time limit.

 Set off only against specified business income.

 ROI u/s 139(1) required.

🔸 e. Capital Loss (Sec 74)

 LTCG Loss → Set off against LTCG only.

 STCG Loss → Can be set off against both STCG and LTCG.

 Carry forward: 8 A.Y.

 ROI u/s 139(1) mandatory.

🔸 f. Owning & Maintaining Race Horses (Sec 74A)

 Loss from horse races → Only against such income.

 Carry forward for 4 A.Y.

🔸 g. Unabsorbed Depreciation (Sec 32(2))

 Carry forward indefinitely.

  Can be set off against any head (except Salary).

 No time limit or ROI deadline.

🔹 4. Priority of Set-off

When multiple losses are to be adjusted:

1. Current year depreciation

2. Current year capital expenditure on scientific research/Family Planning

3. Brought forward business loss

4. Unabsorbed depreciation

🔹 5. Conditions for Carry Forward

 Losses (except HP) can be carried forward only if:

o Return of Income is filed u/s 139(1) before due date.

o Maintain records, submit audit reports (if applicable).

📌 Summary Table

Carry Forward 139(1) Filing

Loss Type Set-off Allowed Against
(Years) Required?

Income from House

House Property Loss 8 ❌
Property

Non-Speculative Business
8 Business Income ✅
Loss

Speculative Business
Speculative Business Loss 4 ✅
Income

Specified Business Loss Specified Business

No Limit ✅
(35AD) Income only

LTCG (LTCG only), STCG

Capital Loss (LTCG/STCG) 8 ✅
(both)

Horse Race Loss 4 Horse Race Income only ✅

Unabsorbed Depreciation Infinite Any Income (except ❌

 Carry Forward 139(1) Filing
Loss Type Set-off Allowed Against
(Years) Required?

Salary)

🔍 Quick Example:

Situation:

 Business Loss (₹1,00,000)

 Salary Income (₹1,50,000)

✅ Inter-head Set-off under Sec 71:

 ₹1,00,000 Business Loss set off against ₹1,50,000 Salary.

 Net Total Income = ₹50,000