ICAI Notes: Income of Other Persons included in Assesses Total Income | Taxation for CA Intermediate PDF Download

 Page 1


LEARNING OUTCOMES 
a
  
 
CHAPTER 
4 
PA
INCOME OF OTHER 
PERSONS INCLUDED 
IN ASSESSEE’S TOTAL 
INCOME 
After studying this chapter, you would be able to - 
? identify when clubbing provisions are attracted and apply the same 
in computing total income of the assessee; 
? examine the circumstances when income of the spouse is included in 
the income of the individual and apply the same in computing total 
income of the individual; 
? examine the circumstances when income of son’s wife is included in 
the hands of the individual and apply the same in computing total 
income of the individual; 
? identify the nature of income of minor, in respect of which clubbing 
provisions are not attracted; 
? examine how minor’s income is included in the hands of the parent 
and compute the amount to be included in the hands of the parent; 
? examine the circumstances when income of HUF is included in the 
hands of a member of the HUF. 
© The Institute of Chartered Accountants of India
Page 2


LEARNING OUTCOMES 
a
  
 
CHAPTER 
4 
PA
INCOME OF OTHER 
PERSONS INCLUDED 
IN ASSESSEE’S TOTAL 
INCOME 
After studying this chapter, you would be able to - 
? identify when clubbing provisions are attracted and apply the same 
in computing total income of the assessee; 
? examine the circumstances when income of the spouse is included in 
the income of the individual and apply the same in computing total 
income of the individual; 
? examine the circumstances when income of son’s wife is included in 
the hands of the individual and apply the same in computing total 
income of the individual; 
? identify the nature of income of minor, in respect of which clubbing 
provisions are not attracted; 
? examine how minor’s income is included in the hands of the parent 
and compute the amount to be included in the hands of the parent; 
? examine the circumstances when income of HUF is included in the 
hands of a member of the HUF. 
© The Institute of Chartered Accountants of India
a
Income of other persons included in assessee's total income 
Transfer of income 
without transfer of 
asset 
[Section 60]
Income arising from 
revocable transfer of 
assets 
[Section 61]
Exception
[Section 62]
Transfer by way of 
a trust which is not  
revocable during 
the life time of the 
beneficiary or in 
case of any other 
transfer, not 
revocable during 
the lifetime of  the 
transferee
Transferor derives no direct or 
indirect benefit from such income
As and when power to 
revoke arises, clubbing 
provisions would apply
Spouse's Income
Remuneration to 
spouse from a 
concern in which 
individual has a 
substantial 
interest
[Section 64(1)(ii)]
Exception
Where spouse 
possesses 
technical or 
professional 
qualifications,  
clubbing 
provisions will 
not apply
Income arising to 
spouse from an 
asset
*
transferred 
without adequate 
consideration or 
not in connection 
with  an 
agreement to live 
apart
[Section 64(1)(iv)]
Income arising 
to any person or 
AOPs from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of spouse 
[Section 
64(1)(vii)]
Minor's income 
[Section 64(1A)]
All income of a 
minor is clubbed 
with the income of 
parent, whose total 
income excluding 
minor's income, is 
greater. Exemption 
of upto ` 1,500 per 
child is available u/s 
10(32) if that parent 
has exercised the 
option of shifting 
out of the default 
tax regime provided 
under section 
115BAC(1A).
Exceptions
Income from 
manual work or 
from skill, talent 
or specialised 
knowledge or 
experience will 
not be clubbed
Income of a 
minor child 
suffering from 
disability 
mentioned u/s 
80U shall not be 
clubbed
Income of  son's 
wife
Income arising 
to son's wife 
from an asset 
transferred 
without 
adequate 
consideration
[Section 
64(1)(vi)]
Income arising 
to any person or 
AOPs  from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of sons's wife 
[Section 
64(1)(viii)]
* In case of transfer of house property to spouse without adequate consideration, 
transferor will be deemed as owner of such property as per section 27(i). In such a case, 
section 64(1)(iv) will not apply.
CHAPTER OVERVIEW
INCOME TAX LAW 
4.2
© The Institute of Chartered Accountants of India
Page 3


LEARNING OUTCOMES 
a
  
 
CHAPTER 
4 
PA
INCOME OF OTHER 
PERSONS INCLUDED 
IN ASSESSEE’S TOTAL 
INCOME 
After studying this chapter, you would be able to - 
? identify when clubbing provisions are attracted and apply the same 
in computing total income of the assessee; 
? examine the circumstances when income of the spouse is included in 
the income of the individual and apply the same in computing total 
income of the individual; 
? examine the circumstances when income of son’s wife is included in 
the hands of the individual and apply the same in computing total 
income of the individual; 
? identify the nature of income of minor, in respect of which clubbing 
provisions are not attracted; 
? examine how minor’s income is included in the hands of the parent 
and compute the amount to be included in the hands of the parent; 
? examine the circumstances when income of HUF is included in the 
hands of a member of the HUF. 
© The Institute of Chartered Accountants of India
a
Income of other persons included in assessee's total income 
Transfer of income 
without transfer of 
asset 
[Section 60]
Income arising from 
revocable transfer of 
assets 
[Section 61]
Exception
[Section 62]
Transfer by way of 
a trust which is not  
revocable during 
the life time of the 
beneficiary or in 
case of any other 
transfer, not 
revocable during 
the lifetime of  the 
transferee
Transferor derives no direct or 
indirect benefit from such income
As and when power to 
revoke arises, clubbing 
provisions would apply
Spouse's Income
Remuneration to 
spouse from a 
concern in which 
individual has a 
substantial 
interest
[Section 64(1)(ii)]
Exception
Where spouse 
possesses 
technical or 
professional 
qualifications,  
clubbing 
provisions will 
not apply
Income arising to 
spouse from an 
asset
*
transferred 
without adequate 
consideration or 
not in connection 
with  an 
agreement to live 
apart
[Section 64(1)(iv)]
Income arising 
to any person or 
AOPs from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of spouse 
[Section 
64(1)(vii)]
Minor's income 
[Section 64(1A)]
All income of a 
minor is clubbed 
with the income of 
parent, whose total 
income excluding 
minor's income, is 
greater. Exemption 
of upto ` 1,500 per 
child is available u/s 
10(32) if that parent 
has exercised the 
option of shifting 
out of the default 
tax regime provided 
under section 
115BAC(1A).
Exceptions
Income from 
manual work or 
from skill, talent 
or specialised 
knowledge or 
experience will 
not be clubbed
Income of a 
minor child 
suffering from 
disability 
mentioned u/s 
80U shall not be 
clubbed
Income of  son's 
wife
Income arising 
to son's wife 
from an asset 
transferred 
without 
adequate 
consideration
[Section 
64(1)(vi)]
Income arising 
to any person or 
AOPs  from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of sons's wife 
[Section 
64(1)(viii)]
* In case of transfer of house property to spouse without adequate consideration, 
transferor will be deemed as owner of such property as per section 27(i). In such a case, 
section 64(1)(iv) will not apply.
CHAPTER OVERVIEW
INCOME TAX LAW 
4.2
© The Institute of Chartered Accountants of India
INCOME OF OTHER PERSONS INCLUDED 
IN ASSESSEE’S TOTAL INCOME 
a
 
4.3
1. CLUBBING OF INCOME – AN INTRODUCTION
Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his 
own income. However, there are certain cases where an assessee has to pay tax in 
respect of income of another person. The provisions for the same are contained in 
sections 60 to 64 of the Act. These provisions have been enacted to counteract 
the tendency on the part of the tax-payers to dispose of their property or transfer 
their income in such a way that their tax liability can be avoided or reduced.  
These provisions can be categorized as follows: 
• Income of other persons included in an assessee’s total income [Sections 60-63]
• Income of other persons included in an Individual’s total income [Section 64]
Note - In the case of individuals, income-tax is levied on a slab system on the total 
income. The tax system is progressive i.e. as the income increases, the applicable rate 
of tax increases. Some taxpayers in the higher income bracket have a tendency to 
divert some portion of their income to their spouse, minor child etc. to minimize their 
tax burden. In order to prevent such tax avoidance, clubbing provisions have been 
incorporated in the Act, under which income arising to certain persons (like spouse, 
minor child etc.) have to be included in the income of the person who has diverted 
his income for the purpose of computing tax liability. 
2. INCOME OF OTHER PERSONS INCLUDIBLE IN
ASSESSEE’S TOTAL INCOME
2.1 Transfer of income without transfer of asset [Section 60] 
(i) If any person transfers the income from any asset without transferring the
asset itself, such income is to be included in the total income of the
transferor.
(ii) It is immaterial whether the transfer is revocable or irrevocable and whether
it was made before the commencement of this Act or after its
commencement.
© The Institute of Chartered Accountants of India
Page 4


LEARNING OUTCOMES 
a
  
 
CHAPTER 
4 
PA
INCOME OF OTHER 
PERSONS INCLUDED 
IN ASSESSEE’S TOTAL 
INCOME 
After studying this chapter, you would be able to - 
? identify when clubbing provisions are attracted and apply the same 
in computing total income of the assessee; 
? examine the circumstances when income of the spouse is included in 
the income of the individual and apply the same in computing total 
income of the individual; 
? examine the circumstances when income of son’s wife is included in 
the hands of the individual and apply the same in computing total 
income of the individual; 
? identify the nature of income of minor, in respect of which clubbing 
provisions are not attracted; 
? examine how minor’s income is included in the hands of the parent 
and compute the amount to be included in the hands of the parent; 
? examine the circumstances when income of HUF is included in the 
hands of a member of the HUF. 
© The Institute of Chartered Accountants of India
a
Income of other persons included in assessee's total income 
Transfer of income 
without transfer of 
asset 
[Section 60]
Income arising from 
revocable transfer of 
assets 
[Section 61]
Exception
[Section 62]
Transfer by way of 
a trust which is not  
revocable during 
the life time of the 
beneficiary or in 
case of any other 
transfer, not 
revocable during 
the lifetime of  the 
transferee
Transferor derives no direct or 
indirect benefit from such income
As and when power to 
revoke arises, clubbing 
provisions would apply
Spouse's Income
Remuneration to 
spouse from a 
concern in which 
individual has a 
substantial 
interest
[Section 64(1)(ii)]
Exception
Where spouse 
possesses 
technical or 
professional 
qualifications,  
clubbing 
provisions will 
not apply
Income arising to 
spouse from an 
asset
*
transferred 
without adequate 
consideration or 
not in connection 
with  an 
agreement to live 
apart
[Section 64(1)(iv)]
Income arising 
to any person or 
AOPs from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of spouse 
[Section 
64(1)(vii)]
Minor's income 
[Section 64(1A)]
All income of a 
minor is clubbed 
with the income of 
parent, whose total 
income excluding 
minor's income, is 
greater. Exemption 
of upto ` 1,500 per 
child is available u/s 
10(32) if that parent 
has exercised the 
option of shifting 
out of the default 
tax regime provided 
under section 
115BAC(1A).
Exceptions
Income from 
manual work or 
from skill, talent 
or specialised 
knowledge or 
experience will 
not be clubbed
Income of a 
minor child 
suffering from 
disability 
mentioned u/s 
80U shall not be 
clubbed
Income of  son's 
wife
Income arising 
to son's wife 
from an asset 
transferred 
without 
adequate 
consideration
[Section 
64(1)(vi)]
Income arising 
to any person or 
AOPs  from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of sons's wife 
[Section 
64(1)(viii)]
* In case of transfer of house property to spouse without adequate consideration, 
transferor will be deemed as owner of such property as per section 27(i). In such a case, 
section 64(1)(iv) will not apply.
CHAPTER OVERVIEW
INCOME TAX LAW 
4.2
© The Institute of Chartered Accountants of India
INCOME OF OTHER PERSONS INCLUDED 
IN ASSESSEE’S TOTAL INCOME 
a
 
4.3
1. CLUBBING OF INCOME – AN INTRODUCTION
Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his 
own income. However, there are certain cases where an assessee has to pay tax in 
respect of income of another person. The provisions for the same are contained in 
sections 60 to 64 of the Act. These provisions have been enacted to counteract 
the tendency on the part of the tax-payers to dispose of their property or transfer 
their income in such a way that their tax liability can be avoided or reduced.  
These provisions can be categorized as follows: 
• Income of other persons included in an assessee’s total income [Sections 60-63]
• Income of other persons included in an Individual’s total income [Section 64]
Note - In the case of individuals, income-tax is levied on a slab system on the total 
income. The tax system is progressive i.e. as the income increases, the applicable rate 
of tax increases. Some taxpayers in the higher income bracket have a tendency to 
divert some portion of their income to their spouse, minor child etc. to minimize their 
tax burden. In order to prevent such tax avoidance, clubbing provisions have been 
incorporated in the Act, under which income arising to certain persons (like spouse, 
minor child etc.) have to be included in the income of the person who has diverted 
his income for the purpose of computing tax liability. 
2. INCOME OF OTHER PERSONS INCLUDIBLE IN
ASSESSEE’S TOTAL INCOME
2.1 Transfer of income without transfer of asset [Section 60] 
(i) If any person transfers the income from any asset without transferring the
asset itself, such income is to be included in the total income of the
transferor.
(ii) It is immaterial whether the transfer is revocable or irrevocable and whether
it was made before the commencement of this Act or after its
commencement.
© The Institute of Chartered Accountants of India
a
 
INCOME TAX LAW 4.4 
Example :  Mr. A confers the right to receive rent in respect of his house property 
to his wife, Mrs. A, without transferring the house itself to her. In this case, the rent 
received by Mrs. A will be clubbed with the income of Mr. A. 
ILLUSTRATION 1 
Mr. Vatsan has transferred, through a duly registered document, the income arising 
from a godown to his son, without transferring the godown. In whose hands will the 
rental income from godown be charged? 
SOLUTION 
Section 60 expressly states that where there is transfer of income from an asset 
without transfer of the asset itself, such income shall be included in the total 
income of the transferor. Hence, the rental income derived from the godown shall 
be clubbed in the hands of Mr. Vatsan. 
2.2 Income arising from revocable transfer of assets 
[Section 61] 
All income arising to any person by virtue of a revocable transfer of assets is to be 
included in the total income of the transferor. 
Meaning of revocable transfer [Section 63] 
Transfer is deemed to be revocable if— 
(a) it contains any provision for the retransfer, directly or indirectly, of the
whole or any part of the income or assets to the transferor, or
(b) it gives, in any way to the transferor, a right to reassume power, directly or
indirectly, over the whole or any part of the income or the assets.
Clubbing provision will operate even if only part of income of the 
transferred asset had been applied for the benefit of the transferor. 
Once the transfer is revocable, the entire income from the transferred 
asset is includible in the total income of the transferor. 
© The Institute of Chartered Accountants of India
Page 5


LEARNING OUTCOMES 
a
  
 
CHAPTER 
4 
PA
INCOME OF OTHER 
PERSONS INCLUDED 
IN ASSESSEE’S TOTAL 
INCOME 
After studying this chapter, you would be able to - 
? identify when clubbing provisions are attracted and apply the same 
in computing total income of the assessee; 
? examine the circumstances when income of the spouse is included in 
the income of the individual and apply the same in computing total 
income of the individual; 
? examine the circumstances when income of son’s wife is included in 
the hands of the individual and apply the same in computing total 
income of the individual; 
? identify the nature of income of minor, in respect of which clubbing 
provisions are not attracted; 
? examine how minor’s income is included in the hands of the parent 
and compute the amount to be included in the hands of the parent; 
? examine the circumstances when income of HUF is included in the 
hands of a member of the HUF. 
© The Institute of Chartered Accountants of India
a
Income of other persons included in assessee's total income 
Transfer of income 
without transfer of 
asset 
[Section 60]
Income arising from 
revocable transfer of 
assets 
[Section 61]
Exception
[Section 62]
Transfer by way of 
a trust which is not  
revocable during 
the life time of the 
beneficiary or in 
case of any other 
transfer, not 
revocable during 
the lifetime of  the 
transferee
Transferor derives no direct or 
indirect benefit from such income
As and when power to 
revoke arises, clubbing 
provisions would apply
Spouse's Income
Remuneration to 
spouse from a 
concern in which 
individual has a 
substantial 
interest
[Section 64(1)(ii)]
Exception
Where spouse 
possesses 
technical or 
professional 
qualifications,  
clubbing 
provisions will 
not apply
Income arising to 
spouse from an 
asset
*
transferred 
without adequate 
consideration or 
not in connection 
with  an 
agreement to live 
apart
[Section 64(1)(iv)]
Income arising 
to any person or 
AOPs from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of spouse 
[Section 
64(1)(vii)]
Minor's income 
[Section 64(1A)]
All income of a 
minor is clubbed 
with the income of 
parent, whose total 
income excluding 
minor's income, is 
greater. Exemption 
of upto ` 1,500 per 
child is available u/s 
10(32) if that parent 
has exercised the 
option of shifting 
out of the default 
tax regime provided 
under section 
115BAC(1A).
Exceptions
Income from 
manual work or 
from skill, talent 
or specialised 
knowledge or 
experience will 
not be clubbed
Income of a 
minor child 
suffering from 
disability 
mentioned u/s 
80U shall not be 
clubbed
Income of  son's 
wife
Income arising 
to son's wife 
from an asset 
transferred 
without 
adequate 
consideration
[Section 
64(1)(vi)]
Income arising 
to any person or 
AOPs  from 
assets 
transferred 
without 
adequate 
consideration 
for the benefit 
of sons's wife 
[Section 
64(1)(viii)]
* In case of transfer of house property to spouse without adequate consideration, 
transferor will be deemed as owner of such property as per section 27(i). In such a case, 
section 64(1)(iv) will not apply.
CHAPTER OVERVIEW
INCOME TAX LAW 
4.2
© The Institute of Chartered Accountants of India
INCOME OF OTHER PERSONS INCLUDED 
IN ASSESSEE’S TOTAL INCOME 
a
 
4.3
1. CLUBBING OF INCOME – AN INTRODUCTION
Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his 
own income. However, there are certain cases where an assessee has to pay tax in 
respect of income of another person. The provisions for the same are contained in 
sections 60 to 64 of the Act. These provisions have been enacted to counteract 
the tendency on the part of the tax-payers to dispose of their property or transfer 
their income in such a way that their tax liability can be avoided or reduced.  
These provisions can be categorized as follows: 
• Income of other persons included in an assessee’s total income [Sections 60-63]
• Income of other persons included in an Individual’s total income [Section 64]
Note - In the case of individuals, income-tax is levied on a slab system on the total 
income. The tax system is progressive i.e. as the income increases, the applicable rate 
of tax increases. Some taxpayers in the higher income bracket have a tendency to 
divert some portion of their income to their spouse, minor child etc. to minimize their 
tax burden. In order to prevent such tax avoidance, clubbing provisions have been 
incorporated in the Act, under which income arising to certain persons (like spouse, 
minor child etc.) have to be included in the income of the person who has diverted 
his income for the purpose of computing tax liability. 
2. INCOME OF OTHER PERSONS INCLUDIBLE IN
ASSESSEE’S TOTAL INCOME
2.1 Transfer of income without transfer of asset [Section 60] 
(i) If any person transfers the income from any asset without transferring the
asset itself, such income is to be included in the total income of the
transferor.
(ii) It is immaterial whether the transfer is revocable or irrevocable and whether
it was made before the commencement of this Act or after its
commencement.
© The Institute of Chartered Accountants of India
a
 
INCOME TAX LAW 4.4 
Example :  Mr. A confers the right to receive rent in respect of his house property 
to his wife, Mrs. A, without transferring the house itself to her. In this case, the rent 
received by Mrs. A will be clubbed with the income of Mr. A. 
ILLUSTRATION 1 
Mr. Vatsan has transferred, through a duly registered document, the income arising 
from a godown to his son, without transferring the godown. In whose hands will the 
rental income from godown be charged? 
SOLUTION 
Section 60 expressly states that where there is transfer of income from an asset 
without transfer of the asset itself, such income shall be included in the total 
income of the transferor. Hence, the rental income derived from the godown shall 
be clubbed in the hands of Mr. Vatsan. 
2.2 Income arising from revocable transfer of assets 
[Section 61] 
All income arising to any person by virtue of a revocable transfer of assets is to be 
included in the total income of the transferor. 
Meaning of revocable transfer [Section 63] 
Transfer is deemed to be revocable if— 
(a) it contains any provision for the retransfer, directly or indirectly, of the
whole or any part of the income or assets to the transferor, or
(b) it gives, in any way to the transferor, a right to reassume power, directly or
indirectly, over the whole or any part of the income or the assets.
Clubbing provision will operate even if only part of income of the 
transferred asset had been applied for the benefit of the transferor. 
Once the transfer is revocable, the entire income from the transferred 
asset is includible in the total income of the transferor. 
© The Institute of Chartered Accountants of India
INCOME OF OTHER PERSONS INCLUDED 
IN ASSESSEE’S TOTAL INCOME 
a
 4.5 
Exception where clubbing provisions are not attracted even in case of 
revocable transfer [Section 62] 
Section 61 will not apply to any income arising to any person if there is – 
(i) a transfer by way of trust which is not revocable during the life time of the
beneficiary; and
(ii) any other transfer, which is not revocable during the life time of the
transferee.
In the above cases, the income from the transferred asset is not includible in the 
total income of the transferor, provided the transferor derives no direct or indirect 
benefit from such income.   
If the transferor receives direct or indirect benefit from such income, such income 
is to be included in his total income even though the transfer may not be 
revocable during the life time of the beneficiary or transferee, as the case may be. 
As and when the power to revoke the transfer arises, the income arising by virtue 
of such transfer will be included in the total income of the transferor. 
Example :  Mr. Rajesh transfers his house property to a trust for the benefit of 
Mr. Ramesh till his death. This is a situation of irrevocable transfer till the death of 
Mr. Ramesh. Hence, till then, the income from house property would be taxable in 
the hands of the transferee i.e., the trust. However, after the death of Mr. Ramesh, 
the income from house property would be included in the total income of 
Mr. Rajesh as on that date, the transfer has become revocable. 
3. INCOME OF OTHER PERSONS INCLUDIBLE IN
INDIVIDUAL’S TOTAL INCOME
3.1 Clubbing of income arising to spouse 
(I) Income by way of remuneration from a concern in which the individual
has substantial interest [Section 64(1)(ii)]
(i) Remuneration in cash or kind to spouse from a concern in which the
individual has a substantial interest to be clubbed: In computing the
total income of any individual, all such income which arises, directly or
© The Institute of Chartered Accountants of India