CHAPTER V
INCOME OF OTHER PERSONS, INCLUDED IN
ASSESSEE'S TOTAL INCOME
60. Transfer of income where there is no transfer of
assets:-
All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.
61.
Revocable transfer of assets:-
All income arising to any person
by virtue of a revocable transfer of assets shall be chargeable to income tax
as the income of the transferor and shall be included in his total income.
62.
Transfer irrevocable for a specified period:-
(1) The provisions of section 61 shall not apply to any income
arising to any person by virtue of a transfer—
(i)
By way of trust which is not revocable
during the lifetime of the beneficiary, and, in the case of any other transfer,
which is not revocable during the lifetime of the transferee; or
(ii) Made before the 1st day of April 1961, which
is not revocable for a period exceeding six years:
Provided
that the transferor derive no direct or indirect benefit from such income in
either case.
(2) Notwithstanding anything contained in sub-section (1), all
income arising to any person by virtue of any such transfer shall be chargeable
to income tax as the income of the transferor as and when the power to revoke
the transfer arises, and shall then be included in his total income.
63.
"Transfer" and "revocable transfer" defined:-
For the purposes of sections 60,
61 and 62 and of this section,—
(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 the income 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
whole or any part of the income or assets;
(b) "Transfer" includes any settlement, trust, covenant, agreement or arrangement.
64.
Income of individual to include income of spouse, minor child, etc.1[J1] -
2[J2] [3[J3] [(1)] in computing the total income of any individual,
there shall be included all such income as arises directly or indirectly—
4[J4] [(i) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]
(ii) To the spouse of such individual by way of
salary, commission, fees or any other form of remuneration whether in cash or
in kind from a concern in which such individual has a substantial interest:
5[J5] [Provided that nothing in this clause shall apply in
relation to any income arising to the spouse where the spouse possesses
technical or professional qualifications and the income is solely attributable
to the application of his or her technical or professional knowledge and
experience;]
6[J6] [(iii) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]
(iv) subject to the provisions of clause (i) of section 27, 7[J7] [* * *] to the spouse of such individual from assets
transferred directly or indirectly to the spouse by such individual otherwise
than for adequate consideration or in connection with an agreement to live
apart;
8[J8] [(v) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]
(vi)
To
the son's wife, 9[J9] [* * *] of such individual, from assets transferred directly
or indirectly on or after the 1st day of June, 1973, to the son's wife 10[J10] [* * *] by such
individual otherwise than for adequate consideration; 11[J11] [* * *]
(vii) To any person
or association of persons from assets transferred directly or indirectly
otherwise than for adequate consideration to the person or association of
persons by such individual, to the extent to which the income from such assets
is for the immediate or deferred benefit of his or her spouse 12[J12] [* * *] 13[J13] [; and]
14[J14] [(viii) to
any person or association of persons from assets transferred directly or
indirectly on or after the 1st day of June, 1973, otherwise than for adequate
consideration, to the person or association of persons by such individual, to
the extent to which the income from such assets is for the immediate or
deferred benefit of his son's wife 15[J15] [* * *].]
16[J16] [Explanation 1.—For
the purposes of clause (ii), the individual in computing whose total
income the income referred to in that clause is to be included, shall be the
husband or wife whose total income (excluding the income referred to in that
clause) is greater; and where any such income is once included in the total
income of either spouse, any such income arising in any succeeding year shall
not be included in the total income of the other spouse unless the Assessing
Officer is satisfied, after giving that spouse an opportunity of being heard,
that it is necessary so to do.]
Explanation 2.—For the purposes of clause (ii), an individual shall
be deemed to have a substantial interest in a concern—
(i)
In a case where the concern is a
company, if its shares (not being shares entitled to a fixed rate of dividend
whether with or without a further right to participate in profits) carrying not
less than twenty per cent of the voting power are, at any time during the
previous year, owned beneficially by such person or partly by such person and
partly by one or more of his relatives;
(ii) In any other
case, if such person is entitled, or such person and one or more of his
relatives are entitled in the aggregate, at any time during the previous year,
to not less than twenty per cent of the profits of such concern.
[Explanation 2A omitted by the Finance Act, 1992, w.e.f. 1-4-1993. It was inserted by the
Finance Act, 1979, w.e.f. 1-4-1980.]
17[J17] [Explanation 3.—For the purposes of clauses (iv) and (vi),
where the assets transferred directly or indirectly by an individual to his
spouse or son's wife (hereafter in this Explanation referred to as
"the transferee") are invested by the transferee,—
(i)
in any business, such investment being not in the nature of contribution of
capital as a partner in a firm or, as the case may be, for being admitted to
the benefits of partnership in a firm, that part of the income arising out of
the business to the transferee in any previous year, which bears the same
proportion to the income of the transferee from the business as the value of
the assets aforesaid as on the first day of the previous year bears to the
total investment in the business by the transferee as on the said day;
(ii) in the nature
of contribution of capital as a partner in a firm, that part of the interest
receivable by the transferee from the firm in any previous year, which bears
the same proportion to the interest receivable by the transferee from the firm
as the value of investment aforesaid as on the first day of the previous year
bears to the total investment by way of capital contribution as a partner in
the firm as on the said day, shall be included in the total income of the
individual in that previous year.]
18[J18] [(1A) In computing the
total income of any individual, there shall be included all such income as
arises or accrues to his minor child 19[J19] [, not being a
minor child suffering from any disability of the nature specified in section
80U]:
Provided that nothing contained in this sub-section shall
apply in respect of such income as arises or accrues to the minor child on
account of any—
(a) Manual work done by him; or
(b) Activity involving application of his skill,
talent or specialized knowledge and experience.
Explanation.—for the purposes of this sub-section, the income of the
minor child shall be included,—
(a) Where the
marriage of his parents subsists, in the income of that parent whose total
income (excluding the income includible under this sub-section) is greater; or
(b) Where the
marriage of his parents does not subsist, in the income of that parent who maintains
the minor child in the previous year, and 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 the Assessing Officer is satisfied, after giving that parent an
opportunity of being heard, that it is necessary so to do.]
20[J20] [(2) Where, in
the case of an individual being a member of a Hindu undivided family, any
property having been the separate property of the individual has, at any time
after the 31st day of December, 1969, been converted by the individual into
property belonging to the family through the act of impressing such separate
property with the character of property belonging to the family or throwing it 21[J21] [into the common
stock of the family or been transferred by the individual, directly or
indirectly, to the family otherwise than for adequate consideration (the
property so converted or transferred being hereinafter referred to as the
converted property)], then, notwithstanding anything contained in any other
provision of this Act or in any other law for the time being in force, for the
purpose of computation of the total income of the individual under this Act for
any assessment year commencing on or after the 1st day of April, 1971,—
(a) The individual shall be deemed to have
transferred the converted property, through the family, to the members of the
family for being held by them jointly;
(b) The income derived from the converted
property or any part thereof 22[J22] [* * *] shall be
deemed to arise to the individual and not to the family;
23[J23] [(c) where the converted property has been
the subject-matter of a partition (whether partial or total) amongst the
members of the family, the income derived from such converted property as is
received by the spouse 24[J24] [* * *] on
partition shall be deemed to arise to the spouse 25[J25] [* * *] from
assets transferred indirectly by the individual to the spouse 26[J26] [* * *] and the
provisions of sub-section (1) shall, so far as may be, apply accordingly:]
Provided that the income referred to in clause (b)
or clause (c) shall, on being included in the total income of the
individual, be excluded from the total income of the family or, as the case may
be, the spouse 27[J27] [* * *]] of the
individual.
Explanation 28[J28] [1].—For the purposes of sub-section (2),—
29[J29] [* * *]
"property" includes any interest in property movable or immovable,
the proceeds of sale thereof and any money or investment for the time being
representing the proceeds of sale thereof and where the property is converted
into any other property by any method, such other property.
31[J31] [Explanation 2.—For the purposes of this section, "income"
includes loss.]
DEPARTMENTAL
VIEW/SUPREME COURT RULING
1. If
an individual, being a karta or an ordinary member of
a Hindu undivided family, becomes a partner of any firm on the basis of
investment of capital drawn from the HUF funds so that his share of profits in
the said firm and the interest earned on such capital contribution was in law
to be assessed in the hands of the HUF, such individual does not cease to be a
partner in the firm so far as section 64(1) was concerned. This ruling of the
Tribunal has been brought to the notice of all the Assessing Officers. [Circular
No. 174, dated 12th August, 1975]
2. Profits
realised by the sale of property gifted to minor are
clearly in the nature of capital gains chargeable under section 45 and as such
section 64(iv) would automatically apply to that income as income
arising to the minor. [Letter No. 12/2/63, dated 20th November, 1963]
3. The
share income of husband of assessee from firm is not
includible in total income of assessee where the
husband is a partner in the firm in a representative capacity as karta of HUF. [CIT v Ravaban
B. Mistry (2001) 248 ITR 184 (SC)]
65.
Liability of person in respect of income included in the income of another
person:-
Where, by reason of the
provisions contained in this Chapter or in clause (i)
of section 27, the income from any asset or from membership in a firm of a
person other than the assessee is included in the
total income of the assessee, the person in whose
name such asset stands or who is a member of the firm shall, notwithstanding anything
to the contrary contained in any other law for the time being in force, be
liable, on the service of a notice of demand by the 1[J32] [Assessing]
Officer in this behalf, to pay that portion of the tax levied on the assessee which is attributable to the income so included,
and the provisions of Chapter XVII-D shall, so far as may be, apply
accordingly:
Provided
that where any such asset is held jointly by more than one person, they shall
be jointly and severally liable to pay the tax which is attributable to the
income from the assets so included.
[J1]See Circular Nos. 104, dated 19-2-1973 and 174, dated 12-8-1975.
[J2]Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
[J3]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
[J4]Prior to the omission, clause (i) was substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date.
[J5]Restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.
[J6]Prior to the omission, clause (iii) was substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date.
[J7]The words "in a case not falling under clause (i) of this sub-section" omitted by the Finance Act, 1992, w.e.f. 1-4-1993.
[J8]Prior to the omission, clause (v) was substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. It was amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
[J9]The words "or son's minor child," omitted by the Finance Act, 1992, w.e.f. 1-4-1993.
[J10]The words "or son's minor child" omitted, ibid.
[J11]The word "and" omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.
[J12]The words "or minor child or both" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the words "(not being a married daughter)" occurring after "or minor child" were omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
[J13]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.
[J14]Inserted, ibid.
[J15]The words "or son's minor child or both" omitted by the Finance Act, 1992, w.e.f. 1-4-1993.
[J16]Substituted for Explanations 1 and 1A by the Finance Act, 1992, w.e.f. 1-4-1993. Explanation 1 was substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and amended by the Finance Act, 1979, w.e.f. 1-4-1980 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Explanation 1A was inserted by the Finance Act, 1979, w.e.f. 1-4-1980. Both these Explanations were omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date.
[J17]Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Explanation 3 was originally enacted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. It was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but re-substituted by the Direct Tax Laws (Amendment) Act, 1989 with effect from the same date.
[J18]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.
[J19]Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
[J20]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
[J21]Substituted for "into the common stock of the family (such property being hereinafter referred to as the converted property)" by the Finance Act, 1979, w.e.f. 1-4-1980.
[J22]The words "in so far as it is attributable to the interest of the individual in the property of the family" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
[J23]Substituted, ibid.
[J24]The words "or minor child" omitted by the Finance Act, 1992, w.e.f. 1-4-1993.
[J25]Ibid.
[J26]Ibid
[J27]The words "or minor child" omitted, ibid. Earlier, the word "child" was substituted for "son" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
[J28]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.
[J29]The figure "(1)" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
[J30]Clause (2) omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
[J31]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.
[J32]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.