478. Wife or minor child of individual incurs loss, which if it were income would be includible in income of that individual - Whether such loss should be treated as if it were loss sustained by that individual
Circular No. 104 was issued by the Central Board of Direct Taxes on 19 February 1973. Its subject is 478. Wife or minor child of individual incurs loss, which if it were income would be includible in income of that individual - Whether such loss should be treated as if it were loss sustained by that individual.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Two clarifications on what happens to a loss of a wife or minor child whose income would be clubbed with the individual's. The older one, Circular No. 20 of 1944, cancels Circular No. 35 of 1941, which had confined such a loss to set-off against the wife's or child's own income with carry forward under section 24(2) of the 1922 Act, and takes the more equitable view that the loss is to be treated as one sustained by the individual, set off against his income under section 24(1) and carried forward under section 24(2) if not wholly absorbed, the wife or minor child remaining assessable on her own personal income; any claim by the wife or child to set the loss against personal income is to be reported to the Board. The later one, of 1973, addresses share losses of a wife from a firm in which the assessee is a partner. Following the Gujarat High Court in Dayalbhai Madhavji Vadera v. Commissioner of Income-tax, the Board had already instructed that such a loss is not to be taken into the husband's assessment under section 16(3) of the 1922 Act, corresponding to section 64(1) of the 1961 Act; it now decides that the loss is to be set off in the wife's own assessment against her other income of the same year, and any balance carried forward and set off in later years according to law.
The 1944 circular arose from the Board's reconsideration of its 1941 view; the 1973 one answers a question about how the wife's share loss is to be dealt with in her own assessment once it is kept out of the husband's.
478. Wife or minor child of individual incurs loss, which if it were income would be includible in income of that individual - Whether such loss should be treated as if it were loss sustained by that individual
CLARIFICATION 1
1. Reference is invited to the Board’s Instruction No. 405 [F. No. 208/2/71 IT (A-II)], dated 6-4-1972, on the above subject.
2. On the basis of the decision of the Gujarat High Court in the case of Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551, the Board had issued instructions that if the share of the wife in a firm in which the assessee is a partner is a loss, such loss is not to be considered in the assessment of the husband under section 16(3) of the 1922 Act [corresponding to section 64(1) of the 1961 Act]. A question has been raised whether in the assessment of the wife, can such a loss be allowed to be set-off against any other income in the same assessment year ?
3. The Board has decided that such a set-off should be allowed while framing the assessment of the spouse. If after setting-off such a loss in the same assessment year, there is still a loss left then the balance should be allowed to be carried forward and set-off allowed in subsequent years in accordance with the provisions of law.
Circular : No. 104 [F. No. 208/8/72-IT (A-II)], dated 19-2-1973.
CLARIFICATION 2
Attention is invited to the Board’s Circular No. 35 of 1941, on the above subject. It was laid down therein that where the wife or minor child of an individual incurs a loss which if it were income would be includible in the income of that individual under section 16(3) of the 1922 Act, such loss should be set-off only against the income, if any, of the wife or minor child and if not wholly set-off should be carried forward, subject to the provisions of section 24(2) of the 1922 Act. The Board has reconsidered the question and has decided that, although this view may be tenable in law, the other and more equitable view is, at least equally tenable, that such loss should be treated as if it were a loss sustained by that individual. Thus, if the wife or minor child has a personal income of Rs. 5,000 which is not includible in the individual’s income and sustains a loss of Rs. 10,000 from a source the income of which would be includible in the income of the individual, the loss should be set-off against the income of the individual under section 24(1), and if not wholly set-off should be carried forward under section 24(2). The wife or the minor child would, therefore, be assessable on the personal income of Rs. 5,000. If in any case the wife or minor child claims a set-off of the loss against the personal income, it should be brought to the notice of the Board. The Board’s Circular No. 35 of 1941 is hereby cancelled.
Circular : No. 20 of 1944 [C. No. 4(13)-IT/44], dated 15-7-1944.
In an assessment where a spouse's or minor's share loss from a firm is claimed, and in a carry forward dispute about whose loss it is.
It mentions. Circular No. 35/1941
Source: the Income Tax Department’s own published text — its page for this instrument.