Section 64

Section 64 — the law in short

What the courts have decided on section 64, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v J.H. Gotla Supreme CourtHelps taxpayer
  My wife's and minor children's share income from a firm is clubbed into my total income. Can I set my own carried forward business loss against it, when I am not a partner in that firm?
  Yes. The Supreme Court held that where the clubbing provision operates, the profit or loss from the business of the wife or minor child that is included in the assessee's total income must be treated as profit or loss from a business carried on by him for the purpose of carrying forward and setting off the loss. A strict literal reading would deny the set-off to the assessee, while the wife and children could not claim it either because the income is taxed in his hands, and Parliament cannot have intended that. The clubbing provision exists to counteract the transfer, not to punish the transferor.
• CIT v Prem Bhai Parekh Supreme CourtHelps taxpayerSuperseded by amendment
  I gifted money to my children, who put it into a firm and were admitted to the benefits of partnership. Is their share income clubbed with mine as arising from the gift?
  No, on the provision then in force. The Supreme Court held that a clubbing provision creates an artificial income and must be strictly construed. Before income can be brought within it, the income must be proved to have arisen directly or indirectly from the transfer of assets made by the assessee, and the connection between the transfer and the income must be proximate: the income must arise as a result of the transfer, not merely be connected with it in some manner. Here the minors' income arose from their admission to the benefits of the partnership, so the connection with the gift was remote.
• Philip John Plasket Thomas v CIT Supreme CourtHelps taxpayer
  I transferred shares to my fiancee a week before we married. Will the dividends on those shares be clubbed with my income?
  No. The Supreme Court held that the clubbing provision applies only to assets transferred to the wife by the husband, and on the date of the transfer the parties were not husband and wife. The transfer deed contained no words of postponement and took effect at once. Whether it is treated as made in consideration of a promise to marry, or as a gift subject to the subsequent condition of marriage, it operated from the date it was made, when the transferee was still Mrs Knight. The words wife and husband must be given their natural meaning, which imports a marital relationship, and do not include a prospective spouse.
• Abhay Kumar Mittal v DCIT ITATHelps taxpayerValidity unconfirmed
  The AO clubbed my wife's rental income with mine and denied my HRA. Is that right?
  No. The Tribunal found the sources for the wife's purchase of the house were proved and never doubted, so s.64(1)(ii) had no foundation; there is no legal impediment to paying house rent to your wife, and the HRA exemption could not be denied.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.