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.
• Mohini Thapar (Dead) by LRs v CIT Supreme CourtHelps department
  My husband gifted me cash years ago. I invested it in shares and deposits. Is the dividend and interest on those investments clubbed with his income, or is the gifted cash the only thing that can be traced?
  It is clubbed. The clubbing provision reaches income arising not only directly but indirectly from the assets transferred, so where cash is gifted and then invested, the dividends and interest are income arising indirectly from the transferred asset. There must still be a nexus between the transferred asset and the income, but converting the gifted cash into shares or deposits does not break it.
• 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.
• C.R. Nagappa v CIT Supreme CourtHelps department
  The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it?
  No. Section 161(2) does not deny the Assessing Officer the option to assess the person represented instead of the representative assessee; it only requires that when the representative assessee is the one assessed, he is assessed under Chapter XV and not under any other provision. But the same income cannot be charged twice — the Court recorded that the assessments already made on the minor beneficiaries would be annulled and any tax recovered refunded.
• 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.
• R.P. Sarathy for Minor M. Pranuthi v Joint CIT High CourtHelps departmentNo later treatment found
  My ward is a minor whose parents are both dead. There is no parent to club her income with, so is her income simply not taxable at all until she turns eighteen?
  No. Section 64(1A) is a machinery provision, not a charging provision, so the absence of a parent does not take the minor's income out of charge. Where there is no parent to club with, s.160(1)(ii) applies and the guardian or manager of the minor is the representative assessee, bound to return that income and discharge the tax on it.
• K.V. Kuppa Raju v Government of India High CourtHelps department
  The Assessing Officer is clubbing my minor daughter's entire interest income with mine under s.64(1A), although I never transferred a rupee to her. Is that provision even valid?
  It is valid, and the challenge has failed in every High Court that has heard it. Section 64(1A) deliberately does away with any requirement of a transfer by the parent or of any attempt at avoidance: once an individual has a minor child with income, that individual is a class by himself, and clubbing the minor's income is a machinery provision within Parliament's competence under Entry 82 of List I. Read the sub-section as it now stands before applying that, because it is narrower than the judgment describes: s.64(1A) does not reach the income of a minor child suffering from a disability of the nature specified in s.80U at all, and what remains is cut down further by the proviso (manual work, or the child's own skill, talent or specialised knowledge and experience) and by the s.10(32) exemption.
• Dr J.M. Mokashi v CIT High CourtHelps departmentHigh Courts differ
  I pay my wife a salary in my own professional practice. She has no degree but she does the work. Can the Assessing Officer club that salary with my income under s.64(1)(ii)?
  On the Bombay High Court's view, yes. The proviso to s.64(1)(ii) contains two conditions and both must be satisfied: the spouse must possess technical or professional qualifications, and the income must be solely attributable to the application of his or her technical or professional knowledge and experience. Knowledge and experience in the second condition cannot be read back into the first, so a spouse who does the work competently but holds no qualification fails at the threshold.
• CIT v Mridu Hari Dalmia High CourtHelps departmentNo later treatment found
  I did not gift the money — I lent it, interest free, and it is shown as a loan in my books. Does that keep the income out of the clubbing net?
  Not where the supposed borrower cannot contract. A loan is in essence a contract, requiring two parties and an enforceable promise to repay; a minor's contract is void, and a person cannot lend to himself merely because he acts in two capacities. The Delhi High Court therefore held that the money handed over was a transfer of assets, and the interest earned on it was income arising from assets transferred, includible in the transferor's hands.
• Abhay Kumar Mittal v DCIT ITATHelps taxpayerNo later treatment found
  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 the clubbing under s.64 had no foundation; there is no legal impediment to paying house rent to your wife, and the HRA exemption could not be denied.
• ITO v Kuldeep Jain ITATHelps departmentSuperseded by amendment
  When my three minor children's income is clubbed with mine under s.64(1A), can I claim the Chapter VI-A deduction separately for each child's income as well as for my own?
  No. The Chapter VI-A deduction is available to the assessee, and once s.64(1A) operates the only assessee is the parent, so there is no separate computation of total income for each minor. The Tribunal held that the deduction in issue (then s.80L) was admissible once, to the parent, and not again for each minor whose income was clubbed.
• Mrs Rohita Subramaniam v DCIT ITATHelps departmentNo later treatment found
  My husband died some years ago. The Assessing Officer says my minor sons' income must be clubbed with mine. Which limb of the Explanation to s.64(1A) applies to a widow, and does it matter that the boys have their own money to live on?
  Clause (a) of the Explanation applies, not clause (b): on the death of a spouse the marriage does not cease to subsist, so the income goes to the parent whose total income is greater. Where the other parent is dead and therefore has nil income, the surviving parent's income is necessarily the greater, however small it is, and the minors' income is clubbed there.
• Statutory position — s.64(2): converting self-acquired property into HUF property does not move the income, and on a partition the spouse's share is clubbed too CBDT Circulars & InstructionsCuts both ways
  A client wants to transfer a rental property he owns personally into his family HUF so that the rent is taxed in the HUF's lower slab. He says the HUF will be a separate assessee with its own basic exemption. Does that work?
  No. Section 64(2) applies where an individual who is a member of a Hindu undivided family converts property that was his separate property into property belonging to the family — by impressing it with the character of family property, or by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration. From the assessment year beginning 1 April 1971, and notwithstanding anything in any other provision of the Act or in any other law, the income derived from the converted property is deemed to arise to the INDIVIDUAL and not to the family. And the clubbing survives a partition: where the converted property has been the subject-matter of a partition, whether partial or total, the income from so much of it as is received by the SPOUSE on partition is deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and s.64(1) then applies so as to bring it back into the individual's hands.

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.