The clubbing provisions outlined in Sections 60 to 64 of the Income Tax Act play a critical role in maintaining the integrity of tax assessments by ensuring that income is taxed in the hands of the rightful individual, typically the transferor. These provisions aim to prevent tax evasion by disallowing the transfer of income or assets to family members without the corresponding tax liability.

Section 60: Income Transfer Without Transfer of Asset

Under Section 60, if an individual transfers income to another person without transferring the underlying asset, the income is still taxable in the hands of the transferor. This means that even if the transfer is revocable or irrevocable, the income derived from the asset remains part of the transferor's total taxable income.

Example: If an individual transfers rental income from a property without actually transferring the property itself, the rental income is still included in the transferor’s total income and taxed accordingly.

Section 61: Revocable Transfer of Assets

Section 61 mandates that any income arising from a revocable transfer of assets is taxable as the transferor's income. A revocable transfer allows the transferor to reclaim the asset or its income, and therefore, the income generated remains taxable under the transferor's name.

Section 62: Transfer Irrevocable for a Specified Period

Section 62 provides an exception to Section 61 for irrevocable transfers under specific conditions. If a transfer is irrevocable during the lifetime of the beneficiary or the transferee, the income is not clubbed with the transferor’s income. However, if the transferor retains any power to revoke the transfer, then once that power is exercised, the income becomes taxable in the transferor's hands.

Important Conditions:

• The transferor must not derive any direct or indirect benefit from the income generated by the transfer.

• If the transferor retains the power to revoke, the income becomes taxable when that power is exercised.

Section 63: Definitions of "Transfer" and "Revocable Transfer"

For the purposes of Sections 60, 61, and 62, Section 63 defines a "revocable transfer" as any transfer that includes provisions for re-transfer of the income or assets to the transferor or allows the transferor to regain control over the income or assets. The term "transfer" itself is broadly defined to include settlements, trusts, covenants, agreements, or arrangements.

Section 64: Income of Individual to Include Income of Spouse, Minor Child, Etc.

Section 64 deals with scenarios where income generated by a spouse, minor child, or other family members from assets or income transferred without adequate consideration is included in the transferor's total income. This section ensures that such income is taxed as part of the transferor's income, preventing tax evasion through asset transfers within the family.

Key Subsections:

1. Income from Spouse (Section 64(1)(ii) and 64(1)(iv)):

   • Income arising to a spouse from assets or concerns in which the transferor has a substantial interest is included in the transferor's total income unless the spouse has technical or professional qualifications, and the income is solely attributable to those qualifications.

   • If both spouses have substantial interests in a concern and receive income, the income is clubbed with the spouse who has the higher total income before considering such income.

   Example: If an individual transfers shares in a company to their spouse, who lacks the necessary qualifications or expertise, the income generated by those shares is included in the transferor's taxable income.

2. Income from Son’s Wife (Section 64(1)(vi)):

   • Income arising to a son’s wife from assets transferred by the transferor is included in the transferor's income unless the transfer occurred before marriage or on the occasion of marriage, which may have tax exemptions.

   Example: If an individual gifts a plot of land to their daughter-in-law and she later sells it for a profit, the capital gain is taxable in the hands of the transferor.

3. Income from Assets Transferred to Others (Section 64(1)(vii) and 64(1)(viii)):

   • Income arising from assets transferred to any person or association for the immediate or deferred benefit of the transferor's spouse or son's wife is included in the transferor's income.

   Example: If a plot of land is transferred to an association for the benefit of the transferor’s spouse, the income from the development of that land is included in the transferor’s taxable income.

4. Income of a Minor Child (Section 64(1A)):

   • Income accruing to a minor child (not suffering from any disability specified under Section 80U) is included in the income of the parent with the higher total income, unless it arises from the child's own manual work or the application of their skills.

   Exemption: An exemption of ₹1,500 per minor child is allowed if the parent opts for the old tax regime, applicable for up to two children.
   Non-Includable Examples: Income from TV shows, scholarships, stipends, and quiz contests earned by a minor child are not subject to clubbing.

Conclusion

The clubbing provisions under Sections 60 to 64 of the Income Tax Act are designed to prevent the avoidance of tax liabilities through the transfer of income or assets within a family. By ensuring that income is taxed in the hands of the rightful individual, often the transferor, these provisions uphold the principle of accurate tax assessments and prevent tax evasion. Understanding these provisions is crucial for taxpayers to comply with the law and ensure that their tax liabilities are correctly assessed.

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