CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING

INCOME FROM OTHER SOURCES

Question 1:
Mr. Pranav has 15% shareholding in TRP(P) Ltd. (engaged in
trading business of toys) and has also 50% share in Pranav & Sons,
a partnership firm. The accumulated profit of TRP(P) Ltd. is ` 30
lakh. Pranav & Sons had taken a loan of ` 35 lakh from TRP(P) Ltd.
Examine whether the above loan can be treated as dividend as per
the provisions of the Income-tax Act, 1961.
Discuss the taxability or otherwise in the hands of the recipients,
as per the provisions of the Income-tax Act, 1961:
(i) MNS Private Limited, a closely held company, issued
12,000 shares at ` 125 per share. (The face value of the
share is ` 80 per share and the fair market value of the
share is ` 110 per share).
(ii) Mr. Arun received an advance of ` 56,000 on 11-09-2017
against the sale of his house. However, due to non-
payment of instalment in time, the contract has cancelled
and the amount of ` 56,000 was forfeited.
(iii) Mr. Nitin, transferred a house property to his son Mr. Raj
without consideration. The value of the house is ` 12 lacs
as per the Registrar of stamp duty.
(iv) Mr. Tanmay gifted a refrigerator to his sister’s daughter
Tannu on her marriage. The fair market value of the
refrigerator is ` 75,000.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Answer 1:
As per section 2(22)(e), any loan or advance given by a closely held
company is deemed as dividend (to the extent of accumulated
profits) if such loan is given to:
a) A shareholder having minimum 10% shares
b) Any concern in which such shareholder has a substantial
interest (minimum 20% stake)
c) Any person for the benefit of such shareholder.
In the present case, the loan given by TRP(P) Ltd. to Pranav & Sons,
a partnership firm would be deemed as dividend, since Mr. Pranav
has 15% shareholding in TRP(P) Ltd. and also has substantial
interest in Pranav & Sons (as he is beneficially entitled to 50% of
the income of the firm).
However, the amount of loan would be deemed as dividend only
to the extent TRP(P) Ltd. possesses accumulated profits. Therefore,
out of the loan of ` 35 lakhs given to Pranav & Sons, only ` 30 lakhs,
i.e., to the extent of accumulated profit of TRP(P) Ltd., would be
deemed as dividend.

S. Taxable Reason
No. or Not
(i) Taxable Since MNS Private Limited, a closely held
company, issued 12,000 shares at a premium),
the excess of the issue price of the shares over
the fair market value would be taxable under
section 56(2)(viib) in its hands under the head
“Income from other sources”.
Therefore, ` 1,80,000 [12,000 × ` 15 (` 125 – `
110)] shall be taxable as income in the hands
of MNS Private Limited under the head
“Income from other sources”.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
(ii) Taxable Any sum of money received as an advance or
otherwise in the course of negotiations for
transfer of a capital asset would be chargeable
to tax under the head “Income from other
sources”, if such amount is forfeited and the
negotiations do not result in transfer.
Therefore, the amount of ` 56,000 received as
advance would be chargeable to tax in the
hands of Mr. Arun under the head “Income
from other sources”.

(iii) Not As per section 56(2)(x), immovable property

Taxable received without consideration by any person
from his relative is not taxable.
In the present case, since Mr. Nitin is the father
of Mr. Raj, ` 12 lakhs, being the stamp duty
value of house property received, without
consideration, would not be chargeable to tax
in the hands of Mr. Raj.
(iv) Not Refrigerator is not included in the definition of
Taxable “property”, for the purpose of taxability under
section 56(2)(x) in the hands of the recipient
under the head “Income from other sources”.
Further, the same has been received by Tannu
on occasion of her marriage from her
maternal uncle, being a relative.
Hence, ` 75,000, being the fair market value of
refrigerator received without consideration
from a relative on the occasion of a her
marriage is not taxable in the hands of Tannu,
even though its value exceeds ` 50,000.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING

CLUBBING OF INCOME
Question 1;
Mr. Vaibhav started a proprietary business on 01.04.2022 with a
capital of ` 5,00,000. He incurred a loss of ` 2,00,000 during the
year 2022-23. To overcome the financial position, his wife Mrs.
Vaishaly, a software Engineer, gave a gift of ` 5,00,000 on
01.04.2023, which was immediately invested in the business by
Mr. Vaibhav. He earned a profit of ` 4,00,000 during the year 2023-
24. Compute the amount to be clubbed in the hands of Mrs.
Vaishaly for the A.Y. 2024-25. If Mrs. Vaishaly gave the said amount
as loan, what would be the amount to be clubbed?

Answer 1:
Section 64(1) of the Income-tax Act, 1961 provides for the clubbing
of income in the hands of the individual, if the income earned is
from the assets transferred directly or indirectly to the spouse of
the individual for no price/low price.
In this case, Mr. Vaibhav received a gift of ` 5,00,000 on 1.4.2023
from his wife Mrs. Vaishaly, which he invested in his business
immediately. The income to be clubbed in the hands of Mrs.
Vaishaly for the A.Y. 2024-25 is computed as under:

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING

Mr. Vaibhav’s Total

Mr. Vaibhav’s
capital out of
Particulars own capital Capital
gift from wife
(`) (`)
(`)
Capital as on 1.4.2023 3,00,000 5,00,000 8,00,000
(5 L – 2 L)
Profit for P.Y.2023-24 1,50,000 2,50,000 4,00,000
{to be apportioned (4 lakhs x 3/8) (4 lakhs x 5/8)
on the basis of capital
as on the first day of
the previous year i.e.
as on 1.4.2023 (3:5)}
Therefore, the income to be clubbed in the hands of Mrs. Vaishaly
for the A.Y.2024-25 is ` 2,50,000. In case Mrs. Vaishaly gave the
said amount of ` 5,00,000 as a bona fide loan, then, clubbing
provisions would not be attracted.
Note: The provisions of section 56(2)(x) would not be attracted in
the hands of Mr. Vaibhav, since he has received a gift from a
relative i.e., his wife.

Question 2;
A proprietary business was started by Smt. Rani in the year 2021.
As on 1.4.2022 her capital in business was ` 3,00,000. Her
husband gifted ` 2,00,000 on 10.4.2022 to her and such sum is
invested by Smt. Rani in her business on the same date. Smt. Rani
earned profits from her proprietary business for the Financial year
2022-23, ` 1,50,000 and Financial year 2023-24 ` 3,90,000.
Compute the income, to be clubbed in the hands of Rani’s
husband for the Assessment year 2024-25 with reasons.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Answer 2:
Section 64(1) of the Income-tax Act, 1961 provides for the clubbing
of income in the hands of the individual, if the income earned is
from the assets transferred directly or indirectly to the spouse for
no price/low price.
In this case Smt. Rani received a gift of ` 2,00,000 from her husband
which she invested in her business.
The income to be clubbed in the hands of Smt. Rani’s husband for
A.Y.2024-25 is computed as under:
Smt. Rani’s Smt. Rani’s Total
own capital capital out of Capital
Particulars ` gift from `
husband
`
Capital as on 1.4.2022 3,00,000 - 3,00,000
Investment on 2,00,000 2,00,000
10.04.2022 out of gift
received from husband
3,00,000 2,00,000 5,00,000
Profit for F.Y. 2022-23 1,50,000 1,50,000
to be apportioned on
the basis of capital
employed on the first
day of the previous
year i.e., on 1.4.2022
Capital as on 1.4.2023 4,50,000 2,00,000 6,50,000
Profit for F.Y.2023-24 to 2,70,000 1,20,000 3,90,000
be apportioned on the
basis of capital as on
1.4.2023 (i.e., 45 : 20)
Therefore, the income to be clubbed in the hands of Smt. Rani’s
husband for A.Y.2024-25 is ` 1,20,000.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Question 3:
Nishant gifted ` 10 lakhs to his wife, Nisha on her birthday on, 1st
January, 2023.
Nisha lent ` 5,00,000 out of the gifted amount to Krish on 1st April,
2023 for six months on which she received interest of ` 50,000.
The said sum of ` 50,000 was invested in shares of a listed
company on 15th October, 2023, which were sold for ` 75,000 on
30th December, 2023.Securities transaction tax was paid on such
sale.
The balance amount of gift was invested as capital by Nisha in a
newly business started on 1.4.2023. She suffered loss of ` 15,000
in the business in Financial Year 2023-24.
In whose hands the above income and loss shall be included in AY
2024 -25? Support your answer with brief reasons.
Answer 3:
As per section 64(1), an individual is liable to pay tax on the income
from asset transferred to his/her spouse for no price or low price.
Interest on loan:
Interest income of ` 50,000 on loan received by his spouse Nisha
would be clubbed in the total income of Mr. Nishant, since such
loan was given by her out of the sum of money received by her as
gift from her husband.
Loss from business
Since the capital was invested in business by Nisha on 1st April,
2023, and capital invested was entirely out of the funds gifted by
her husband, the entire loss of ` 15,000 from the business carried
on by Nisha would be clubbed in the total income of Nishant.
Clubbing provisions would be attracted even if there is loss.
Capital Gain on sale of shares of listed company:
The short-term capital gain of ` 25,000 (` 75,000, being the sale
consideration less ` 50,000, being the cost of acquisition) arising in
the hands of Nisha from sale of shares acquired by investing the
interest income of ` 50,000 earned by her (from the loan given out
of the sum gifted to her by her husband), would not be included
in the hands of Mr. Nishant.
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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Income from the ”accretion” of the transferred asset is not liable
to be clubbed in the hands of the transferor and therefore such
income is taxable in the hands of Nisha. Since securities transaction
tax has been paid, such short-term capital gain on sale of listed
shares is taxable@15% in the hands of Nisha.

Question 4:
Mr. Vijay gifted a sum of ` 4 lakhs to his brother's wife on 19-6-
2023. On 21-7-2023, his brother gifted a sum of ` 3 lakhs to Mr.
Vijay's wife.
The gifted amounts were invested as fixed deposits in bank by
Vijay’s wife and his brother’s wife on 01-8-2023 at 9% interest.
Examine the consequences of the above under the provisions of
the Income-tax Act, 1961 in the hands of Mr. Vijay and his brother.

Answer 4:
In the given case, Mr. Vijay gifted a sum of `4 lakhs to his brother’s
wife on 19.06.2023 and simultaneously, his brother gifted a sum
of `3 lakhs to Mr. Vijay’s wife on 21.07.2023.
The gifted amounts were invested as fixed deposits in banks by Mr.
Vijay and his brother’s wife.
These transfers are in the nature of cross transfer. Accordingly,
the income from the assets transferred would be assessed in the
hands of the deemed transferor because the transfers are so
intimately connected to form part of a single transaction and each
transfer constitutes consideration for the other.
In such case, the implication of clubbing provisions would be
attracted. This was held by Supreme Court in CIT vs. Keshavji
Morarji (1967) 66 ITR 142.
Accordingly, the interest income of Vijay’s wife would be clubbed
in the total income of Mr. Vijay and interest income of his brother’s
wife would be clubbed in the total income of Mr. Vijay’s brother to
the extent of amount of cross transfer i.e., `3 lakhs.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Question 5:
Mrs and Mr. Naresh Yadav have two minor children Mahi and
Nonu. The following are the receipts in the hands of Mahi and
Nonu during the year ended 31-3-2023:
(i) Mahi received a gift of ` 85,000 from her friend's father on
the occasion of her birthday.
(ii) Nonu won a prize money of `3,00,000 in National Sports
competition. This was invested in debentures of a company,
from which interest of ` 25,000 (gross) accrued during the year.
Mr. Naresh’s income before considering clubbing provisions is
higher than that of his wife. Explain how these items will be
considered for taxation under the provisions of the Income Tax
Act, 1961. Detailed computation of income is not required.

Answer 5:
(i) Gift received by minor daughter Mahi
Gift of ` 85,000 received by minor daughter Mahi, from non-
relative would be taxable, since the amount of gift exceeds `
50,000. It would be included in the hands of her father, Mr. Naresh
Yadav, since his income before considering clubbing provisions is
higher than that of his wife. Exemption of ₹1,500 u/s 10(32)
would be allowed in respect of the aggregate income of minor
daughter Mahi so included in the hands of Mr. Naresh.
(ii) Prize money received by minor son Nonu
Income derived by a minor child by application of his/her skill,
talent, specialised knowledge and experience is not clubbed in
the hands of parent. Hence, the prize money of ` 3,00,000 won in
National Sports Competition by minor son Nonu would not be
included in the income of either parent.
Interest on debentures received by minor son Nonu
Interest of ₹ 25,000 on debentures has to be clubbed in the hands
of her father, Mr. Naresh Yadav, even if the investment is made out
of income arising from application of special talent. Exemption of
₹1,500 u/s 10(32) would be allowed in respect of the aggregate
income of minor son Nonu so included in the hands of Mr. Naresh.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Question 6:
Mr. Samrat and his wife, Mrs. Komal, holds 12% voting power each
in ABC (P) Ltd. Mr. Samrat and Mrs. Komal are working in ABC (P)
Ltd. However, Mrs. Komal is not qualified for the job. From the
following information given in respect of F.Y. 2023-24, you are
required to compute the gross total income of Mr. Samrat and Mrs.
Komal for the A.Y. 2024-25
(i) Dividend of ` 45,000 each received net of TDS by Mr. Samrat
and Mrs. Komal from ABC (P) Ltd.
(ii) Salary earned by Mr. Samrat and Mrs. Komal from ABC (P)
Ltd. is ` 8,50,000 and ` 5,50,000, respectively.
(iii) Business income earned by Mr. Samrat from his sole
proprietary business is ` 15,60,000
(iv) Interest on fixed deposit earned by Mrs. Komal of ` 9,00,000.
(v) Their son, Akash, aged 10 years having PAN, received
interest of ` 54,000 [net of TDS] from bank on a fixed deposit
created by his grandfather in his name.
(vi) Their minor daughter, Alia (suffering from disability)
received rental income of ₹ 20,000 per month.

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 CA SHIRISH VYAS / CA INTER DT IMP QUESTIONS / IFOS/CLUBBING
Answer 6:
STATEMENT OF TOTAL INCOME
Samrat (`) Komal (`)
Income from Salaries: ----
Salary of Samrat 8,00,000
[8,50,000 – Std dedn 50,000]
Salary of Komal 5,00,000
[5,50,000 – Std dedn 50,000]
Income from HP ---- ----
Income from Business 15,60,000
Capital Gains ---- ----
Income from Other Sources:
Dividend income [45,000/90%] 50,000 50,000
Interest on FD earned by Mrs. Komal - 9,00,000
Total (before minor’s income) 29,10,000 9,50,000
Income of minor child to be clubbed in
Mr. Samrat’s income, since his total
income before including minor’s
income is higher than that of Mrs.
Komal. {` 54,000/90% - Exemption of
₹1,500 u/s 10(32)} 58,500
Gross Total Income 29,68,500 9,50,000

Note 1: Salary of Mrs. Komal is clubbed in the total income of Mr.

Samrat, since he, along with his relative, has substantial interest in
the concern ABC (P) Ltd. and Mrs. Komal does not have any
professional qualification.

Note 2: Income of minor daughter Alia shall not be clubbed as Alia

is suffering from disability.

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