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UNIVERSITY INSTITUTE OF LEGAL STUDIES,

PUNJAB UNIVERSITY, CHANDIGARH

PRINCIPLES OF TAXATION LAW

TOPIC: CLUBBING OF INCOME [SECTION 60-65]

SUBMITTED TO-
Ms. KRITI
UILS, PU
CHANDIGARH
SUBMITTED BY-
REEMA
ROLL NO. 288
SECTION E
B.COM LLB, 10TH SEM
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ACKNOWLEDGEMENT

The success and outcome of this project required a lot of guidance and

assistance. I am extremely fortunate to have got this all along the completion of

my project report. Whatever I have done is only due to such guidance and I

would never forget to thank them.

I take this opportunity to record a deep sense of gratitude to, Ms. Kriti,

University Institute of Legal Studies, Chandigarh for her incontestably perfect

unmatched guidance, encouragement, valuable suggestions and efforts made

during the preparation of this project and during her lectures which enabled me

to complete this project successfully on the topic on;

CLUBBING OF INCOME [SECTION 60-65]

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TABLE OF CONTENT

S. NO. CONTENT PAGE NO.

1. INTRODUCTION 4

Income of other persons includible in Assessee's total income

2. 5
[section 60-63]

Income of other persons included in an Individual's total

3. 9
income [Section 64]

Liability of person in respect of income included in the

4. 15
income of another person [Section 65]

5. CONCLUSION 16

6. BIBLIOGRAPHY 17
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CLUBBING OF INCOME [SECTON 60 -65]

INTRODUCTION

The Income Tax Act, 1961, is the cornerstone of India’s direct tax system, governing the
levy, collection, and administration of income tax in the country. Enacted by the Parliament
of India, the Act provides a comprehensive framework for the taxation of income earned by
individuals, businesses, and other entities. It is designed to ensure a fair and equitable
distribution of the tax burden, enabling the government to generate revenue for public welfare
and infrastructure development. The Act has undergone numerous amendments over the
years to adapt to changing economic conditions, technological advancements, and evolving
tax policies.

Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his own income.
However, there are certain cases where an assessee has to pay tax in respect of the income of
another person. Like, in the case of individuals, income-tax is levied on a slab system on the
total income. The tax system is progressive i.e. as the income increases, the applicable rate of
tax increases. Some taxpayers in the higher income bracket have a tendency to divert some
portion of their income to their spouse, minor child etc. to minimize their tax burden. In order
to prevent such tax avoidance, clubbing provisions have been incorporated in the Act, under
which income arising to certain persons (like spouse, minor child etc.) have to be included in
the income of the person who has diverted his income for the purpose of computing tax
liability. The provisions for the same are contained in sections 60 to 64 of the Act. These
provisions have been enacted to counteract the tendency on the part of the tax-payers to
dispose of their property or transfer their income in such a way that their tax liability can be
avoided or reduced. Hence, the clubbing provisions are based on the principle that income
should be taxed in the hands of the person who effectively controls or benefits from it, even if
it is legally earned by another person. This ensures that taxpayers cannot avoid or reduce their
tax burden by artificially diverting income to others. These provisions can be categorized as
follows:

 Income of other persons included in an assessee's total income [Sections 60-63]

 Income of other persons included in an Individual's total income [Section 64]
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 Liability of person in respect of income included in the income of another person [Section
65]
INCOME OF OTHER PERSONS INCLUDIBLE IN ASSESSEE'S
TOTAL INCOME

SECTION 60

“60. Transfer of income where there is no transfer of assets. — All income arising to any
person by virtue of a transfer whether revocable or not and whether effected before or after
the commencement of this Act shall, where there is no transfer of the assets from which the
income arises, be chargeable to income tax as the income of the transferor and shall be
included in his total income.”

Section 60 expressly states that where there is transfer of income from an asset without
transfer of the asset itself, such income shall be included in the total income of the transferor.
Section 60 have two essentials;

(i) If any person transfers the income from any asset without transferring the asset itself,
such income is to be included in the total income of the transferor and,
(ii) It is immaterial whether the transfer is revocable or irrevocable and whether it was
made before the commencement of this Act or after its commencement

SECTION 61

“61. Revocable transfer of assets.—All income arising to any person by virtue of a

revocable transfer of assets shall be chargeable to income tax as the income of the transferor
and shall be included in his total income.”

All income arising to any person by virtue of a revocable transfer of assets is to be included
in the total income of the transferor. The meaning of revocable transfer is given under Section
63 of the act. Clubbing provision will operate even if only part of income of the transferred
asset had been applied for the benefit of the transferor. Once the transfer is revocable, the
entire income from the transferred asset is includible in the total income of the transferor.
Section 61 has certain exceptions which are provided under Section 62 of the act.
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SECTION 62

“62. Transfer irrevocable for a specified period. —(1) The provisions of Section 61 shall not
apply to any income arising to any person by virtue of a transfer—
(i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the
case of any other transfer, which is not revocable during the lifetime of the transferee; or
(ii) made before the first day of April, 1961, which is not revocable for a period exceeding six
years:
Provided that the transferor derives no direct or indirect benefit from such income in either
case.
(2) Notwithstanding anything contained in sub-section (1), all income arising to any person
by virtue of any such transfer shall be chargeable to income tax as the income of the
transferor as and when the power to revoke the transfer arises, and shall then be included in
his total income.”

Section 61 will not apply to any income arising to any person if there is -

(i) a transfer by way of trust which is not revocable during the life time of the beneficiary;
and

(ii) any other transfer, which is not revocable during the life time of the transferee.

In the above cases, the income from the transferred asset is not includible in the total income
of the transferor, provided the transferor derives no direct or indirect benefit from such
income.

If the transferor receives direct or indirect benefit from such income, such income is to be
included in his total income even though the transfer may not be revocable during the life
time of the beneficiary or transferee, as the case may be.

As and when the power to revoke the transfer arises, the income arising by virtue of such
transfer will be included in the total income of the transferor.

SECTION 63
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“63. “Transfer” and “revocable transfer” defined.—For the purposes of Sections 60, 61
and 62 and of this section,—
(a) a transfer shall be deemed to be revocable if—
(i) it contains any provision for the re-transfer directly or indirectly of the whole or any part
of the income or assets to the transferor, or
(ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over
the whole or any part of the income or assets;
(b) “transfer” includes any settlement, trust, covenant, agreement or arrangement.”

SECTION 64
“64. Income of individual to include income of spouse, minor child, etc.— (1) In computing
the total income of any individual, there shall be included all such income as arises directly
or indirectly—
(ii) to the spouse of such individual by way of salary, commission, fees or any other form
of remuneration whether in cash or in kind from a concern in which such individual
has a substantial interest:
Provided that nothing in this clause shall apply in relation to any income arising to the
spouse where the spouse possesses technical or professional qualifications and the income is
solely attributable to the application of his or her technical or professional knowledge and
experience;
(iv) subject to the provisions of clause (i) of Section 27, to the spouse of such individual
from assets transferred directly or indirectly to the spouse by such individual
otherwise than for adequate consideration or in connection with an agreement to live
apart;
(v) to the son’s wife, of such individual from assets transferred directly or indirectly on
or after the 1st day of June, 1973, to the son’s wife by such individual otherwise than
for adequate consideration;
(vii) to any person or association of persons from assets transferred directly or indirectly
otherwise than for adequate consideration to the person or association of persons by
such individual, to the extent to which the income from such assets is for the
immediate or deferred benefit of his or her spouse; and
(viii) to any person or association of persons from assets transferred directly or indirectly
on or after the 1st day of June, 1973, otherwise than for adequate consideration, to
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the person or association of persons by such individual, to the extent to which the
income from such assets is for the immediate or deferred benefit of his son’s wife…….

(1-A) In computing the total income of any individual, there shall be included all such
income as arises or accrues to his minor child, not being a minor child suffering from any
disability of the nature specified in Section 80-U:
Provided that nothing contained in this sub-section shall apply in respect of such income as
arises or accrues to the minor child on account of any—
(a) manual work done by him; or
(b) activity involving application of his skill, talent or specialised knowledge and experience.
……….
(2) Where, in the case of an individual being a member of a Hindu undivided family, any
property having been the separate property of the individual has, at any time after the 31st
day of December, 1969, been converted by the individual into property belonging to the
family through the act of impressing such separate property with the character of property
belonging to the family or throwing it into the common stock of the family or been
transferred by the individual, directly or indirectly, to the family otherwise than for adequate
consideration (the property so converted or transferred being hereinafter referred to as the
converted property), then, notwithstanding anything contained in any other provision of this
Act or in any other law for the time being in force, for the purpose of computation of the total
income of the individual under this Act for any assessment year commencing on or after the
1st day of April, 1971, —
(a) the individual shall be deemed to have transferred the converted property, through the
family, to the members of the family for being held by them jointly;
(b) the income derived from the converted property or any part thereof shall be deemed to
arise to the individual and not to the family;
(c) where the converted property has been the subject-matter of a partition (whether partial
or total) amongst the members of the family, the income derived from such converted
property as is received by the spouse on partition shall be deemed to arise to the spouse
[or minor child] from assets transferred indirectly by the individual to the spouse and the
provisions of sub-section (1) shall, so far as may be, apply accordingly:
Provided that the income referred to in clause (b) or clause (c) shall, on being included in
the total income of the individual, be excluded from the total income of the family or, as the
case may be, the spouse of the individual……”
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Section 64 talks about income of other persons includible in individual's total income. It can
be divided into four major head, as follows:
1. Clubbing of income arising of spouse.
2. Clubbing of income arising to son’s wife.
3. Clubbing of minor’s income.
4. Conversion of self-acquired property into the property of a HUF.
INCOME OF OTHER PERSON’S INCLUDED IN INDIVIUAL’S
TOTAL INCOME

 CLUBBING OF INCOME ARISING TO SPOUSE

(1) Income by way of remuneration from a concern in which the individual has a
substantial interest [Section 64(1)(ii)]

(i) Remuneration in cash or kind to spouse from a concern in which the individual has
a substantial interest to be clubbed: In computing the total income of any individual,
all such income which arises, directly or indirectly, to the spouse of such individual by
way of salary, commission, fees or any other form of remuneration, whether in cash or in
kind, from a concern in which such individual has a substantial interest shall be included.
The term 'relative' in relation to an individual means the husband, wife, brother or sister
or any lineal ascendant or descendant of that individual [Section 2(41)].
(ii) Clubbing provisions will not apply where remuneration is received on account of
technical or professional qualifications: Clubbing provisions, however, does not apply
where the spouse of the said individual possesses technical or professional qualifications
and the income to the spouse is solely attributable to the application of his/her technical
or professional knowledge or experience. In such an event, the income arising to such
spouse is to be assessed in his/her hands.
(iii) Both husband and wife have substantial interest in a concern: Where both husband
and wife have substantial interest in a concern and both are in receipt of income by way
of salary etc. from the said concern, such income will be includible in the hands of that
spouse, whose total income, excluding such income is higher. Where any such income is
once included in the total income of either spouse, income arising in the succeeding year
shall not be included in the total income of the other spouse unless the Assessing Officer
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is satisfied, after giving that spouse an opportunity of being heard, that it is necessary to
do so.

(II) Income arising to the spouse from an asset transferred without adequate
consideration [Section 64(1)(iv)]

(i) Transfer of asset (other than house property): Where there is a transfer of an asset
(other than house property), directly or indirectly, from one spouse to the other, without
adequate consideration or otherwise than in connection with an agreement to live apart,
any income arising to the transferee-spouse from the transferred asset, either directly or
indirectly, shall be included in the total income of the transferor-spouse.
(ii) Transfer of house property: In the case of transfer of house property, the provisions are
contained in section 27. If an individual transfers a house property to his spouse, without
adequate consideration or otherwise than in connection with an agreement to live apart,
the transferor shall be deemed to be the owner of the house property and its annual value
will be taxed in his hands.
(iii) Income from accretion of the transferred asset: It may be noted that any income from
the accretion of the transferred asset is not to be clubbed with the income of the
transferor. i.e., the income arising on transferred assets alone have to be clubbed. Income
earned by investing such income (arising from transferred asset) cannot be clubbed.
(iv) Meaning of adequate consideration: It is also to be noted that natural love and
affection do not constitute adequate consideration. Therefore, where an asset is
transferred without adequate consideration, the income from such asset will be clubbed
in the hands of the transferor.
(v) Transferred asset invested in business: Where the assets transferred, directly or
indirectly, by an individual to his spouse are invested by the transferee in the business,
proportionate income arising to the transferee from such investment is to be included in
the total income of the transferor. If the investment is in the nature of contribution of
capital, proportionate interest receivable by the transferee from the firm will be clubbed
with the income of the transferor. Such proportion has to be computed by taking into
account the value of the aforesaid investment as on the first day of the previous year to
the total investment in the business or by way of capital contribution in a firm as a
partner, as the case may be, by the transferee as on that day.
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(III) Transfer of assets for the benefit of spouse [Section 64(1)(vii)]

All income arising directly or indirectly to any person or association of persons, from the
assets transferred, directly or indirectly, to such person or association of persons by an
individual without adequate consideration is includible in the income of the individual to the
extent such income is used by the transferee for the immediate or deferred benefit of the
transferor's spouse.

 CLUBBING OF INCOME ARISING TO SON'S WIFE

(1) Income arising to son's wife from the assets transferred without adequate
consideration by the father-in-law or mother-in-law [Section 64(1)(vi)]

(i) Asset transferred without adequate consideration: Where an asset is transferred,

directly or indirectly, by an individual to his or her son's wife without adequate
consideration, the income from such asset is to be included in the total income of
the transferor.
(ii) Asset transferred invested in the business: For this purpose, where the assets
transferred directly or indirectly by an individual to his or her son's wife are
invested by the transferee in the business, proportionate income arising from such
investment is to be included in the total income of the transferor. If the investment
is in the nature of contribution of capital, the proportionate interest receivable
from firm will be clubbed with the income of the transferor. Such proportion has
to be computed by taking into account the value of the aforesaid investment as on
the first day of the previous year to the total investment in the business or by way
of capital contribution in a firm as a partner, as the case may be, by the transferee
as on that day.

(II) Transfer of assets for the benefit of son's wife [Section 64(1)(viii)]

All income arising directly or indirectly, to any person or association of persons from the
assets transferred, directly or indirectly, without adequate consideration, to such person or
association of persons by an individual will be included in the total income of the individual
to the extent such income is used by the transferee for the immediate or deferred benefit of
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the transferor's son's wife. Where any asset is transferred by a person to any other person
without consideration or for inadequate consideration, the provisions of 56(2)(x) would get
attracted in the hands of transferee, if conditions specified thereunder are satisfied. However,
If the transfer was for adequate consideration, the provisions of section 64(1)(viii) would not
be attracted.

 CLUBBING OF MINOR'S INCOME [SECTION 64(1A)]

(i) All income of a minor is to be included in the income of his or her parent.
(ii) However, the income derived by the minor from manual work or from any activity
involving his skill, talent or specialised knowledge or experience will not be included
in the income of his parent.
(iii) The income of the minor will be included in the income of that parent, whose total
income, excluding minor's income, is greater.
(iv) Once clubbing of minor's income is done with that of one parent, it will continue to be
clubbed with that parent only, in subsequent years. The Assessing Officer, may,
however, club the minor's income with that of the other parent, if, after giving the
other parent an opportunity to be heard, he is satisfied that it is necessary to do so.
(v) Where the marriage of the parents does not subsist, the income of the minor will be
includible in the income of that parent who maintains the minor child in the relevant
previous year.
(vi) However, the income of a minor child suffering from any disability of the nature
specified in section 80U shall not be included in the hands of the parent but shall be
assessed in the hands of the child.
(vii) It may be noted that the clubbing provisions are attracted even in respect of income of
minor married daughter.

Exemption in respect of clubbed income of minor [Section 10(32)]

In case the income of an individual (i.e. the parent) includes the income of his minor child in
terms of section 64(1A), such parent shall be entitled to exemption of 1,500 in respect of each
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minor child. However, if income of any minor so includible is less than 1,500, then, the entire
income shall be exempt. Exemption under section 10(32) would be available to the parent
only if he/she exercises the option of shifting out of the default tax regime provided under
section 115BAC(1A). The same would not be available to him/her under the default tax
regime where he/she computes his/her total income as per section 115BAC and pays tax at
the concessional rates provided thereunder.

(viii) In case the asset transferred to a minor child (not being a minor married daughter)
without consideration or for inadequate consideration is a house property, then, by
virtue of section 27(i), the transferor-parent will be the deemed owner of the house
property. Therefore, the income from house property will be taxable in the hands of
the transferor-parent, being the deemed owner and not in the hands of the minor child.
Consequently, clubbing provisions under section 64(1A) would not be attracted in
respect of such income, due to which the benefit of exemption u/s 10(32) (discussed
above) cannot be availed against such income.
However, if the house property is transferred by a parent to his or her minor married
daughter, without consideration or for inadequate consideration, then, section 27(i) is
not attracted. In such a case, the income from house property will be included u/s
64(1A) in the hands of that parent, whose total income before including minor child's
income is higher, and benefit of exemption u/s 10 (32) can be availed by that parent in
respect of the income so included if he/she exercises the option of shifting out of the
default tax regime provided under section 115BAC (1A).

CROSS TRANSFERS
In the case of cross transfers also (e.g., A making gift of 50,000 to the wife of his brother B
for the purchase of a house by her and a simultaneous gift by B to A's minor son of shares in
a foreign company worth 50,000 owned by him), the income from the assets transferred
would be assessed in the hands of the deemed transferor if the transfers are so intimately
connected as to form part of a single transaction, and each transfer constitutes consideration
for the other by being mutual or otherwise. Thus, in the instant case, the transfers have been
made by A and B to persons who are not their spouse or minor child so as to circumvent the
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provisions of this section, showing that such transfers constituted consideration for each
other.
The Supreme Court, in case of CIT v. Keshavji Morarji1, observed that if two transactions
are inter-connected and are parts of the same transaction in such a way that it can be said that
the circuitous method was adopted as a device to evade tax, the implication of clubbing
provisions would be attracted. Accordingly, the income arising to Mrs. B from the house
property should be included in the total income of B and the dividend from shares transferred
to A's minor son would be taxable in the hands of A, assuming that Mr. A's income is higher
than that of Mrs. A. This is because A and B are the indirect transferors to their minor child
and spouse, respectively, of income-yielding assets, so as to reduce their burden of taxation.
 CONVERSION OF SELF-ACQUIRED PROPERTY INTO THE
PROPERTY OF A HINDU UNDIVIDED FAMILY [SECTION 64(2)]

Section 64(2) deals with the case of conversion of self-acquired property into property of a
Hindu undivided family.
(i) Where an individual, who is a member of the HUF, converts at any time after 31-12-
1969, his individual property into property of the HUF of which he is a member or
throws such property into the common stock of the family or otherwise transfers such
individual property, directly or indirectly, to the family otherwise than for adequate
consideration, the income from such property shall continue to be included in the total
income of the individual.
(ii) Where the converted property has been partitioned, either by way of total or partial
partition, the income derived from such converted property as is received by the spouse
on partition will be deemed to arise to the spouse from assets transferred indirectly by the
individual to the spouse and consequently, such income shall also be included in the total
income of the individual who effected the conversion of such property.
(iii) Where income from the converted property is included in the total income of an
individual under section 64(2), it will be excluded from the total income of the family or,
as the case may be, of the spouse of the individual.

1
[1967] 66 ITR 142.
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Where income from the converted property is included in the total income of an individual
under section 64(2), it will be excluded from the total income of the family or, as the case
may be, of the spouse of the individual.

SECTION 65

“65. Liability of person in respect of income included in the income of another person.—
Where by reason of the provisions contained in this Chapter or in clause (i) of Section 27, the
income from any asset or from membership in a firm of a person other than the assessee is
included in the total income of the assessee, the person in whose name such asset stands or
who is a member of the firm shall, notwithstanding anything to the contrary contained in any
other law for the time being in force, be liable on the service of a notice of demand by the
Assessing Officer in this behalf, to pay that portion of the tax levied on the assessee which is
attributable to the income so included, and the provisions of Chapter XVII-D shall, so far as
may be, apply accordingly:
Provided that where any such asset is held jointly by more than one person, they shall be
jointly and severally liable to pay the tax which is attributable to the income from the assets
so included.”

Section 65 talks about the situation, if the asset generating the income is held jointly by more
than one person, all such persons are jointly and severally liable to pay the tax attributable to
the income from that asset. Each co-owner is independently responsible for the entire tax
liability, meaning the tax authority can demand the full amount from any one of the co-
owners. The section serves as a crucial mechanism within the Indian tax framework to ensure
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that income is taxed appropriately, especially in scenarios where income attribution could be
manipulated. By holding the actual asset holders or firm members liable for taxes on income
attributed to them, the Act promotes transparency and compliance in tax reporting.
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CONCLUSION

The concept of clubbing of income is a fundamental principle under the Income-tax Act,
1961, aimed at preventing tax evasion by ensuring that income diverted to family members or
other entities is included in the assessee’s total income for tax purposes. These provisions,
outlined in Sections 60 to 65, are designed to counteract the tendency of taxpayers to reduce
their tax liability by transferring income-generating assets or diverting income to relatives,
such as spouses, minor children, or sons’ wives.
Section 60 deals with the transfer of income without the transfer of the underlying asset. If a
person transfers the right to receive income from an asset without transferring the asset itself,
the income is included in the transferor’s total income.
Section 61 focuses on income arising from revocable transfers of assets. A transfer is deemed
revocable if it allows the transferor to regain control over the income or assets. In such cases,
the income from the transferred asset is included in the transferor’s total income.
However, Section 62 provides an exception: if the transfer is irrevocable during the lifetime
of the beneficiary or transferee, and the transferor derives no benefit, the income is not
clubbed. Section 63 defines the terms "transfer" and "revocable transfer," clarifying the scope
of these provisions.
Section 64 is the cornerstone of clubbing provisions, covering the inclusion of income earned
by the spouse, minor child, or son’s wife in the individual’s total income. Similarly, income
from assets transferred to a spouse or minor child without adequate consideration is included
in the transferor’s income. Section 64(1A) specifically addresses the clubbing of a minor’s
income, with certain exceptions for income earned through manual work or specialized skills.
Section 65 deals with the liability of the person in whose name the income-generating asset is
held. If income from an asset is included in the assessee’s total income, the person holding
the asset is liable to pay the tax attributable to that income. This ensures that the tax liability
is properly allocated, even in cases of joint ownership.
In conclusion, the clubbing provisions under Sections 60 to 65 play a crucial role in
maintaining the integrity of the tax system by preventing tax avoidance through income
diversion. These provisions ensure that income is taxed in the hands of the person who
effectively controls it, promoting fairness and transparency in the taxation process.
Understanding these provisions is essential for accurate tax compliance and planning.
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BIBLIOGRAPHY

1. Income Tax Act, 1961.

2. ICAI study material for CA Inter Paper 4-Taxation.

3. https://cleartax.in/s/section-64-clubbing-income

4. https://taxguru.in/income-tax/clubbing-of-income-under-the-income-tax-

act-

5. https://blog.ipleaders.in/one-guide-clubbing-income

6. https://testbook.com/ugc-net-commerce/clubbing-of-income