CHAPTER V

 

Income of other persons, included in assessee’s total income

 

Transfer of income where there is no transfer of assets.

60.       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.

 

Revocable transfer of assets.

61.       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.

 

Transfer irrevocable for a specified periods.

62. (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 1st 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.

 

“Transfer” and “revocable transfer” defined.

63.       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.

 

Income of individuals to include income of spouse, minor child, etc.

72-73[1] 64. 74[2] [75[3] (1)]  In computing the total income of any individu­al, there shall be included all such income as arises directly or indirectly—

 

76[4] [(i)          Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

(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:

 

77[5] [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;]

 

(iii)       78[6] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

(iv)       subject to the provisions of clause (i) of section 27, 79[7] [***] 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)        80[8] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

(vi)       to the son’s wife, 81[9] [***] of such individual, from assets transferred directly or indirectly on or after the 1st day of June, 1973, to the son’s wife 81[10] [***] by such individual otherwise than for adequate consideration; 82[11] [***]

 

(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 here spouse 83[12] [***]; and]

 

84[13] [(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 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 85[14] [***].]

 

86[15] [Explanation 1.—For the purposes of clause (ii), the individual in computing whose total income, the income referred to in that clause is to be included, shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater; and where any such income is once included in the total income of either spouse, any such income arising in any succeeding year shall not be included in the total income of the other spouse unless the Assessing Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary so to do.]

Explanation 2.—For the purposes of clause (ii), an individual shall be deemed to have a substantial interest in a concern—

(i)         in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carry­ing not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of his rela­tives;

(ii)        in any other case, if such person is entitled, or such person and one or more of his relatives are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.

Explanation 2A.—87[16] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

88[17] [Explanation 3.—For the purposes of clauses (iv) and (vi), where the assets transferred directly or indirectly by an indi­vidual to his spouse or son’s wife (hereinafter in this Explana­tion referred to as “the transferee”) are invested by the trans­feree,—

 

(i)         in any business, such investment being not in the nature of contribution of capital as a partner in a firm or, as the case may be, for being admitted to the benefits of partner­ship in a firm, that part of the income arising out of the busi­ness to the transferee in any previous year, which bears the same proportion to the income of the transferee from the business as the value of the assets aforesaid as on the first day of the previous year bears to the total investment in the business by the transferee as on the said day;

(ii)        in the nature of contribution of capital as a partner in a firm, that part of the interest receivable by the transferee from the firm in any previous year, which bears the same propor­tion to the interest receivable by the transferee from the firm as the value of investment aforesaid as on the first day of the previous year bears to the total investment by way of capital contribution as a partner in the firm as on the said day,shall be included in the total income of the individual in that previous year.]

 

89[18] [(1A)           In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child:

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.

 

Explanation.—For the purposes of this sub-section, the income of the minor child shall be included,—

 

(a)        where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater; or

(b)        where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year,and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.]

 

90[19] [(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 91[20] [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 another 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 the1st 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 92[21] [***] shall be deemed to arise to the individual and not to the family;

 

93[22] [(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 94[23] [***] on partition shall be deemed to arise to the spouse 94 [24] [***] from assets transferred indirectly by the individual to the spouse 94 [25] [***] 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 95[26] [***] of the individual.

 

Explanation 96[27] [1].— For the purposes of sub-section (2),—

 

97[28] [***] “property” includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.

98[29] [***]]

 

99[30] [Explanation 2.—For the purposes of this section, “income” includes loss.]

 

Liability of person in respect of income included in the income of another person.

 

65.       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 1[31] [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.

 

 

 [1]See also Letter [F.No. 12/2/63-IT (A-I)], dated 20-11-1963.

 [2]Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [3]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [4]Prior to omission, clause (i) as reintroduced by the Direct Tax Laws (Amendment Act, 1989, w.e.f. 1-4-1989, which was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date, read as under:

“(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such indi­vidual is a partner;”

 [5]Restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [6]Prior to omission, clause (iii), as reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 read as under :

‘(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm;”

 [7]Words “in a case not falling under clause (i) of this sub-section,” omitted by Finance Act, 1992, w.e.f 1-4-1993. Earlier these words were reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [8]Prior to omission, clause (v), as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under :

“(v) subject to the provisions of clause (i) of section 27, in a case not falling under clause (iii) of this sub-section, to a minor child of such individual, from assets transferred direct­ly or indirectly to the minor child by such individual otherwise than for adequate consideration;”

 [9]Words “or son’s minor child,” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [10]Words “or son’s minor child,” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [11]“and” omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

 [12]Words “or minor child or both” omitted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier these words were amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [13]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

 [14]Words “or son’s minor child or both” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [15]Substituted for existing Explanations 1 and 1A, ibid. Prior to substitution, Explanations 1 and 1A, as amended by the Finance Act, 1979, w.e.f. 1-4-1980, the Direct Tax Laws (Amend­ment) Act, 1987, w.e.f. 1-4-1989 and the Direct Tax Laws (Amend­ment) Act, 1989, w.e.f. 1-4-1989, read as under:

“Explanation 1.—For the purposes of clause (i) and clause (ii), the individual, in computing whose total income the income referred to in that clause is to be included, shall be the hus­band or wife whose total income (excluding the income referred to in that clause) is greater; and, for the purposes of clause (iii), the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater; and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Assessing Officer is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary so to do.

Explanation 1A.—For the purposes of clause (i), where the spouse of an individual is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm carrying on a busi­ness in which such individual is a partner shall, to the extent such income is for the immediate or deferred benefit of the spouse of such individual, be deemed to be income arising indi­rectly to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner.”

 [16]Prior to omission, Explanation 2A, as inserted by the Finance Act, 1979, w.e.f. 1-4-1980 and later amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under :

“Explanation 2A.—For the purposes of clause (iii), where the minor child of an individual is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm shall, to the extent such income is for the benefit of the minor child, be deemed to be income arising indirectly to the minor child from the admission of the minor to the benefits of partnership in a firm.”

 [17]Substituted for existing Explanation 3 by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substitution, Explanation 3, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under:

“Explanation 3.—For the purposes of clauses (iv), (v) and (vi), where the assets transferred directly or indirectly by an individual to his spouse or minor child or son’s wife or son’s minor child (hereafter in this Explanation referred to as “the transferee”) are invested by the transferee in any business, that part of the income arising out of the business to the transferee in any previous year, which bears the same proportion to the in­come of the transferee from the business, as the value of the assets aforesaid as on the 1st day of the previous year bears to the total investment in the business by the transferee as on the said day, shall be included in the total income of the individual in that previous year.”

 [18]Inserted by the Finance Act, 1992, 1-4-1993.

 [19]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [20]Substituted for “into the common stock of the family (such property being hereinafter referred to as the coverted property)” by the Finance Act, 1979, w.e.f. 1-4-1980.

 [21]“in so far as it is attributable to the interest of the individual in the property of the family” omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [22]Substituted, ibid.

 [23]Words “or minor child” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [24]Words “or minor child” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [25]Words “or minor child” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [26]Words “or minor child” omitted, ibid. Earlier word “child” was substituted for “son” by the Taxation Laws (Amend­ment) Act, 1975, w.e.f. 1-4-1976.

 [27]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [28]“(1)” omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [29]Clause (2) omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [30]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [31]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.