Applicability of clubbing provisions where Income is derived from the separate property converted into Joint Family Property and subsequent Partition- Section 64(2).
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Transactions covered by Section 64(2) by an Individual, who is a member of HUF —
In a case where an individual (who is a member of the HUF),—
1. Converts his separate property as the property of the HUF, or
2. Throws the property into the common stock of the family, or
3. Otherwise transfers his individual property to the family,
for inadequate consideration, then the income resulting from such transferred property shall continue to be clubbed in the total income of the individual.
In simple words, if a self-acquired property of an individual (a member of the HUF) is converted into a joint family property for inadequate consideration, the income resulting from such transferred property by the joint family shall be clubbed in the total income of the individual who was the owner of such self-acquired property.
For Example,
Mr A (a member of the HUF) owns a self-occupied house property from which he gets a yearly income of Rs. 6,00,000. Mr A converts such property as the property of his HUF. Though the income from the house property shall henceforth be received by the HUF but the same shall be deemed to be the income of Mr A and shall be clubbed in the computation of his total income under the head ‘Income from House Property’.
Applicability of clubbing provision on the Income in the case of subsequent Partition of HUF :
In a case where the converted property has been the subject matter of partition (partial partition or the total partition) amongst the family members, the income resulting from such, converted property as is received by the spouse, on the partition, the same shall be deemed to arise to the spouse from transferred assets indirectly by the individual to the spouse and the portion of the income received by the spouse, shall be clubbed in the hands of the transferor.
In the given example above, if there is a partition in the family and there are five family members entitled to a share in the HUF property i.e. Mr A, Mrs A, a minor child of A and two major sons of A suppose they decide to share the property (subject matter of the partition) equally then the income derived from the property shall be treated as follows:
- 1/5th share of such income shall be the income of Mr A Rs. 1,20,000;
- 1/5th share of such income shall be the income of Mrs A Rs. 1,20,000 ( the same also clubbed with the income of Mr A);
- 1/5th share of such income shall be the income of minor child of X Rs. 1,20,000 (and the same also clubbed with the income of Mr A or Mrs A, whose income is higher, u/s 64(1A). ( However, Mr A can claim exemption up to Rs. 1,500 u/s 10(32); )
- 2/5th share of such income shall be the income of other members shall be taxable in the hands of the major sons individually.
Income to be clubbed but Income on Income, not to be clubbed:
The income derived from the accumulated income from such property or from the accretion of such property cannot be clubbed.
For example,
Mr A transfers 1,000 bonds of UTI to his wife Mrs A. Mrs A receives a sum of Rs. 70,000 as interest per annum from UTI. This interest amount of Rs. 70,000 is to be included in the income of Mr A. However if Mrs A accumulates Rs. 40,000 out of the interest income and deposits the same at an interest of 10% per annum, then the interest of Rs. 4,000 received by her on the deposit will not be clubbed in the total income of Mr A.
Income also includes ‘Loss’
By the virtue of section 64, the income also includes loss. Therefore, under all the provisions discussed, where the income arising to one person is to be clubbed in the hands of another person, in the event of loss, the loss also is taken into account in computing the income of such person.
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