478. Wife or minor child of individual incurs loss, which if it were income would be includible in income of that individual – Whether such loss should be treated as if it were loss sustained by that individual

CLARIFICATION 1

1. Reference is invited to the Board’s Instruction No. 405 [F. No. 208/2/71 IT (A-II)], dated 6-4-1972, on the above subject.

2. On the basis of the decision of the Gujarat High Court in the case of Dayalbhai Madhavji Vadera v. CIT  [1966] 60 ITR 551, the Board had issued instructions that if the share of the wife in a firm in which the assessee is a partner is a loss, such loss is not to be considered in the assessment of the husband under section 16(3) of the 1922 Act [corresponding to section 64(1) of the 1961 Act].  A question has been raised whether in the assessment of the wife, can such a loss be allowed to be set-off against any other income in the same assessment year ?

3. The Board has decided that such a set-off should be allowed while framing the assessment of the spouse.  If after setting-off such a loss in the same assessment year, there is still a loss left then the balance should be allowed to be carried forward and set-off allowed in subsequent years in accordance with the provisions of law.

Circular : No. 104 [F. No. 208/8/72-IT (A-II)], dated 19-2-1973.

CLARIFICATION 2

Attention is invited to the Board’s Circular No. 35 of 1941, on the above subject.  It was laid down therein that where the wife or minor child of an individual incurs a loss which if it were income would be includible in the income of that individual under section 16(3) of the 1922 Act, such loss should be set-off only against the income, if any, of the wife or minor child and if not wholly set-off should be carried forward, subject to the provisions of section 24(2) of the 1922 Act.  The Board has reconsidered the question and has decided that, although this view may be tenable in law, the other and more equitable view is, at least equally tenable, that such loss should be treated as if it were a loss sustained by that individual. Thus, if the wife or minor child has a personal income of Rs. 5,000 which is not includible in the individual’s income and sustains a loss of Rs. 10,000 from a source the income of which would be includible in the income of the individual, the loss should be set-off against the income of the individual under section 24(1), and if not wholly set-off should be carried forward under section 24(2).  The wife or the minor child would, therefore, be assessable on the personal income of Rs. 5,000.  If in any case the wife or minor child claims a set-off of the loss against the personal income, it should be brought to the notice of the Board.  The Board’s Circular No. 35 of 1941 is hereby cancelled.

Circular : No. 20 of 1944 [C. No. 4(13)-IT/44], dated 15-7-1944.

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