CASES OF CLUBBING OF

INCOME
No clubbing of income if remuneration received on the basis of any technical or professional
qualification; – if spouse has any technical or professional qualification and due to that he/she is
earning any income from a concern in which other spouse has substantial interest, then her/his income
shall be clubbed. For these two conditions to be fulfilled;

i) Income received on account of technical or professional qualifications possessed by the spouse,

and

ii) Ii) the income is solely attributable to the application of his/her technical or professional
knowledge or experience.

Example: let’s consider mr. X & mr. Y are partners of XY enterprises and sharing profit in the ration
50:50. Mrs. X is also an employee of XY enterprises and earning rs. 40,000/- pm as salary. In this
case salary of mrs. X will be clubbed in the income of mr. X from firm as “income from salary’. If mrs.
X has technical or professional qualification (let’s suppose she is a CA), in this case her income will
not be clubbed in income of mr. X
Section 64(1)(ii)- where both husband and wife have substantial interest and both are getting
remuneration from the concern:- if both husband and wife have substantial interest in the concern
and both getting remuneration from same concern, then income of one shall be clubbed income of
those, which has higher income than other, before clubbing income. For this below mentioned
conditions to be fulfilled;

I) both husband and wife have substantial interest in the concern;

Ii) both husband and wife get remuneration from such concern;

Iii) the relationship of husband and wife subsists at the time of accrual of income from concern.

Note: where income is once included in hand of either spouse, any such income arising in any
succeeding year shall not be included in total income of other spouse, without permission of
income tax authorities.
 LET’S CONSIDER SOME IMPORTANT POINTS;

CONCERN: It is a word of wide import and takes within its sweep and ambit all organisations or

establishments engaged in business or profession, whether owned by a company, partnership or individual

or any other entity. It also includes professional establishment also [ mokashi (dr.J.M.) Vs. Cit

(1994)207itr252(bom)]
• SUBSTANTIAL INTEREST: an individual shall be deemed to have substantial interest in a concern;

• I) if the concern is a company ; he alone or along with his relatives at any time during the previous
year owns beneficially, shares (equity 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 20% of the
voting power.

• Ii) in any other case; if he alone or along with his relatives is entitled to 20% of the profits of such
concern at any time during the previous year.

• Note: in case of a company, the individual must have beneficial ownership of 20% of equity shares.
If a person holding more than 51% shares of a company, in which he/she is not beneficially
interested, then he/she shall not be deemed to have substantial interest in the concern.
• Technical/professional qualifications:

• Two main conditions required to be fulfilled for section 64(1)(ii) as follows;

• I) the spouse possesses technical or professional qualification; and

• Ii) the income is solely attributable by application of same technical/professional qualifications.

 MOKASHI (DR.J.M.) VS. CIT (1994) 207 ITR 252
(BOM);

• It is decided that there is no conflict between two requirements of the provision, each deal with a

different aspect and both them must be satisfied, though second comes into operation only on

fulfilment of the first and not otherwise.

 PRATIMA SHAHA (SMT.) VS. CIT (1999) 239 ITR 570 (GAU):

Where the spouse was drawing salary as nurse-cum-supervisor from a nursing home in which her

husband was a partner , although she was bsc., In bio-science but did not posses any professional or

basic qualification as nurse from any recognised institute, it was held that in view of the nature of

employment of the spouse , a degree, a certificate or diploma in some cases may insisted upon.

Note: the words technical or professional qualification, do not necessarily relate to technical or

professional qualification acquired by obtaining a degree, certificate or diploma or in any other

form from and recognised institute or university.

 BATTA KALYANI VS. CIT (1985) 154 ITR 59 (AP);

A harmonious construction of two parts of proviso shows that if a person possesses technical or

professional knowledge and experience, the requirements for the application of the proviso is

satisfied, although the person concerned may not possesses any qualification issued by recognised

institute.
 SECTION 64(1)(IV)-INCOME FROM ASSETS
TRANSFERRED TO THE SPOUSE;
In computing the total income of an individual , all such income as arises directly or indirectly , subject to the

provision of section 27(i) , to the spouse of such individual from assets transferred directly or indirectly to the

spouse of such individual otherwise than for adequate consideration or in connection with an agreement to live

apart shall be included.

Note: above provision is not applicable in case of income from house property transferred to the spouse by the

individual. Where a house property has been transferred to the spouse, without adequate consideration and same

shall be transferred later by the spouse, the income from that property shall be first assessed in the hand of

transferee and then after clubbed in the income of transferor.

 SECTION 64 IN THE INCOME- TAX ACT, 1995

• 64. Income of individual to include income of spouse, minor child, etc. in computing the total income

of any individual, there shall be included all such income as arises directly or indirectly-

• (i) 4 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: 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.
PHILIP JOHN PLASKET THOMAS VS. CIT (1963) 49 ITR 97 (SC):

If relationship of husband and wife does not exist, either at the time of transfer of such asset or at the

time of accrual of income, then income shall not be clubbed. Suppose mr. A has given a gift to his

fiancé (would be wife) then income arising from such gifted property shall not be taxable in hand of

mr. A, even after his marriage, because at the time of gift, the relationship with his fiancé was not as

husband and wife. Wife, in these provisions, means a lawfully wedded wife and child, a legitimate

child. Income of a perspective wife or of all illegitimate child is not affected by these provisions.

Tulsidas kilachand vs. CIT 42ITR(SC); natural love and affection may be good consideration but

that would not be adequate consideration for purpose of section 64(1).

Thank you