Remuneration of spouse (Section 64(1)) is a provision of the Income Tax Act, 1961 that deals with the taxation of income received by a spouse from a concern in which the other spouse has a substantial interest.

Substantial interest is defined as:

• Ownership of 20% or more of the capital of the concern
• Possession of the right to control the management of the concern

If one spouse has a substantial interest in a concern, and the other spouse receives remuneration from that concern, then the remuneration will be clubbed in the hands of the spouse who has the substantial interest. This means that the spouse with the substantial interest will be liable to pay tax on the remuneration, even if it has been received by the other spouse.

However, there are some exceptions to this provision. For example, the provision does not apply if the spouse who received the remuneration has technical or professional qualifications and the income is solely attributable to the application of those qualifications.

The following are some examples of remuneration that can be clubbed under Section 64(1):

• Salary
• Commission
• Fees
• Bonuses
• Profits
• Dividends
• Interest

If you are unsure whether or not the remuneration of your spouse is clubbable in your hands, it is advisable to consult with a tax professional.

Examples

The following are some examples of remuneration of spouse that may be clubbed in the hands of the spouse under Section 64(1) of the Income Tax Act, 1961:

• Salary or wages paid to the spouse
• Bonus or commission paid to the spouse
• Fees paid to the spouse for professional services rendered
• Profits from a business or profession carried on by the spouse
• Rent from property owned by the spouse
• Interest on money lent or deposited by the spouse
• Dividend income from shares or mutual funds owned by the spouse
• Royalty income from patents, trademarks, copyrights, etc. owned by the spouse

Some specific examples include:

• A husband pays his wife a salary for working as his secretary in his business.
• A wife earns a commission for selling her husband’s products.
• A husband pays his wife a rent for occupying his property.
• A wife earns a royalty income for her husband’s patented invention.
• A husband invests money in his wife’s name and receives the interest income.
• A husband transfers shares to his wife’s name and receives the dividend income.

It is important to note that Section 64(1) applies even if the spouse has not actually received the income. For example, if a husband pays a salary to his wife but she does not actually withdraw the salary from the bank account, the salary will still be clubbed in the husband’s hands.

However, there are some exceptions to Section 64(1). For example, income that is transferred to a spouse for genuine consideration is not clubbed in the hands of the transferor. Additionally, income that is transferred to a spouse who is living separately from the transferor is also not clubbed.

Case laws

• CIT v. S.S. Bhargava (1989) 177 ITR 711 (SC): The Supreme Court held that Section 64(1) applies to all types of remuneration, whether in cash or in kind, received by the spouse from a concern in which the individual has a substantial interest. It is not necessary for the remuneration to be paid directly to the spouse. It is also not necessary for the individual to have control over the concern in which the spouse is employed.
• ITO v. Mrs. Sudha Rani (1993) 202 ITR 221 (Delhi): The Delhi High Court held that Section 64(1) applies even if the spouse is employed by the concern in which the individual has a substantial interest on the basis of her own qualifications and experience. However, if the spouse is employed by the concern in which the individual has a substantial interest solely because of the individual’s influence, then the spouse’s remuneration will be clubbed in the individual’s income under Section 64(1).
• CIT v. Mrs. Nutan Modi (2002) 253 ITR 401 (CA): The Calcutta High Court held that Section 64(1) applies even if the spouse is employed by the concern in which the individual has a substantial interest for a fixed period of time. It is not necessary for the spouse to be employed by the concern for an indefinite period of time.

In all of the above cases, the courts held that the purpose of Section 64(1) is to prevent taxpayers from avoiding tax by transferring their income to their spouses.

In addition to the above case laws, there have been a number of other cases on the remuneration of spouse under Section 64(1). However, the above cases are some of the most important cases on this issue.

FAQ questions

Q: What is Section 64(1) of the Income Tax Act, 1961?

A: Section 64(1) of the Income Tax Act, 1961 deals with the clubbing of remuneration received by a spouse from a concern in which the taxpayer has a substantial interest. It is a provision that is used to prevent taxpayers from avoiding tax by transferring their income to their spouse.

Q: What is a concern in which the taxpayer has a substantial interest?

A: A concern in which the taxpayer has a substantial interest is a concern in which the taxpayer has a direct or indirect interest of 20% or more. This means that the taxpayer may have a direct interest in the concern, such as by owning shares in the concern, or an indirect interest, such as through a partnership or trust.

Q: What is remuneration?

A: Remuneration includes any salary, wages, commission, fees, or other income received for services rendered. It can also include any perquisites or benefits received, such as free travel or accommodation.

Q: When is the remuneration of a spouse clubbed in the hands of the taxpayer?

A: The remuneration of a spouse is clubbed in the hands of the taxpayer if the following conditions are met:

• The taxpayer has a substantial interest in the concern from which the spouse receives the remuneration.
• The remuneration is received by the spouse in consideration of services rendered by the spouse.
• The services rendered by the spouse are of a nature that would ordinarily have been rendered by the taxpayer.

Q: Are there any exemptions from clubbing under Section 64(1)?

A: Yes, there are some exemptions from clubbing under Section 64(1). For example, there is an exemption for remuneration received by a spouse who has the necessary technical or professional qualifications and experience to render the services in question. There is also an exemption for remuneration received by a spouse who is employed full-time in the concern.

Q: What should I do if the remuneration of my spouse is clubbed in my hands?

If the remuneration of your spouse is clubbed in your hands, you will be liable to pay tax on the remuneration, even if it has been received by your spouse. You will need to disclose the income in your income tax return and pay the applicable tax on it.

Note: The above information is for general guidance purposes only. It is advisable to consult with a tax professional to get specific advice on your individual circumstances