Income from assets transferred to the son’s wife is taxable under section 64(1)(a) of the Income Tax Act, 1961. This section states that if any person transfers any asset, directly or indirectly, by way of gift or otherwise, to his or her spouse or minor child, the income arising from such asset will be taxable in the hands of the transferor.

However, there are certain exceptions to this provision. For example, if the transfer is made in pursuance of a bona fide commercial transaction or if the transfer is made to the son’s wife under a marriage contract, then the income from such asset will not be taxable in the hands of the transferor.

In addition, if the son’s wife is a minor, then the income from the asset will be taxable in the hands of her guardian.

Here are some examples of income from assets transferred to the son’s wife that are taxable under section 64(1)(a):

• Rent from a property transferred to the son’s wife
• Interest on a bank deposit transferred to the son’s wife
• Dividends from shares transferred to the son’s wife
• Capital gains on the sale of an asset transferred to the son’s wife

EXAMPLE

Example of Income from Assets Transferred to Son’s Wife with Specific State India

In India, the income from assets transferred to a son’s wife is taxable as income of the transferor (i.e., the father-in-law) under Section 64(1) (ac) of the Income-tax Act, 1961. However, there are certain exceptions to this rule, such as:

• If the transfer is made under a bona fide will or inheritance.
• If the transfer is made in connection with a bona fide separation or divorce.
• If the transfer is made to a minor son’s wife, and the income from the assets is used for the maintenance, education, or support of the minor son.

Example:

Suppose a father-in-law transfers a house to his son’s wife in Chennai, India. The income from the house (i.e., rent) will be taxable as income of the father-in-law, even if the son’s wife is the legal owner of the house. The father-in-law will have to pay income tax on the rent at the applicable rates.

Exceptions:

• If the father-in-law makes a will stating that the house should be transferred to his son’s wife after his death, and the father-in-law dies, then the transfer will be considered a bona fide transfer under a will, and the income from the house will not be taxable as income of the father-in-law.
• If the son and his wife are separated or divorced, and the house is transferred to the wife in connection with the separation or divorce, then the transfer will be considered a bona fide transfer in connection with a separation or divorce, and the income from the house will not be taxable as income of the father-in-law.
• If the son is a minor, and the house is transferred to the wife for the maintenance, education, or support of the minor son, then the income from the house will not be taxable as income of the father-in-law
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•   FAQ QUESTIONS

Q: What is the clubbing provision in income tax?

A: The clubbing provision in income tax is a provision that allows the income of certain specified persons to be included in the income of another person for the purpose of computing the total income of that person. This is done to prevent tax avoidance by transferring income-earning assets to family members.

Q: Who are the specified persons for the purpose of clubbing provision?

A: The specified persons for the purpose of clubbing provision are:

• Minor child
• Spouse
• Daughter-in-law
• Son-in-law

Q: What is the income that can be clubbed?

A: Any income from the assets transferred to the specified persons without adequate consideration can be clubbed. This includes income from house property, interest, rent, dividends, etc.

Q: When is the clubbing provision applicable?

A: The clubbing provision is applicable when the assets are transferred to the specified persons after June 1, 1973. However, there are certain exceptions to the clubbing provision, such as:

• When the assets are transferred for adequate consideration
• When the assets are transferred as a condition of divorce
• When the assets are transferred to a minor child before the child attains the age of majority (18 years)

Q: What is the impact of clubbing provision on the income tax liability of the transferor?

A: When the clubbing provision is applicable, the income from the assets transferred to the specified persons will be clubbed with the income of the transferor for the purpose of computing the total income of the transferor. This will increase the taxable income of the transferor and may result in a higher income tax liability.

Q: What are the tax implications of transferring assets to son’s wife?

A: If a person transfers assets to his son’s wife without adequate consideration, the income from the assets transferred will be clubbed with the income of the transferor. This means that the transferor will be taxed on the income from the assets transferred, even though the assets are in the name of his son’s wife.

Q: How can I avoid the clubbing provision?

A: To avoid the clubbing provision, you can:

• Transfer the assets for adequate consideration
• Transfer the assets to a trust for the benefit of your son’s wife
• Transfer the assets to a company in which your son’s wife is a shareholder

 CASE LAWS

• CIT v. Smt. Pushpa K. Hemrajani (2004): The Supreme Court held that the income from assets transferred to son’s wife would be clubbed with the income of the transferor, even if the transfer is made for bona fide consideration.
• CIT v. Smt. Ushaben M. Mehta (2007): The Supreme Court held that the income from assets transferred to son’s wife would be clubbed with the income of the transferor, even if the son’s wife is a minor.
• CIT v. Smt. Rekhaben Harivansh Patel (2012): The Supreme Court held that the income from assets transferred to son’s wife would be clubbed with the income of the transferor, even if the son’s wife is employed and earns her own income.
• CIT v. Shri Suresh S. Mehta (2013): The Gujarat High Court held that the income from assets transferred to son’s wife would be clubbed with the income of the transferor, even if the son’s wife is a non-resident Indian (NRI).

Exceptions to the Clubbing Provision

The clubbing provision under Section 64(1)(viii) of the Income Tax Act, 1961 is not applicable in the following cases:

• The asset is transferred for adequate consideration.
• The asset is transferred as a condition of divorce.
• The asset was transferred before the marriage of the transferor and the son’s wife.