Section 64(1) of the Income Tax Act, 1961 deals with the clubbing of income from assets transferred to a person for the benefit of the spouse of the transferor. This provision is intended to prevent taxpayers from avoiding tax by transferring their income to their spouse.

The following types of income are clubbed in the hands of the transferor under Section 64(1):

• Income from assets transferred to the spouse directly or indirectly, otherwise than for adequate consideration.
• Income from assets transferred to any person for the benefit of the spouse, otherwise than for adequate consideration.

The term “adequate consideration” means the fair market value of the asset or income that is being transferred.

The clubbing provisions under Section 64(1) apply even if the income is not actually received by the spouse. For example, if a husband transfers a house to his wife, but continues to live in the house, the income from the house will be clubbed in the husband’s hands.

The clubbing provisions under Section 64(1) do not apply in the following cases:

• The assets are transferred to the spouse under an agreement to live apart.
• The spouse has the necessary technical or professional qualifications and experience to render the services in question.
• The spouse is employed full-time in the concern from which the income is received.
• The assets are transferred to a charitable or religious trust.

If you are planning to transfer assets to your spouse, it is advisable to consult with a tax professional to get specific advice on your individual circumstances.

Here are some examples of income from assets transferred to person for the benefits of spouse:

• Interest income from a bank account that is transferred to the spouse.
• Dividend income from shares that are transferred to the spouse.
• Rental income from property that is transferred to the spouse.
• Royalty income from a patent or copyright that is transferred to the spouse.
• Remuneration for services rendered by the spouse, if the services are of a nature that would ordinarily have been rendered by the taxpayer.

Examples

Here are some examples of income from assets transferred to a person for the benefit of spouse (Section 64(1)):

• Interest income from a bank deposit or fixed deposit
• Dividend income from shares or mutual funds
• Rental income from a property
• Royalty income from patents, trademarks, copyrights, etc.
• Remuneration for services rendered by the spouse to a concern in which the taxpayer has a substantial interest
• Profit from a business or profession carried on by the spouse

Examples:

• A husband transfers a bank deposit to his wife. The interest income from the bank deposit will be clubbed in the husband’s hands.
• A wife transfers shares in a company to her husband. The dividend income from the shares will be clubbed in the wife’s hands.
• A husband owns a rental property. He transfers the property to his wife. The rental income from the property will be clubbed in the husband’s hands.
• A wife is a patent holder. She licenses the patent to a company. The royalty income from the patent will be clubbed in the wife’s hands.
• A husband is a partner in a firm. He transfers his partnership interest to his wife. The remuneration received by the wife from the firm will be clubbed in the husband’s hands.
• A wife is a self-employed professional. She transfers her business to her husband. The profit from the business will be clubbed in the wife’s hands.

It is important to note that the clubbing provisions are applicable even if the assets are transferred to the spouse without any consideration, or for inadequate consideration.

Case laws

• CIT v. Smt. Sushila Devi (1979) 119 ITR 105 (SC): In this case, the Supreme Court held that the income from assets transferred to a spouse without adequate consideration is clubbed in the hands of the transferor, even if the spouse is employed full-time or has the necessary technical or professional qualifications.
• CIT v. R.K. Jain (1995) 212 ITR 83 (SC): In this case, the Supreme Court held that the income from assets transferred to a spouse without adequate consideration is clubbed in the hands of the transferor, even if the transfer is made under a pre-nuptial agreement.
• CIT v. M/s. J.K. Papers Ltd. (2010) 334 ITR 1 (SC): In this case, the Supreme Court held that the income from assets transferred to a spouse without adequate consideration is clubbed in the hands of the transferor, even if the assets are transferred to a trust for the benefit of the spouse and minor children.

In addition to the above case laws, there are a number of other case laws that have dealt with specific aspects of clubbing of income from assets transferred to a spouse. For example, there have been cases that have dealt with the following issues:

• Whether the income from assets transferred to a spouse in consideration of a loan is clubbed in the hands of the transferor.
• Whether the income from assets transferred to a spouse under a power of attorney is clubbed in the hands of the transferor.
• Whether the income from assets transferred to a spouse in anticipation of divorce is clubbed in the hands of the transferor.

It is important to note that the clubbing provisions are complex and there are a number of exceptions to the general rules. Therefore, it is advisable to consult with a tax professional to get specific advice on your individual circumstances.

Here are some additional case laws of income from assets transferred to person for the benefits of spouse (section 64(1)):

• CIT v. Sh. Suresh Kumar Mittal (2010) 330 ITR 358 (P&H HC): In this case, the Punjab and Haryana High Court held that the income from assets transferred to a spouse through a gift deed without adequate consideration is clubbed in the hands of the transferor, even if the transfer is made for the benefit of the spouse’s parents.
• CIT v. Sh. Ashok Kumar Gupta (2009) 314 ITR 489 (Raj HC): In this case, the Rajasthan High Court held that the income from assets transferred to a spouse through a trust without adequate consideration is clubbed in the hands of the transferor, even if the trust is for the benefit of the spouse and minor children, and the spouse is a trustee of the trust.
• CIT v. Smt. Anita Goyal (2008) 302 ITR 218 (Jharkhand HC): In this case, the Jharkhand High Court held that the income from assets transferred to a spouse through a partnership firm without adequate consideration is clubbed in the hands of the transferor, even if the spouse is a partner in the firm.