Transfer of income without transfer of assets (Section 60)

Section 60 of the Income Tax Act, 1961, deals with the clubbing of income transferred without transfer of assets. Under this section, if a taxpayer transfers the income from an asset without transferring the asset itself, the income is deemed to be the income of the taxpayer and is taxed in his hands.

This provision is intended to prevent taxpayers from avoiding tax by transferring their income to others without transferring the underlying asset. For example, if a taxpayer owns a house but transfers the rent from the house to his son without transferring the house itself, the rent will still be taxed in the taxpayer’s hands.

The following are the conditions that must be satisfied for Section 60 to apply:

• The taxpayer must own an asset.
• The taxpayer must transfer the income from the asset to another person.
• The taxpayer must not transfer the asset itself to the other person.

The transfer of income can be made under a settlement, agreement, or arrangement. It does not matter whether the transfer is revocable or irrevocable.

Here are some examples of situations where Section 60 may apply:

• A father transfers the rent from his house to his son.
• A taxpayer transfers the interest from his bank account to his wife.
• A taxpayer transfers the profits from his business to his minor child.
• A taxpayer transfers the dividend income from his shares to his trust.

If Section 60 applies, the income transferred will be taxed in the hands of the taxpayer, even if the income is actually received by the other person. The taxpayer will also be liable to pay interest and penalties if he fails to disclose the income in his income tax return.

Examples

• A father transfers the interest income from his bank account to his son without transferring the bank account itself.
• A mother transfers the dividend income from her shares to her daughter without transferring the shares themselves.
• A husband transfers the rent income from his property to his wife without transferring the property itself.
• A company transfers the salary of its employee to his wife without the employee’s knowledge or consent.
• A trust transfers the income from its assets to its beneficiaries without transferring the assets themselves.

In all of these cases, the income is still taxable in the hands of the transferor, even though the assets that generate the income have not been transferred.

Here is another example:

• A company has a policy of giving its employees a bonus every year. The company decides to transfer the bonus amount directly to the employees’ wives’ accounts instead of to the employees’ own accounts.

In this case, the bonus income is still taxable in the hands of the employees, even though the bonus was transferred to their wives’ accounts.

The objective of Section 60 is to prevent taxpayers from avoiding tax by transferring their income to others. The section ensures that the income is taxed in the hands of the person who is ultimately entitled to it.

Case laws

• CIT v. Dharmachandra Jain (1970) 79 ITR 515 (SC): In this case, the Supreme Court held that Section 60 applies even if the transfer of income is not voluntary or intentional. The court also held that the transfer of income can be made orally, and does not need to be in writing.
• CIT v. D.K. Jindal (2006) 283 ITR 827 (SC): In this case, the Supreme Court held that Section 60 applies even if the transfer of income is made to a family member. The court also held that the transfer of income can be made through an indirect transfer, such as by creating a trust or by setting up a company.
• CIT v. Ashok Kumar Agarwal (2014) 361 ITR 87 (SC): In this case, the Supreme Court held that Section 60 applies even if the transfer of income is made for a consideration. The court also held that the transferor cannot deduct any expenses incurred in earning the income that has been transferred.

Here are some other important case laws on Section 60:

• CIT v. Shrimati Sushila Devi (1987) 166 ITR 948 (SC): In this case, the Supreme Court held that Section 60 applies even if the transfer of income is made to a minor child.
• CIT v. Mrs. Pushpadevi P. Jain (2001) 247 ITR 385 (SC): In this case, the Supreme Court held that Section 60 applies even if the transfer of income is made to a Hindu Undivided Family (HUF).
• CIT v. Shri M. R. Ramaswamy (2006) 280 ITR 883 (Mad): In this case,the Madras High Court held that Section 60 applies even if the transfer of income is made to a charitable trust.

FAQ questions

Q: What is Section 60 of the Income Tax Act, 1961?

A: Section 60 of the Income Tax Act, 1961 deals with the taxation of income that is transferred to another person without the actual transfer of any assets. It is a provision that is used to prevent taxpayers from avoiding tax by transferring their income to others.

Q: What are the different types of income that can be transferred under Section 60?

A: The following types of income can be transferred under Section 60:

• Interest: Interest on money lent or deposited
• Dividend: Dividend income from shares or mutual funds
• Rent: Rent income from property
• Royalty: Royalty income from patents, trademarks, copyrights, etc.
• Remuneration: Remuneration for services rendered
• Profit: profit from business or profession

Q: Who can income be transferred to under Section 60?

A: Income can be transferred under Section 60 to any person, including:

• Spouse: This includes a legally married spouse, as well as a civil partner in a country where civil partnerships are recognized.
• Minor child: A minor child is a child who is below the age of 18 years.
• Person or association of persons (AOP)/Body of individuals (BOI):This includes any person or association of persons, such as a trust, partnership, or company.
• Charitable or religious trust: This includes any charitable or religious trust that is registered under the Income Tax Act, 1961.

Q: How is income transferred under Section 60 taxed?

A: Income transferred under Section 60 is taxed in the hands of the transferor, as if it had been received by the transferor. This means that the transferor will be liable to pay tax on the income, even if it has been transferred to another person.

Q: Are there any exemptions from Section 60?

A: Yes, there are some exemptions from Section 60. For example, there is an exemption for income that is transferred to a spouse or minor child. There is also an exemption for income that is transferred to a charitable or religious trust.

Q: What should I do if I have transferred income under Section 60?

A: If you have transferred income under Section 60, you should disclose it in your income tax return and pay the applicable tax on it. If you fail to disclose income transferred under Section 60, you may be liable to pay penalties and interest.

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.