Clubbing of Income i.e.

Income of other persons included in the assessees total income Circumstances in which the income is clubbed :1) Transfer of Income without transfer of assets. 2) In case of revocable transfer of an assets, the income on such assets 3) Income of an individual to include income of spouse/minor child, whether received in cash or in kind, whether directly or indirectly from concerns in which such individual has substantial interest. However if the spouse earns income on account of her technical or professional qualifications and the income is solely attributable to such technical/professional knowledge and experience, will not be clubbed. 4) Income from assets gifted or transferred for inadequate consideration to spouse, whether directly or indirectly. In case the assets are transferred for inadequate consideration, the income would be proportionately clubbed. Exceptions being a) b) c) If the assets are transferred for adequate consideration. Where the assets are transferred under an agreement to live apart. If the husband-wife relationship does not exist.

5) Income from assets transferred for inadequate consideration or gifted to sons wife 6) Income earned by minor child no being: a) any income of a minor child suffering from any disability of the nature specified section 80U of the Act. b) Income accrued on account of any manual work c) Income accrued on account of any activity involving application of his/her skills, talent or specialized knowledge and experience 7) Income accrued on self-acquired property converted into joint family property.

Problems on Clubbing of Income u/s 64 of the Income Tax Act, 1961 1. A is a fashion designer having lucrative business. His wife, B is a model. A pays her monthly salary of Rs. 10,000/-. The Assessing Officer while admitting that the salary is an admissible deduction, in computing the total income of A, had applied the provisions of section 64(1) and had clubbed the income being the salary of his wife in As hands. Discuss. C gifted a house property to Ms D on 15/3/2011. Ms. D married Cs son on 31/3/2012. The income from the gifted property was Rs. 30,000, which was added back under the provisions of Section 64(1)(vi). Discuss. E gifts Rs. 1 lakh to his wife, Mrs. F on 1/4/2010, which she invests in a firm on interest of 14% p.a. On 1/1/2012 Mrs. F withdraws the money and gifts it to their sons wife, G. Mrs. F claims that the interest which was accrued to the daughter-in-law from 1/1/2012 to 31/3/2012 on investment made by her is not assessable in her hands but in the hands of her husband, E. Discuss. What would be the position if she had gifted the money to their minor son instead of the daughter-in-law. Determine the tax liability of Mr. H and his wife, Mrs. I from the following particulars for the year ending on March 31, 2012: (a) Mr. H and his wife are partners in a firm carrying on cloth business, their respective shares of profit being Rs. 30,000/- and Rs. 20,000/-. (b) Their son, who was 16 years old, was admitted to the benefits of another firm from which he received Rs. 16,000/- as his share of profit in the firm and Rs. 36,000/- as interest on capital. (c) A house property in the name of Mr. H was transferred to his wife for adequate consideration. The property was let out at a rent of Rs. 3,000/- per month. (d) 14% Debentures of a company of Rs. 100,000/- and Rs. 80,000/- purchased two years ago are in the names of Mr. H and his wife Mrs. I, respectively. His wife, Mrs. I had gifted Rs. 50,000/- to Mr. H for the purchase of the debentures in the name of Mr. H.

2.

3.

4.

(e)

(f)

Mr. H. Transferred Rs. 100,000/- to his wife, Mrs. I in 1998. The said amount was given by her to Ms. J. Of the total interest earned by Mrs. I, the amount of Rs. 40,000/- was further loaned to Ms. J. During the financial year 2009-10, she earned interest @ 10% p.a. on Rs. 140,000/- from Ms. J. Mr. H had transferred Rs. 50,000/- to a trust, the income accruing from its investment as interest amounted to Rs. 7,500/- out of which Rs. 5,000/was utilized for the benefit of his sons wife, Mrs. K and Rs. 2,500/- for the benefit of his sons minor child, Master L.

5.

M gifts Rs. 10 lakhs to his wife, Mrs. N. She deposits the same in a bank @ 8% p.a. Miss O is the minor child of Mr. M and Mrs. N. Miss O has a bank deposit of Rs. 70,000/earning rate of interest @ 8.25% p.a. The said amount was gifted to her by her grandfather, Mr. P. Apart from the above, the other particulars relating to income and investments, of Mr. M and Mrs. N were as follows: Mr. M --------------Salary Interest on bank deposits Interest on company Deposits Contribution to RPF Contribution to PPF Rs. 2,10,000 Rs. 90,000 Rs. Rs. Rs. --40,000 --Mrs. N --------------Rs. 40,000 Rs. Rs. 90,000 -10,000

Calculate the tax liability of Mr. M and Mrs. N.

Set Off and Carry Forward of losses 1) Inter source Adjustment - Loss from speculation business - Loss from the activity of owning and maintaining race horses 2) Loss from any income cannot be set off against income from winnings from lotteries, crossword puzzles etc

Inter-head Adjustment - Loss from speculation business - Loss from non-speculation business - Loss under the head Income from Capital Gains - Loss from the activity of owning and maintaining race horses Loss from any income cannot be set off against income from winnings from lotteries, crossword puzzles etc

3)

Carry forward and set off - Carry forward - Loss under the head Income from House Property Can be carried forward for 8 years and set off against Income from House Property only Loss under the head Income from Business/Profession Can be carried forward eight years. Exceptions thereto. Return of income within the prescribed time limit Unabsorbed depreciation Loss in the case of a sick company Loss in case of closely held companies Discontinued business Loss under the head Income from Capital Gain Loss under the head Income from Other Sources Loss from activity of owning and maintaining horse races Carry forward for four years only Loss from speculation business Carry forward for eight years only Return to be filed in time

Problems on Set Off & Carry Forward of Losses Under the provisions of Income Tax Act, 1961 1. Following information is provided by Sameer, an assessee for the preparation of his income tax return for the A.Y. 2012-13 - Loss under the head business Rs. 100,000/- Long term Capital Gain on sale of house property Rs. 200,000/- Short Term Capital Loss on sale of share (STT Paid) Rs. 50,000/- Loss in respect of Self-occupied Property Rs. 12,000/- Loss in respect of Let out property Rs. 23,000/- Income from Salaries chargeable to tax Rs. 165,000/- Share of loss from a partnership firm Brought forward from A.Y. 2008-09 Rs. 120,000/2. Jaimeen, a resident individual submits the following information for the assessment year 2010-11. Calculate his tax liability: Business A - Loss of the year Rs. 48,000/- b/f loss relating to AY 2008-09 Rs. 39,000/Business B - Profit of the year Rs. 156,000/Business C (discontinued on April 10, 2008) - profit of the year Rs. Nil - b/f loss relating to AY 2007-08 Rs. 39,700/Business D ( discontinued on March 31, 2008 ) - b/f loss relating to AY 2007-08 Rs. 40,000/Income from Other Sources - Loss from owning and maintaining camels for races - Dividend from UTI (investments) - Interest on debentures Long term Capital Loss on shares Income from House Property

Rs. Rs. Rs. Rs. Rs.

9,000/75,000/90,000/15,000/60,000/-

(a)

Deepa Ltd., proposes to file its return of income for the Assessment year 2012-13. The following data is taken from its financial statements and the computation of total income as per the provisions of Income Tax Act, 1961 to be submitted by the company: Income -------Business Loss before Depreciation for the previous year 2008-09 Depreciation as per Income Tax Loss under Income from House Property Short Term Capital Loss Long Term Capital Gain Income from Other Sources includes - Interest Income - Dividend from Co-operative Bank Amount --------- Rs. Rs. Rs. Rs. - Rs. Rs. Rs. 180,000 70,000 40,000 90,000 20,000 40,000 20,000

Further the earlier returns reveal following additional information - Unabsorbed depreciation for AY 2003-04 Rs. 35,000 - Unabsorbed depreciation for AY 2002-03 - Rs. 25,000 - Business Loss AY 2005-06 - Rs. 36,000 - Long Term Capital Loss - Rs. 75,000 The company has posted a net profit of Rs. 2,00,000 in its books of accounts for the year (being book profit computed in accordance with the provisions of Section 115JB). You are required to compute the Net taxable income of the company as per the provisions of the Income Tax Act, 1961. Further also prepare a statement of the unabsorbed losses and unabsorbed depreciation, the company would be entitled to carry forward and set off in the future against its income assuming the company will file its return of income today. (10) 2. Yogesh submits the fol. information for previous year 2011-12 : a) Profit from business A situated in Gurgaon Rs. 150,000/b) Profit from business B situated in Mumbai Rs. 100,000/c) Loss from business C in Kaula Lumpur Rs. 60,000/The business is controlled from India but Profits are not received in India d) Unabsorbed depreciation of business C Rs. 40,000/e) Income from house property in India Rs. 50,000/f) Income - Property in Birmingham, England Rs. 60,000/(rent received in London) Find thetaxable income of Bikramjeet assuming he is (i) R&OR (ii) RNOR (iii) NR