Income of Other Person Included in Assessee’s Total Income (Sections 60–65) – Detailed Analysis with Case Laws

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Answer: Income of Other Person Included in Assessee’s Total Income (Sections 60–65) – Detailed Analysis with Case Laws

Under the Income-tax Act, 1961, the general rule is that every person is taxed only on the income which he himself earns. However, in some special situations, the income of one person is legally included in the total income of another person.

The idea behind this rule is to prevent tax evasion or income shifting, where people try to show their income in the name of someone else (like spouse, minor child, or relative) to save tax.
Sections 60 to 65 of the Act deal with these situations and are known as “Clubbing of Income” provisions.

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🌿 Section 60 – Transfer of Income Without Transfer of Asset

This section says that if a person transfers only the income from an asset to another person, but does not transfer the ownership of the asset, then the income shall still be taxed in the hands of the transferor (the original owner).

Example:
If Mr. A owns a property and says to Mr. B — “You can take the rent every month, but the house remains mine,”
then the rent income will still be taxed in Mr. A’s hands, not Mr. B’s, because the ownership of the asset has not been transferred.

Purpose: To stop people from avoiding tax by transferring only the income while keeping ownership with themselves.

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⚖️ Case Law: CIT v. Keshavlal Lallubhai Patel (1965 SC)

In this case, the assessee assigned only the income of property to his wife, not the property itself.
The Supreme Court held that such income must still be included in the assessee’s income under Section 60.
🧠 Principle: If only income is transferred and not the asset, tax liability stays with the owner.

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🏠 Section 61 – Revocable Transfer of Assets

If a person transfers an asset to another person but keeps the power to revoke (take back) the asset or income later, such transfer is called a revocable transfer.

In such cases, any income from that asset is taxable in the hands of the transferor, not the transferee, because the transfer is not permanent.

Example:
If Mr. X gifts his property to Mr. Y, but mentions in the deed that he can take it back anytime,
then the income from that property will still be taxed in Mr. X’s hands because the transfer is revocable.

Purpose: To stop people from avoiding tax by making fake or temporary transfers.

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⚖️ Case Law: CIT v. Smt. Indira Balkrishna (1960 SC)

The Supreme Court held that when a transfer is revocable, the income remains taxable with the transferor because he still controls the asset and its benefits.
🧠 Principle: Ownership with power to revoke means the income still belongs to the original owner.

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👩‍❤️‍👨 Section 64 – Income of Spouse, Minor Child, or Son’s Wife

This is the most commonly tested section in exams and deals with clubbing of family income.
It says that in certain family situations, income earned by one person (like spouse or minor child) can be added to the total income of another person (like husband, wife, or parent).

(a) Spouse’s Income (Section 64(1)(ii))
If an individual’s spouse receives income from a concern or business where the individual has a substantial interest, then such income will be clubbed with the income of the individual who has that interest.

Example:
Mr. A is a partner in a firm and his wife earns a salary from the same firm (not for technical work). That salary will be added to Mr. A’s income.

Exception:
If the spouse’s income is from personal skills or technical qualification (for example, a doctor or lawyer), it will not be clubbed.

(b) Minor Child’s Income (Section 64(1A))
The income of a minor child (below 18 years) is included in the income of the parent whose total income is higher.

Exceptions:

• Income earned by a child through manual work or using his own skill/talent is not clubbed.
• If parents are separated, the income is included in the income of the parent who maintains the child.

(c) Son’s Wife (Section 64(1)(vi))
If a person transfers any asset to his son’s wife directly or indirectly, without adequate consideration,
the income from such asset will be clubbed with the income of the transferor (the person who gave it).

(d) Income from Transferred Assets (Section 64(1)(iv))
If a person transfers an asset to his spouse, not as part of divorce settlement,
then income from that asset is added back to the transferor’s income.

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⚖️ Important Case Laws under Section 64

1. Tulsidas Kilachand v. CIT (1961 SC)
   The husband transferred certain shares to his wife without consideration.
   The dividend income from those shares was clubbed with the husband’s income.
   🧠 Principle: Income from assets transferred to a spouse without consideration is taxable in the transferor’s hands.

2. R. Dalmia v. CIT (1977 SC)
   The Supreme Court confirmed that clubbing applies even if the income is indirectly transferred to a spouse or minor child.

3. Sitaldas Tirathdas v. CIT (1961 SC)
   The Court held that if a person is under legal obligation to divert income before it reaches him (like maintenance payment ordered by court), then such diverted income cannot be clubbed.
   🧠 Principle: Only voluntary transfer is clubbed, not income diverted by law.

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👪 Section 65 – Liability of Person in Respect of Income of Others

This section provides that when income of one person is included in the total income of another person (due to Sections 60–64),
then the person in whose income it is included (the assessee) is responsible for paying the tax on it.

Example:
If a father’s income includes that of his minor child under Section 64, then the father has to pay the tax on the total amount.

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✨ Conclusion

Sections 60 to 65 are known as the “Clubbing of Income” provisions.
Their main objective is to prevent tax evasion through fake transfers of assets or income among family members or related persons.
These sections make sure that income is taxed in the hands of the real owner or controller of that income, not in the name of someone else.

Section 60 deals with transfer of income without transfer of asset,
Section 61 deals with revocable transfers,
Section 64 covers family-related clubbing (spouse, minor child, son’s wife),
and Section 65 fixes tax responsibility.

Together, they ensure fairness in taxation by stopping people from escaping tax through indirect or temporary arrangements.

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