1. Transactions are covered by Section 64(2) by an Individual , who is a member of HUF —
Where an individual, who is a member of the Hindu Undivided Family,—
converts, his separate property as the property of the HUF, or
throws the property into the common stock of the family, or
otherwise transfers his individual property to the family,
otherwise than for adequate consideration, then the income from such property shall continue to be included in the total income of the individual.
In other words, if self-acquired property of an individual is treated/converted into joint family property without adequate consideration, the income derived by the joint family on account of such property shall be included in the total income of the individual who was the owner of such selfacquired property.
X owns a house property from which he derives an income of Rs. 6,00,000 per annum. If, he converts this property as the property of an HUF of which he is a member. Although the income shall henceforth be received by the HUF but it shall be deemed to be the individual income of X and shall be included in computation of his total income under the head 'Income from House Property'.
2. Clubbing of Income in the case of subsequent Partition of HUF :
Where the converted property has been the subject matter of partition (whether partial or total) amongst the members of the family, the income derived from such, converted property as is received by the spouse, on partition, shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the income from the portion, received by the spouse, shall be clubbed in the hands of the transferor.
In the example given above, if there is partition in the family and there are five members entitled to a share in the HUF property i.e. X, Mrs. X, a minor child of X and two major sons of X assuming they decide to share the property equally then the income from the property shall be treated as follows:
- Income from 1/5th share of X Rs. 1,20,000;
- Income from 1/5th share of Mrs. X Rs. 1,20,000 (to be clubbed with the income of X);
- Income from 1/5th share of minor child of X Rs. 1,20,000 (to be clubbed with the income of X or Mrs. X, whose income is higher, u/s 64(1A). ( However, X can claim exemption upto Rs. 1,500 u/s 10(32); )
- Income from 2/5th share of other members shall be taxable in the hands of the major sons individually.
3. Income is to be Clubbed but Income On Income is Not to be Clubbed:
It may be observed that under all the provision discussed above, what is to be clubbed is the income arising from the assets transferred. However, the income derived on the accretion of such property or from the accumulated income from such property cannot be clubbed.
X transfers 10,000 bonds of IDBI to his wife Mrs. X. Mrs. X receives interest of Rs. 70,000 per annum on the bonds. This amount of Rs. 70,000 is to be clubbed in the hands of Mr. X. However, if Mrs. X accumulates Rs. 50,000 out of the interest income and deposits it with the company at an interest of 10% per annum then the interest of Rs. 5,000 per annum received by her on the deposit will NOT be Clubbed in the income of Mr. X.
4. 'Income includes Loss' for the purpose of Section 64.
For the purpose of section 64, income includes loss. Therefore, under all the provisions discussed above, where the income arising to one person is to be clubbed in the hands of another person, in the event of loss, the loss shall be taken into account in computing the income of such person.