Concern could be any form of business or professional concern. It could be a sole proprietor, partnership, company, etc. An individual is deemed to have substantial interest, if he /she (individually or along with his relatives) beneficially holds equity shares carrying not less than 20 per cent voting power in the case of a company or is entitled to not less than 20 percent of the profits in the case of a concern other than a company at any time during the previous year.
If the following conditions are fulfilled this section becomes applicable.
- If spouse of an individual gets any salary, commission, fees etc (remuneration) from a concern
- The individual has a substantial interest in such a concern
- The remuneration paid to the spouse is not due to technical or professional knowledge of the spouse.
- Then such salary, commission, fees, etc shall be considered as income of the individual and not of the spouse.
Illustration
Mr. X has a substantial interest in A Ltd. and Mrs. X is employed by A Ltd. without any technical or professional qualification to justify the remuneration. In this case, salary income of Mrs. X shall be taxable in the hands of Mr. X.
When both husband and wife have substantial interest
Where both the husband and wife have a substantial interest in a concern and both are in receipt of the remuneration from such concern both the remunerations will be included in the total income of husband or wife whose total income, excluding such remuneration, is greater.
CLUBBING PROVISIONS AT A GLANCE
| SECTION | NATURE OF TRANSACTION | CLUBBED IN THE HANDS OF | CONDITIONS/EXCEPTIONS | RELEVANT REFERENCE |
| 64(1)(ii) | Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest. | Spouse whose total income (excluding income to be clubbed) is greater. | Clubbing not applicable if: Spouse possesses technical or professional qualification and remuneration is solely attributable to application of that knowledge/qualification. |
|
Relevant Case Laws:
S. 28(v), 64(1)(ii) of IT Act, 1961—Income—When a partner of a firm is paid any interest, salary, bonus, commission or remuneration, the same shall be deemed as profits and gains of business or profession as provided in S. 28(v) of the Act. The spouse of the assessee has complied with this mandates of law by returning the allowances received from the firm as her income from business or profession. S. 28(v) deals with the assessment of such income in the hands of the partner herself. The spouse of the assessee is a partner in the firm. Hence, the allowance earned by the wife of the assessee is not a sum contemplated u/s 64(1)(ii) of the Act—DCIT vs. A.V. Jose [2010] 1 ITR (Trib) 88 (ITAT-Cochin)
Reference:
As Per Section 64(1)(ii), of the Income Tax Act, 1961-
Income of individual to include income of spouse, minor child, etc.
64. (1) in computing the total income of any individual, there shall be included all such income as arises directly or indirectly—
(ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest :
Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience.