As per S. 64(2) a gift by a member of a Hindu Undivided Family after 31-12-1969 would attract Clubbing of Income in the hands of the member and as such the income from the converted property shall be deemed to arise to the individual & not to the family. It means that when an asset is brought in by a member to the HUF, the income from the assets so transferred or gifted would be assessed in the hands of the donor individual and not in the hands of HUF to which the assets now belong.
But, this does not prevent the HUF from utilizing the assets and income there from for carrying on business or trade, the income from which would not be caught within the mischief of S. 64(2).
The Individual who transferred the asset to an HUF can be saddled with the liability to pay tax u/s 64(2) on income of the assets but not on the income arising out of the investment of the accumulated income which belongs to the HUF and the same can be utilized or invested for expanding the business of the newly created HUF.
CLUBBING PROVISIONS AT A GLANCE
| SECTION | NATURE OF TRANSACTION | CLUBBED IN THE HANDS OF | CONDITIONS/EXCEPTIONS | RELEVANT REFERENCE |
| 64(2) | Income of HUF from property converted by the individual into HUF property. | Income is included in the hands of individual & not in the hands of HUF. | Clubbing applicable even if: The converted property is subsequently partitioned; income derived by the spouse from such converted property will be taxable in the hands of individual. | Fiction under this section must be extended to computation of income also. [M.K. Kuppuraj 127 ITR 447 (Mad)] |
Reference:
As Per Section 64(2), of the Income Tax Act, 1961-
Income of individual to include income of spouse, minor child, etc.
64. (2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it [into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property)], then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,—
(a) The individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly;
(b) the income derived from the converted property or any part thereofshall be deemed to arise to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a 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 provisions of sub-section (1) shall, so far as may be, apply accordingly
Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual.
Explanation [1].—for the purposes of sub-section (2),—
“property” includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.
[Explanation 2.—for the purposes of this section, “income” includes loss.]