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Tax Forum: When can wife's income be clubbed in husband's hands?
September, 19th 2011

My wife is a home-maker. But she has fixed deposits from which she derives taxable income. Her deposits have been built up partly by gifts from her parents, partly marriage gifts received by her at the time of our marriage and partly by amounts saved by her from moneys given by me to her for household expenses. I have not been showing any interest in her accounts in my hands but can I be questioned for non-inclusion of her income in the light of the clubbing provisions because my wife does not have any independent source of income.

ANSWER: Gifts from parents and wedding gifts received by her at the time of marriage could not be attributable to the husband. They exclusively belong to her. Wedding gifts from husband's friends and relatives meant for her cannot be treated as gift from her husband. Household savings are also not treated as gifts by the husband.

There is also authority for this proposition in respect of such savings described as pin money from the decision in R. B. N. J. Naidu v CIT (1956) 29 ITR 194 (Nag) and R. Dalmia (Deceased) (1982) 133 ITR 169 (Del). There is, therefore, no need for any apprehension for the reader for non-inclusion of his wife's income.

It is better to bear in mind that even an indirect transfer may attract the clubbing provision under Sec. 64 as was decided when the husband was contributing to life insurance premia for the benefit of his wife, even though the proceeds exclusively belong to her under Marriage Women's Property Act, 1874, so that the interest on the proceeds of the policy will be clubbed in the hands of the husband as held in Damodar K. Shah v CIT (2001) 252 ITR 235 (Guj). But where the wife receives bonus shares in respect of shares gifted by the husband, bonus shares cannot be treated as having been made by the husband, since bonus shares are accretions and not income for original shares as held in CIT v T. Saraswathi Achi (1982) 133 ITR 315 (Mad). Cross gifts, as in a case, where the brothers gave gifts to the wives other than their own, would be treated as gifts by them to their wives as decided in CIT v C.M. Kothari (1963) 49 ITR 107 (SC). But the good news, however, is that income from such income cannot be clubbed. In other words, the clubbing will not extend to the income from such clubbed income as was decided in Sevantilal Maneklal Sheth v CIT (1968) 68 ITR 503 (SC).

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