Income by way of remuneration from a concern in which the individual has substantial interest under Clubbing of income arising to spouse [Section 64(1)(ii)] :
(i) In computing the total income of any individual, all such income which arises, directly or indirectly, 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 shall be included.
(ii) However, this provision does not apply where the spouse of the said individual possesses technical or professional qualifications and the income to the spouse is solely attributable to the application of his/her technical or professional knowledge or experience. In such an event, the income arising to such spouse is to be assessed in his/her hands.
(iii) Where both husband and wife have substantial interest in a concern and both are in receipt of income by way of salary etc. from the said concern, such income will be includible in the hands of that spouse, whose total income, excluding such income is higher.
(iv) Where any such income is once included in the total income of either spouse, income arising in the succeeding year shall not be included in the total income of the other spouse unless the Assessing Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary to do so.
(v) An individual shall be deemed to have substantial interest in a concern under the following circumstances –
(a) If the concern is a company, equity shares carrying not less than 20% of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of his relatives.
(b) In any other case, if such person is entitled, or such person and one or more of his relatives are entitled in the aggregate, at any time during the previous year, to not less than 20% of the profits of such concern.
The term ‘relative’ in relation to an individual means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
Illustration
Mr. A is an employee of X Ltd. and he has 25% shares of that company. His salary is Rs 50,000 p.m. Mrs. A is working as a computer software programmer in X Ltd. at a salary of Rs 30,000 p.m. She is, however, not qualified for the job. Compute the gross total income of Mr. A and Mrs. A for the A.Y.2016-17, assuming that they do not have any other income.
Solution
Mr. A is an employee of X Ltd and has 25% shares of X Ltd i.e. a substantial interest in the company. His wife is working in the same company without any professional qualifications for the same. Thus, by virtue of the clubbing provisions of the Act, the salary received by Mrs. A from X Ltd. will be clubbed in the hands of Mr. A.
Computation of Gross total income of Mr. A
| Particulars | Rs |
| Salary received by Mr. A (Rs 50,000 × 12) | 6,00,000 |
| Salary received by Mrs. A (Rs 30,000 × 12) | 3,60,000 |
| Gross total income | 9,60,000 |
The gross total income of Mrs. A is nil.
Illustration
Will your answer be different if Mrs. A was qualified for the job?
Solution
If Mrs. A possesses professional qualifications for the job, then the clubbing provisions shall not be applicable.
Gross total income of Mr. A = Salary received by Mr. A [Rs 50,000 × 12 ] = Rs 6,00,000
Gross total income of Mrs. A = Salary received by Mrs.A [Rs 30,000×12] = Rs 3,60,000
Illustration
Mr. B is an employee of Y Ltd. and has substantial interest in the company. His salary is Rs 20,000 p.m. Mrs. B is also working in Y Ltd. at a salary of Rs 12,000 p.m. without any qualifications. Mr. B also receives Rs 30,000 as interest on securities. Mrs. B owns a house property which she has let out. Rent received from tenants is Rs 6000 p.m. Compute the gross total income of Mr. B and Mrs. B for the A.Y.2016-17.
Solution
Since Mrs. B is not professionally qualified for the job, the clubbing provisions shall be applicable.
Computation of Gross total income of Mr.B
| Particulars | Rs |
| Income from Salary | |
| Salary received by Mr. B (Rs 20,000 × 12) | 2,40,000 |
| Salary received by Mrs. B (Rs 12,000 × 12) | 1,44,000 |
| 3,84,000 | |
| Income from other sources | |
| Interest on securities | 30,000 |
| 4,14,000 |
Computation of Gross total income of Mrs. B
| Particulars | Rs | Rs |
| Income from Salary
[clubbed in the hands of Mr. B] |
Nil | |
| Income from house property | ||
| Gross Annual Value [Rs 6,000 × 12] | 72,000 | |
| Less: Municipal taxes paid | – | |
| Net Annual Value (NAV) | 72,000 | |
| Less: Deductions under section 24 | ||
| – 30% of NAV i.e., 30% of Rs 72,000 | 21,600 | |
| – Interest on loan | – | 50,400 |
| Gross total income | 50,400 |