Clubbing of Income: ITAT allows a claim for Set-off of Loss by Husband invested in Wife’s Business [Read Order]

Clubbing of Income - Husband - Invest - Wife's Business - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT) in the case of Uday Gopal Bhaskarwar vs ACIT allowed the appeal against CIT(A) and held that the losses which are incurred in the wife’s business are, which was operated by the gift of the husband as the consideration to start the business will clubbing of income into the total income of the husband and the losses incurred by his wife would be set off while computation.

The Appellant Uday Gopal Bhaskarwar is an assessee who has clubbed the losses of his wife’s business in his total income while the computation of his total income, the assessee contended that he has gifted the sum of Rs. 94.50 Lakhs in her wife’s business and unfortunately the wife’s business suffered losses. So the losses must be considered the part of assessee’s total income and losses must be set off while the computation of the total income is done. This contention was made by the assessee while taking the shelter of Section 64 of the Income Tax Act which pertains to clubbing of income.

The relief was sought based on the issue of whether the assessee is eligible to set off losses against his wife’s separate income or not?

The  Income Tax Appellate Tribunal (ITAT) comprising of R.S. Syal, Vice President held that the wife’s separate income can be clubbed into husbands total income and in the case of any loss incurred by the wife’s business losses can be set off while the computation of the husband’s total income is done. The tribunal stated two circumstances in which the wife’s separate income can be clubbed into husbands total income which is as follows:

  1. In case the number of assets received by the wife from her husband is invested exclusively in the asset which attracts the provisions of clubbing of income.
  2. Asset received by a wife as a gift by her husband invests in that business in which she has her own separate investment also attracts clubbing of incomes.

The new ITAT ruling is likely to aid the tax evaders who can tackle the tax authorities by investing money in their wife’s business. They can simply make set-off claims by declaring loss in the business in the audit reports.

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