Remuneration to Spouse of major shareholder of private company from its wholly owned subsidiary

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This discussion explores whether salary paid to a spouse by a wholly-owned subsidiary company should be included in the major shareholder's total income. According to Section 64(1)(ii) of the Income Tax Act, such salary is typically clubbed if the spouse lacks professional qualifications. The query questions if this applies even when the major shareholder has no direct shareholding in the subsidiary, but a substantial interest in the holding company that owns it. The consensus suggests clubbing provisions are likely applicable due to the indirect substantial interest.

SUNIL KUMAR JAIN

SUNIL KUMAR JAIN (Querist)
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08 February 2023 As per Section 64(1)(ii) of Income Tax Act Salary from a company, to spouse of an individual , having substantial interest in the company, is to be included in the total income of such individual, if spouse does not have professional or technical qualification. This being so if the salary is paid by the wholly owned subsidiary of such private company to the spouse of an individual who holds majority shares in the holding private company (while he does not own any beneficial shareholding in wholly owned subsidiary paying salary), whether clubbing provision of section 64(1)(ii) will apply and salary to spouse from wholly owned subsidiary will be clubbed with the income of husband who owns substantial interest in holding company.
section 64(1) starts with the words" In computing the total income of any individual there shall be included all such income as arises DIRECTLY OR INDIRECTLY ................."
Please also refer case law, if any.
CA SUNIL JAIN

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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08 February 2023 As husband is having substantial interest in the subsidary clubbing provisions applicable.

SUNIL KUMAR JAIN

SUNIL KUMAR JAIN (Querist)
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09 February 2023 The husband do not have any shareholding in subsidiary company. Husband has majority shareholding in the holding company and holding company owns all the shares of subsidiary company

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 February 2023 In computing total income of such individual, there shall be included all such sums as arise directly or indirectly to the spouse, of such individual by way of salary, commission or in any other form, whether in cash or kind from a concern in which such individual has substantial interest.

Husband has substantial interest in the subsidary as it's 100% subsidary the holding company where he is a major share holder.

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