Section 64(i)(iv)

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This query is : Resolved

ashish kumar dwivedi (Querist)

15 June 2014 Original Situation

Mr.A in taxable limit . he transfer Rs 10,00,000/-( According to section 56 (2) vii any sum of money received from relative is exempt) to his wife fixed deposit bank account. During the year Mrs A earn interest of Rs 80,0000/- .Mrs. A has no other income
Mr A want to save himself from clubbing provision.

Suggestion
Mrs. A make a loan agreement of Rs.10,00,000/-(in non judicial stamp paper) with Mr A on 1.4.2013. According to agreement Mrs. A pay interest on such loan (at year end) to Mr. A @ 0.1% .so this arrangement can not to be said as gift. Mrs. A make his B/s and profit and loss a/c in following manner.

Balance sheet of MRS A (Proprietor)
(for the year ended 31.03.14)

Loan from Mr. A 10,00,000/-

Investment
Fixed deposit in SBI
Fixed deposit in CBI
5,00,000/-
5,00,000/-

Profit and loss a/c
(for the year ended 31.03.2014)
To interest paid to Mr A @ 0.1% 1000/-

To net profit 79,000/-

By interest received from
SBI 40,000/-
CBI 40,000/-

Please tell me whether the above agreement of loan between Mr. A and Mrs. A is said to be “adequate consideration”?

Can Mr. A save himself from section 64(i)(iv). ? Whether this type of tax planning is possible. If not than what is best alternative.