TAX IMPLICATIONS
Gift of Rs 4,00,000 to wife: First of all, taxation of monetary gift is covered by Sec 56(2)(vii)(a) where any sum of money receieved by an individual/HUF during the previous year from any person(s) without consideration is taxable if the aggregate value of such monetary gift exceeds Rs 50,000 . However, as per Proviso 2 to Sec 56(2)(vii) gift from any relative is not taxable and relative includes spouse as per Clause (e) of Explanation to Sec 56(2)(vii), hence The gift of Rs 4,00,000 is not taxable in the hands of Wife.
Applicability of Clubbing Provisions:
Section 64(1)(iv) shall apply only in case of clubbing of income from any asset (other than house property covered by Sec 27) transferred by an individual to the spouse directly or indirectly for inadequate consideration or not in connection with an agreement to live apart. In your case, the husband is not transferring the plot, he is only giving cash assistance to purchase the plot, hence no clubbing provision shall apply in respect of any income arising out of the plot.
You might have a doubt, regarding the words "directly or indirectly" used in Section 64(1)(iv), as to whether assisting the wife in purchasing the plot by providing cash gifts amounts to indirect transfer. The answer is no, because the words "directly or indirectly" is used with reference to transactions and not source of acquiring the asset. These words are used in order to bring in cross transfers within the scope of clubbing provisions. To illustrate, For example, Mr. X makes a gift of Rs 50,000 to Mrs. A and Mr. A transfers property worth Rs 50,000 to Mrs. X. This transaction is a cross transfer without consideration from Mr. X to his spouse This is a transaction adopted to evade the implications of section 64(1)(iv). Such transfer is called as indirect transfer/ Cross Transfer. As per the ruling of Hon' Supreme Court in CIT Vs Keshavji Morarji if these two transactions are interconnected in such a way that it can be said the circuitous method was adopted as a device to evade tax, the implication of clubbing provision would be attracted.
Hence, in your case, clubbing provisions shall not apply even for any income arising from the plot as the plot is not transferred by husband. Therefore capital gains arising from the transfer of plot will not be clubbed in the hands of husband.
Accretions are not covered by clubbing provisions:
In your case, since the capital gains arising from plot itself is not clubbed, the interest earned from the deposit of sale consideration is also not clubbed in the hands of husband
However, even assuming that the plot is transferred by husband, there will be no clubbing. Because. clubbing provisions shall apply only in respect of the assets transferred and income arising therefrom. In other words, what is clubbed is only the income arising from transferred asset and not income arising from the accretion of such property as there is no transfer of such accretions to the spouse. This is the view expressed by Hon' Bombay High Court in CIT Vs M.P.Birla in relation to Section 64(1)(iv). The same view was given by Hon' Madras High Court in case of CWT Vs T Saraswathi Achi in relation to clubbing of net wealth u/s 4(1)(a) of Wealth Tax Act.
CAclubindia
