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TMI Blog2020 (1) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... 94.50 lakh to Mrs. Priti Bhaskarwar, his wife, who started business of Futures and Options (F&O) on 18-09-2013. The assessee claimed that she incurred loss of Rs. 31,56,429/- in such business, which was clubbed in his hands. The AO accepted the primary claim of the assessee of his wife having incurred loss of Rs. 31.56 lakh in the business of F&O, which was set up on 18-09-2013 and further that loss from such business was eligible for set off against the income of the assessee in terms of section 64(1)(iv) read with Explanation 3 thereto. He, however, did not accept the assessee's contention that the entire loss of Rs. 31.56 lakh be set off against the assessee's income. Considering the mandate of Explanation 3 to section 64(1), the AO held that only that part of the business loss incurred by the assessee's wife could be set off against the assessee's income which bears the proportion of amount of investment out of gift on the first day of previous year to the total investment in the business as on the first day of previous year. He, therefore, computed the amount of loss eligible for set off against the assessee's income at Rs. 9,72,563 by multiplying Rs. 31,56,429 (loss incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (husband) of an individual (wife) transfers some assets otherwise than for adequate consideration or in connection with an agreement to live apart, then the income from such assets arising to the wife is liable to be included in the total income of the husband. Explanation 3 to section 64(1) deals with the clubbing provision in a particular situation in which the assets transferred by husband are invested by wife in any business, otherwise than as capital in a firm etc. In such a scenario, the income arising out of such business liable to be included in the total income of husband shall be that part of the total income of the business as bears the proportion of the value of assets transferred by husband to wife on the first day of the previous year as are invested in the business to the total investment in the business by the wife on the same day. 6. On going through the mandate of section 64(1)(vi) of the Act in juxtaposition to Explanation 3 to the sub-section, it transpires that there can be two possible situations of utilization of the assets transferred by husband to wife triggering clubbing provision. The first situation can be where the amount of assets received by wife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case is, ergo, covered by the proviso to section 3, going by which figures of the two components in the aforesaid formula, namely, the amount of assets received by the wife from her husband as invested in the business and total investments in the business including the amount of assets received from husband, will have to be taken as on 18-09-2013. 8. Reverting to the factual panorama as obtaining in the instant case, it is found that the first component in the formula, being, loss incurred by Mrs. Priti Bhaskarwar from the business of F&O is not disputed at Rs. 31,56,429/-. The controversy rests on the second and third components. Whereas the case of the AO is that the figure of the denominator in the formula, being, total investment in the business of F&O as on 18-09-2013 is Rs. 81,13,684/-, the assessee has set up a case that the total investment as on 18-09-2013 is Rs. 10,00,000/-. Similarly, qua the numerator, being, the amount of gift made by the assessee to his wife up to 18-09-2013, whereas the case of the AO is that the figure is Rs. 25.00 lakh, the assessee contends that such a figure is also Rs. 10.00 lakh. 9. The assessee's wife admittedly started the business of F& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act Note dated 20-09-2013. This resulted in increase in margin money by a further sum of Rs. 1,80,238/-, which was debited to her bank account maintained with ICICI bank. For the date of 20-09-2013, there was surplus in the value of her holdings in F&O by Rs. 2.63 lakh, which was credited to the ICICI bank account. In this way, the position continued on day-to-day basis as can be seen from daily profit/loss statement of F&O in the account maintained by Mrs. Priti Bhaskarwar with ICICI Securities Ltd., a copy of which is available at pages 11 to 14 onwards. On some dates, there is increase in the value of holding resulting into profits and corresponding credit to her bank account, while on others there is decrease in the value of her holding resulting into loss with corresponding debit to her bank account. Total of such net loss from 18-09-2013 to 31-03-2014 comes to Rs. 31.53 lakh, which got debited to her bank account maintained with ICICI Bank. It is such loss which has been clubbed by the assessee. From the above narration of facts, it is clear that as on 18-09-2013, being the first day of the preceding year when the business of F&O was set up by her, total investment through m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble situations of utilization of the assets transferred by husband to wife triggering the clubbing provisions have been discussed supra in para no. 6. The first, which is covered within the main part of section 64(1)(iv) of the Act, is where the amount of assets received by wife are invested exclusively in an asset attracting clubbing of full income therefrom. Interest income arising from FDRs amounting to Rs. 7,21,547/- is an illustration of such positive income, which has been promptly offered by the assessee. The second, which is covered within section 64(1)(iv) read with the Explanation 3 of the Act, is where the assets received by wife as gift from husband are invested by her in a business, in which she has her own separate investment as well, thereby attracting clubbing of income to the extent it is relatable to the investment of gifts received from husband in the common business. Loss (negative income) of Rs. 31,56,429/- from F&O business is an illustration of such income, which was rightly clubbed by the assessee but wrongly denied partly. 12. In the hue of the above discussion and going by the Explanation 3 read in conjunction with section 64(1)(iv) of the Act, the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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