On 14th June 2024, Mr. Rajesh Kumar gifted a sum of 3,00,000 to his brother's wife (Mrs. Neha). On 12th July 2024, Mr. Rajesh Kumar's brother (Mr.…

In the given case, Mr. Rajesh kumar gifted a sum of 3lakhs to his brother's wife on 14.06.2024 and simultaneously, his brother gifted a sum of 3lakhs to Mr. Rajesh kumar's minor son on 12.07.2024. The gifted amounts were invested as fixed deposits in banks by Mr. Rajesh kumar' son and his brother's wife. These transfers are in the nature of cross transfers. Accordingly, the income from the assets transferred would be assessed in the hands of the deemed transferor because the transfers are so intimately connected to form part of a single transaction and each transfer constitutes consideration for the other by being mutual or otherwise. If two transactions are inter-connected and are part of the same transaction in such a way that it can be said that the circuitous method was adopted as a device to evade tax, the implication of clubbing provisions would be attracted. It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66 ITR 142. Accordingly, the interest income on fixed deposits arising to Mrs. Neha of 18,000 [₹ 3,00,000 x 9% x 8/12] would be included in the total income of Mr. Rakesh Kumar. However, as per section 64(1A), all the income of a minor son is, in any case, to be included in the income of the parent, whose total income before including minor's income, is higher. Therefore,30,000 [₹ 5,00,000 x 9% x 8/12] would be included in the total income of Mrs. Anjali since her income before including minor's income, is higher than of Mr. Rajesh's income. Additionally, Mrs. Anjali is entitled to exemption of 1,500 under section 10 (32) with respect to income included in her hands on account of minor's income. If Mr. Rakesh gifted - 5,00,000 to Mrs. Anjali instead of minor son, then the interest income includible in the hands of Mr. Rajesh would be restricted to the extent of cross transfer. Accordingly, only interest 18,000 [₹ 3,00,000 x 9% x 8/12] would be includible in the hands of Mr. Rajesh since the cross transfer is only to the extent of 3lakhs.