TAX PLANNING FOR DAUGHTER-IN-LAW

	NEW TAX REBATE FOR WOMEN :
	The Finance Act, 2000 has introduced a new section 88C (w.e.f. Assessment Year 2001-02) which confers tax rebate upto Rs.5,000 for resident women assessees below the age of 65 year at any time during the relevant previous year. This rebate is available to women irrespective of their source of income. Even, this rebate is available against tax on Long Term Capital Gains. Thus, all women assessees should take full benefit of the rebate. [It may also be noted that in case of assessees (both male and female) having attained the age of 65 years during the relevant previous year, a tax rebate of Rs.15,000 w.e.f. Assessment year 2001-02 is available under section 88B, which is popularly known as Rebate for senior citizens.]
	CLUBBING - IMPLICATIONS & SOLUTIONS :
	As per section 64(1)(vi) of the Income Tax Act the income of a daughter-in-law from the assets transferred without adequate consideration by her father-in-law or mother-in-law is to be included in the income of the transferor. With effect from 1.4.1985, income arising to a trust from the assets transferred to such trust for the benefit of the daughter-in-law of the individual, is also to be included in the income of the transferor father-in-law or the mother-in-law, as the case may be, under section 64(1)(viii). However, there is some scope for tax planning available for the mother-in-law and father-in-law to overcome the problem of clubbing, which is analysed hereinafter.
	GIFTS OR TRANSFER PRIOR TO MARRIAGE :
	A lady can be said to be daughter-in-law only when she is married to the son of an individual. A prospective daughter-in-law cannot be said to be a daughter-in-law till she is a legally wedded wife of one’s son. Therefore transfer of property before marriage, is outside the clubbing provisions of section 64(1)(vi) even if the property is transferred subject to subsequent condition of marriage or in consideration of a promise to marry. The Supreme Court in Philip John Plasket Thomas v. C.I.T. [1963] 49 ITR 97(SC) has held that the relationship for the purpose of section 64(1) must be taken in their primary sense, which is clearly indicative of a relationship after marriage. In this case, it was also held by the Supreme Court that if transfer of an asset was made when a woman was not a wife as such, the clubbing provisions are not attracted. For the purpose of section 64 (1) the relationship must be at both the points of time, that is, when the transfer is made as well as at the time of accrual of income. In view of this decision of the Supreme Court, if a father-in-law or a mother-in-law gifts to the would be daughter-in-law, the transaction does not amount to a transfer to the daughter-in-law as at that point of time, she is not a legally wedded wife of their son. Thus, to circumvent the provisions of section 64(1)(vi), there can be a planning of transferring of assets to the would be daughter-in-law at the time of engagement or any time before the marriage.
	Where the assessee husband had transferred assets to his fiancee and the transfer deed was executed before marriage, but was registered after marriage, it was held by the Hyderabad Bench of the ITAT, in I.T.O. v. C. Vijaya Kumar Reddy [1983] 6 ITD 362 (Hyd.)that for the purposes of section 64(1) transfer of the asset should be taken to be effective from the date of execution of the transfer deed and not from the date of its registration, which was before the marriage.
	GIFTS FROM OTHER RELATIVES :
	Section 64(1) puts a restriction on the transfer by the husband or the father-in-law or the mother-in-law but the other relations are still free to gift to such a lady, as the clubbing provisions do not apply to them. Such close relatives may be husband’s brothers, their wives or the great grandfather-in-law or great grandmother-in-law or maternal in laws etc.
	TRANSFER OF PROPERTY THROUGH HUF :
	If an individual transfers any asset to the daughter-in-law without adequate consideration, the same is clubbed in the hands of the transferor. But if an individual transfers property without consideration to the HUF of his son and the transferred property is subsequently partitioned amongst the members of the family, income derived from the share in the transferred property by son’s wife is not required to be clubbed in the hands of the transferor. It will be relevant to note that Supreme Court has laid down in the case of CGT v. N. S. Getti Chettiar [1971] 82 ITR 599 (SC) that unequal partition of property amongst family members is not rare under Hindu Law. Consequently, the larger share given to the daughter-in-law at the time of partition would be a transaction outside the scope of clubbing under section 64(1)(vi).
	PAYMENT OF REMUNERATION, COMMISSION OR FEE MADE TO DAUGHTER- IN- LAW FROM A CONCERN IN WHICH FATHER-IN-LAW HAS SUBSTANTIAL INTEREST :
	Section 64(1)(ii) provides that where there is an income to the wife by way of salary, fees or in any form of remuneration from a concern in which her husband partner. Therefore such share of profit received by daughter-in-law will not be qualified wife, who may contribute to the earning of the income. But the clubbing provisions of section 64(1)(ii) are not applicable in respect of such payment to daughter-in-law. However, the payment should be reasonable in view of the services rendered by the daughter-in-law.
	TRANSFER TO DAUGHTER IN LAW THROUGH WILL:
	During the life time of an individual it may not be possible to make gifts directly in favour of his daughter-in-law or through the medium of trust to daughter-in-law due to clubbing provisions of section 64(1)(vi) and (viii). However, one may overcome this problem through Will made in favour of the daughter-in-law so as to confer absolute title after the testator’s demise.
	PAYMENT IN CONSIDERATION OF THE STRIDHAN ASSETS BROUGHT BY LADY AT THE TIME OF MARRIAGE :
	At the time of wedding generally every Hindu lady gets some ornaments, valuable articles, assets and cash. Such assets brought by the daughter-in-law are her Stridhan and the father-in-law or his family or her husband is merely a trustee thereof.The Supreme Court has held in the case of Smt. Pratibha Rani v. Suraj Kumar & Ors. [1985] 155 ITR 190 (SC) that under Hindu Law, Stridhan is the absolute property of a lady. If it is entrusted to the husband or in-laws, it does not stand transferred to them as co-owners or partners. As trustees they are bound to return the same if and when demanded by the lady. She can file a suit against the husband or the in-laws for misappropriation of her assets so left under their custody. She is entitled to recover the same by initiating not only a civil suit but also criminal proceeding. Even if the Stridhan articles or the assets or the cash might have been consumed or used by the family or may have been utilised in other marriage in the family, the lady can demand her Stridhan and if any amount is paid to her in satisfaction of her claim it will not be a transfer by the in-laws to the daughter-in-law or by the husband to his wife without adequate consideration. Therefore it will not attract the provisions of section 64(1)(vi) of Income Tax Act, 1961.
	A fund for the daughter-in-law can be made by paying for her demand in lieu of Stridhan assets by her father-in-law without attracting the clubbing provisions. However, there should be sufficient evidence and details for the assets left by her to their custody as Stridhan.
	SHARE OF PROFIT FROM FIRM :
	As per the new scheme of taxation with effect from Assessment Year 1993-94, the share of income from firm is exempt under section 10(2A) in hands of partner. Therefore such share of profit received by daughter- in- law will not be clubbed in the hands of father- in- law even if she has invested capital out of gifts received from father -in-law. Further it will be advantageous if the daughter-in-law becomes a working partner and derives remuneration from the firm. The remuneration drawn by her will not be liable to be clubbed in the hands of the father-in-law though she might have become a partner by contributing the capital, which she got by way of transfer from her father-in-law. In such case, only the interest received on the capital contributed will be liable to be clubbed with the clubbed in the hands of father- in- law even if she has invested capital out of gifts received from father -in-law. Further it will be advantageous if the daughter-in-law becomes a working partner and derives remuneration from the firm. The remuneration drawn by her will not be liable to be clubbed in the hands of the father-in-law though she might have become a partner by contributing the capital, which she got by way of transfer from her father-in-law. In such case, only the interest received on the capital contributed will be liable to be clubbed with the income of father-in-law.
	CONCLUSION :
	Though various provisions have been made in the Income Tax Act to club the income of father-in-law or mother-in-law in the circumstances discussed in this chapter, yet there remains ample scope for planning independent income in the hands of daughter-in-law if the ideas given above are properly implemented. It becomes more useful in view of the rebate of Rs.5,000 for women under section 88C with effect from Assessment Year 2001-02.