Liability of Person Whose Income is Clubbed

Section 100 — TAX LIABILITY OF PERSON WHOSE INCOME IS CLUBBED

Section 100 is the substantive equivalent of 1961 s. 65. Once income of one person is clubbed in another's hands under Chapter V (or s. 25(a) — partner's income through firm), the person in whose NAME the asset stands (or who is the firm-member) is JOINTLY AND SEVERALLY LIABLE for the proportional tax on the included income, upon AO's notice of demand. Effectively, the AO may recover the clubbed-tax from EITHER the assessee (in whose income clubbing happened) OR the underlying owner / member.

STATUTORY ARCHITECTURE

Section 100 closes the recovery-circle for clubbed income: (i) Income clubbed in assessee's hands per Chapter V or s. 25(a); (ii) Tax on the clubbed portion computed at assessee's marginal rate; (iii) AO may issue notice of demand on the UNDERLYING person (asset owner / firm member) for the proportional tax; (iv) Underlying person is JOINTLY AND SEVERALLY liable WITH the assessee. This protects the revenue against assessee's insolvency / non-recovery — provides an alternative recovery target. Practical effect: spouse / minor child / firm-member can be pursued for tax on income that was clubbed in another's hands.

CASE LAW

CIT v. Sodra Devi (SC) — joint-and-several liability is NOT contingent on the assessee's failure to pay — AO can directly proceed against either. ITAT (various) — appellant rights of underlying person (s. 100 demandee) — separate appellate forum may not be available; remedy is to dispute the clubbing in original assessment.

PLANNING NOTES

(i) For spouse-remuneration / asset-transfer clubbing scenarios, advise both assessee AND spouse of the joint-liability risk. (ii) Maintain clear documentary trail: who actually OWNS the asset (registry / depository statement / KYC); who EARNS the income (TDS-bearer / PAN-bearer); who is being CLUBBED. (iii) For minor-child cases, joint-liability typically falls on the parent (in whose hands clubbing happens); minor's account / FD is rarely garnished. (iv) For partnership-firm cases (s. 25(a)), the firm-member's liability under s. 100 can extend to specific tranches of clubbed-share-income.

CROSS-REFERENCES

• Sections 96-99 — Substantive clubbing rules (Chapter V).
• Section 25(a) — Partner's income through firm.
• Section 280 onwards — Recovery of tax procedures.