Taxation - Income TaxQuestion 5575 of 146
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5. If Mrs. A invests this rent amount in a business and incurs a loss of ` 20,000 and she has income from other business of ` 4 lakh. The income of rent and business will be chargeable to tax in the hands of - TAXATION

Options

AMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 3.80 lakh under income from business.
BMr. A - ` 1,22,640 under income from HP and Mrs. A - ` 4 lakh as business profits.
CMrs. A - ` 1,36,640 under income from HP and ` 3.80 lakh as business profits.
DMr. A - ` 1.80 lakh under income from HP and Mrs. A - ` 4 lakh as business profits. (2 Marks)
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Correct Answer

Option AMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 3.80 lakh under income from business.

All Options:

  • AMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 3.80 lakh under income from business.
  • BMr. A - ` 1,22,640 under income from HP and Mrs. A - ` 4 lakh as business profits.
  • CMrs. A - ` 1,36,640 under income from HP and ` 3.80 lakh as business profits.
  • DMr. A - ` 1.80 lakh under income from HP and Mrs. A - ` 4 lakh as business profits. (2 Marks)

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Detailed Solution & Explanation

Since Mr. A is the deemed owner of the transferred house property under Section 27(i), the rental income from the house property must be computed and clubbed in the hands of Mr. A.
Taxable Income from House Property = 1,36,640\displaystyle ₹1,36,640 (as calculated in the previous step).

Mrs. A invests this rental income in a business which incurs a loss of 20,000\displaystyle ₹20,000. She also has income from another business of 4,00,000\displaystyle ₹4,00,000.
Since the business investment is made using the rental income (which is an accretion/income of the transferred asset), any income or loss arising from such investment is taxable/deductible in the hands of Mrs. A only. Clubbing provisions do not apply to income from accretion of the transferred asset.
Thus, Mrs. A's net business income is:
Net Business Income = 4,00,00020,000=3,80,000\displaystyle ₹4,00,000 - ₹20,000 = ₹3,80,000

Therefore, the income of rent is chargeable in the hands of Mr. A (1,36,640\displaystyle ₹1,36,640 under HP) and the business income is chargeable in the hands of Mrs. A (3.80 Lakhs\displaystyle ₹3.80\text{ Lakhs} under business).

Hence, **Option A** is the correct answer.

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