Loss suffered during first year of business started with husband’s fund is to be clubbed entirely

Where wife of assessee started business of Futures and Options (F&O) by having some contribution from assessee in shape of gifts and incurred loss, entire amount of loss resulting from said business of F&O with gifts received from assessee was liable to be clubbed in hands of assessee in terms of Explanation 3 read in conjunction with section 64(1)(iv). Therefore, assessee was entitled to club full loss from business of F&O in his personal income

• Assessee’s wife started new business of Futures and Options on 18-9-2013. Assessee claimed that she incurred loss of Rs. 31.56 lakh in such business which was clubbed in his hands.

The Assessing Officer accepted the primary claim of the assessee, however, he did not accept the assessee’s contention that 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.

 In case of newly set up business, the previous year shall be the period beginning with the date of setting up of the business and ending with said financial year.

Thus, in the instant case, the amount of assets received by wife as invested in business and total investments in the business including assets received from assessee will be same.

Therefore, going by the explanation 3 read in conjunction with section 64(1)(iv), the entire amount of loss resulting is liable to clubbed in hands of assessee.