R has sold 2000, 14% debentures of Rs. 100 each to his wife for Rs. 90000. The market vale of debentures on the date of transfer was Rs. 180000. In this case, interest income to be included in the total income of R shall be?
A. 28000
B. 14000
C. 25000
D. 12000
Answer: Option A
Solution (By Examveda Team)
The debentures are transferred by R to his wife for inadequate consideration (Rs. 90,000 vs market value Rs. 180,000).As per Section 64(1)(iv) of the Income Tax Act, 1961, if an asset is transferred directly or indirectly by an individual to his/her spouse without adequate consideration, the income from such asset is clubbed in the hands of the transferor (i.e., R).
Debenture value = 2000 × Rs. 100 = Rs. 200,000
Interest rate = 14%
Annual interest = 14% of 200,000 = Rs. 28,000
Since the income from the debentures is clubbed in R’s hands, the entire Rs. 28,000 interest income will be included in the total income of R.
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