The Income Tax Appellate Tribunal (ITAT) Bangalore has ruled that capital gains from the sale of a property gifted by a husband to his wife should be taxed in the husband’s hands, not the wife’s.
A bench of Vice President Prashant Maharishi and Judicial Member Soundararajan K said the clubbing provisions under Section 64(1)(iv) of the Income Tax Act clearly apply in such cases, leaving “no option either with the assessee or with the Revenue” to tax the income in the recipient’s hands.
The case involved a woman who sold a property gifted to her by her husband. She argued that the capital gains should be assessed in her husband’s hands. The Tribunal agreed, pointing out that gifts between spouses are without “adequate consideration” under tax law, even though they may be supported by love and affection.
The ITAT rejected the tax department’s argument that the claim was raised belatedly, noting that the law mandates such income to be clubbed with the transferor spouse’s income. It also dismissed the department’s reliance on the legal principle of res ipsa loquitur, saying it has no relevance to tax proceedings.
Accordingly, the Tribunal directed that the capital gains be taxed in the husband’s hands.
Advocate V. Chandrashekar represented the assessee, while the Revenue was represented by CIT-DR Muthu Shankar.
Sandeep Sehgal, partner - Tax, AKM Global, a tax and consulting firm, says the ruling reinforces the strict, text-based application of the clubbing provisions -- capital gains from assets transferred between spouses without adequate consideration must be reported in the transferor’s hands.
“Taxpayers are advised to carefully structure transactions, maintain proper documentation, and compute capital gains in accordance with law, noting that the formal validity of a gift deed does not override the applicability of Section 64(1)(iv),” he says.