The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has ruled that capital gains from the sale of a gifted property between spouses will be taxable in the transferor’s hands, under Section 64(1)(iv) of the Income-tax Act.
The case pertained to the sale of property gifted by a husband to his wife, and the wife argued that her husband should be taxed for the gains from the property sale. The bench comprising Vice President Prashant Maharishi and Judicial Member Soundararajan K observed that while a gift between spouses may be based on love and affection, such “good consideration” cannot be equated with “adequate consideration” under tax law.
Further citing earlier apex court rulings in Tulsidas Kilachand, Major V.P. Singh, and Sonia Bhatia, the bench held that the absence of monetary consideration triggers the clubbing provisions.
Rejecting the revenue department’s contention that the wife’s argument was an afterthought, the Tribunal said the statutory mandate overrides procedural objections. It further dismissed the revenue body’s reliance on the doctrine of res ipsa loquitur, noting that the principle applies to negligence cases and is inapplicable to taxation.
“Once the conditions of Section 64(1)(iv) are fulfilled, neither the assessee nor the Revenue department has the option to ignore its operation,” the Tribunal ruled, relying on Supreme Court precedents, including Nagappa C.R. and Muthaiah Chettiar, to reaffirm that the provision functions as a specific anti-avoidance measure.
Ultimately, the ITAT concluded that the capital gains from the sale of the property must be assessed only in the hands of the husband.
Advocate V. Chandrashekar appeared for the assessee, while CIT–DR Muthu Shankar represented the revenue department.
Sandeep Sehgal, a partner at a tax and consulting firm, AKM Global said, “This ruling applies in cases where an asset is transferred without adequate consideration, and the resulting income is attributable to that transferred asset.”
Henceforth, 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, Sehgal said.
“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 cautioned.
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