Lalitha Boda Vs ITO (ITAT Hyderabad)
Husband’s Gift, Wife’s Tax- Can Late Disclosure Defeat Clubbing?
A Missing Disclosure Alters the Outcome
Capital gains arising from the sale of property gifted by a husband to his wife would ordinarily attract clubbing under section 64(1)(iv). However, the Hyderabad Tribunal rejected the wife’s claim because she disclosed the transaction only after the period for initiating reassessment against her husband had, according to the Revenue and the Tribunal, expired.
The Tribunal regarded the delayed disclosure as an attempt to prevent assessment in either spouse’s hands and sustained the capital gains addition of ₹75,725 in the wife’s assessment. The decision raises an important question: can an assessee’s conduct change the person in whose hands income is legally assessable?
A Fixed Deposit Triggered the Proceedings
The assessee had not filed her original return of income for assessment year 2012-13. The Assessing Officer received information that she, jointly with Smt. Boda Siddamma, had made a fixed deposit of ₹31,20,000 with Saptagiri Grameena Bank.
A notice under section 148 was issued on 28 August 2018. The assessee did not respond to that notice or the subsequent notices under section 142(1).
Eventually, through a show-cause notice dated 12 December 2019, the Assessing Officer proposed to treat 50% of the fixed deposit, amounting to ₹15,60,000, as unexplained money under section 69A.
This proposal prompted the assessee to explain the source of the deposit.
The Explanation Brought the Gift into Focus
On 18 December 2019, the assessee furnished a reply, a copy of her return declaring income of ₹2,80,640, and bank account details.
She explained that the fixed deposit represented proceeds from the sale of immovable property which she had received as a gift from her husband.
The assessment was completed on 30 December 2019 under section 143(3) read with section 147. The disputed addition ultimately concerned capital gains of ₹75,725 arising from the property transaction.
The distinction matters. Although the proceedings began with a proposed unexplained-money addition of ₹15,60,000, the issue before the Tribunal concerned the person liable to tax on the capital gains of ₹75,725.
The Wife Invoked the Clubbing Provision
The assessee contended that section 64(1)(iv) required the capital gains to be included in her husband’s income because the property had been gifted by him.
Her argument was that the husband’s failure to file a return did not make the wife liable for income which the statute required to be clubbed in his hands. Likewise, her receipt or enjoyment of the sale proceeds could not determine the person chargeable to tax.
She relied on Sushama Rajesh Rao v. DCIT [2025] 178 taxmann.com 266 (Bangalore-Trib.), CIT v. Maharaj Kumar Kamal Singh [1973] 89 ITR 1 (SC), ITO v. Ch. Atchaiah [1996] 218 ITR 239 (SC) and Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503 (SC).
The central submission was straightforward: income must be assessed in the hands prescribed by law.
Revenue Relied on the Timing of Disclosure
The Revenue emphasised that the assessee had remained unresponsive for more than a year after the reassessment notice.
According to the Revenue, she disclosed the husband’s gift only after the limitation period for issuing a reassessment notice to him had expired. Neither spouse had originally filed a return.
The Revenue therefore characterised the delayed claim as a deliberate attempt to ensure that the income escaped assessment in both spouses’ hands.
Tribunal Accepted the General Rule but Rejected the Claim
The Tribunal expressly acknowledged that, in the normal course, income arising from the sale of property gifted by a husband to his wife would be assessable in the husband’s hands under section 64.
Nevertheless, it considered the timing of the disclosure decisive.
It observed that the husband had not filed a return and that the assessee raised the clubbing claim only after the opportunity to initiate proceedings against him had expired. The Tribunal described this conduct as “mischief” intended to avoid assessment.
On that reasoning, it upheld the orders of the lower authorities and dismissed the appeal.
The decision should therefore be understood as a rejection based on the Tribunal’s findings about delayed disclosure, rather than a general ruling that capital gains from property gifted between spouses fall outside section 64.
Author’s Comments
Can delayed disclosure override a statutory clubbing provision? That is the significant legal concern arising from this order.
Failure to respond to notices deserves appropriate consequences under the Act. However, the separate question is whether such failure permits income to be assessed in a person’s hands when the applicable provision places liability elsewhere.
In Ch. Atchaiah, the Supreme Court held that the Assessing Officer must assess the person legally liable for the particular income; revenue advantage does not determine that choice.
The Tribunal’s concern about possible tax avoidance is understandable. Yet, its reasoning warrants further judicial examination on whether expiry of limitation against the husband can sustain assessment against the wife despite the acknowledged application of section 64.
Timely disclosure remains essential. Equally, the identity of the taxable person must rest on the statute.
Cases Discussed
- Sushama Rajesh Rao Vs DCIT [2025] 178 taxmann.com 266 (Bangalore-Trib.) — relied upon by the assessee for the proposition that income arising from property gifted by a spouse is subject to the clubbing provisions; an exact TaxGuru report of the decision is available and is linked in the Summary and Full Text.
- CIT Vs Maharaj Kumar Kamal Singh [1973] 89 ITR 1 (SC) — relied upon by the assessee in support of her contention that the capital gains could not be assessed in her hands.
- ITO Vs Ch. Atchaiah [1996] 218 ITR 239 (SC) — relied upon by the assessee in support of the contention concerning assessment of income in the hands of the person legally liable to tax.
- Sevantilal Maneklal Sheth Vs CIT [1968] 68 ITR 503 (SC) — relied upon by the assessee in support of the applicability of the statutory clubbing principle to income arising from transferred assets.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal by the Assessee is directed against the Order dated 30.01.2026 of the learned ADDL/JCIT(A)-1, Nashik, for the Assessment Year 2012-2013.
2. The Assessee has raised the following grounds of appeal:
1) “Ground 1. That under the facts and circumstances of the case, the orders passed by the Commissioner of Income-tax (Appeals) (in short CIT(A)) us 250 of IT Act dated 30.01.2026, confirming the order passed by Assessing Officer (AO) us. 143(3) r.w.s 147 of the IT Act dt.30.12.2019, is not in accordance with the fact and provisions of law.
2) Ground 2. The Ld.CIT(A) erred in law by taxing the Capital Gains arising from the sale of Immovable property gifted by the appellants husband in the hands of the appellant, ignoring the provisions of section 64(1)(iv) of the Income tax Act, 1961.
3) Ground 3. The Ld. CIT(A) erred to appreciate that the taxability of Income is governed by the statutory provisions, instead made an observation that the tax liability must follow the recipient who enjoyed the income, such observation of Ld.CIT(A) is contrary to the provisions of section 64(1)(iv) which mandates clubbing of Income in the hands of transferor in the present case.
4) Ground 4. The Ld. CIT(A) erred in law in rejecting the binding judicial precedents solely on the ground that the appellants spouse had not filed the income tax return, which reason stated by Ld.CIT(A) is not a precondition under section 64(1)(iv) for clubbing of income, and therefore such rejection of settled case law is unsustainable.
5) Ground 5. For these and such other grounds, that may be urged at the time of hearing of subject appeal, the appellant prays before the Honourable ITAT that the above additions made by Ld.AO and confirmed by Ld.CIT(A) be deleted OR provide such other relief as the Honourable Tribunal may deem fit.”
3. The assessee is an individual and has not filed any return of income for the year under consideration u/sec.139 of the Income Tax Act [in short “the Act”], 1961. The Assessing Officer received information that assessee and one Smt. Boda Siddamma have jointly made fixed deposit of Rs.31,20,000/- in Saptagiri Grameena Bank, Pallam Branch. Accordingly, the Assessing Officer issued notice u/sec.148 of the Act on 28.08.2018. In the absence of any reply from the assessee to the notice issued u/sec.148 of the Act as well as notice u/sec.142(1) of the Act, the Assessing Officer finally issued show cause notice dated 12.12.2019 proposing the 50% share of the fixed deposit amounting to Rs.15,60,000/- as income towards unexplained money u/sec.69A of the Act. The assessee filed reply dated 18.12.2019 and submitted a copy of the return of income, one bank account, source of fixed deposit from sale of property etc. Thereafter, the Assessing Officer issued notice u/sec.143(2) of the Act and made addition on account of capital gain arising from sale of property of Rs.75,725/-. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.
4. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the assessee explained the source of fixed deposit as sale of the property received as gift from the husband and therefore, as per the provisions of sec.64(1) of the Act, the income arising from the asset received as gift from the husband will be assessed in the hand of the husband and not in the hand of the assessee. The learned Authorised Representative of the Assessee has relied upon the following decisions:
i. Order of ITAT, Bangalore Bench in the case of Sushama Rajesh Rao vs. DCIT [2025] 178 taxmann.com 266 (Bangalore-Trib.);
ii. Judgment of Hon’ble Supreme Court in the case of CIT vs. Maharaj Kumar Kamal Singh [1973] 89 ITR 1 (SC);
iii. Judgment of Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah [1996] 218 ITR 239 (SC);
iv. Judgment of Hon’ble Supreme Court in the case of Sevantilal Maneklal Sheth vs. CIT [1968] 68 ITR 503 (SC);
4.1. Thus, the learned Authorised Representative of the Assessee has submitted that once the income arising from the property received as gift from the spouse is assessable to tax in the hand of the spouse under the provisions of sec.64 of the Act then, the same cannot be assessed in the hand of the assessee.
5. On the other hand, the learned DR has submitted that the Assessing Officer has reopened the assessment by issuing notice u/sec.148 of the Act on 28.08.2018 on the basis of the information that the assessee along with one Smt. Boda Siddamma have made fixed deposit of Rs.31,20,000/- and 50% of the assessee comes to Rs.15,60,000/-. The assessee did not file any reply to the notice issued u/sec.148 of the Act nor filed any return of income and only after more than one year on 18.12.2019 the assessee filed reply along with copy of the return explaining the source of the fixed deposit as sale of immovable property received as gift from the husband and therefore, the assessee claimed that the capital gain arising from the sale of the property falls u/sec.64 of the Act and assessable to tax in the hand of the husband. The learned DR has submitted that the Assessing Officer could not have assessed the income in the hand of the husband after this fact was explained by the assessee on 18.12.2019. Thus, the assessee has deliberately waited for expiry of the limitation period for issuing the notice u/sec.148 of the Act in the case of the husband and then, claimed that the income is assessable in the hand of the husband of the assessee. He has relied upon the Orders of the authorities below.
6. I have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee along with one Smt. Boda Siddamma made fixed deposit to the tune of Rs.31,20,000/- during the year under consideration. The assessee has not filed any return of income u/sec.139 as well as in response to notice u/sec.148 of the Act issued by the Assessing Officer on 28.08.2018. Only when the Assessing Officer has issued a final show cause notice date 12.12.2019, the assessee filed reply along with the return of income wherein the assessee has declared income of Rs.2,80,640/- and also claimed that the deposit was made from the sale proceeds of the immovable property which was received by the assessee as gift from the husband. Thus, the assessee claimed that the capital gain arising from the sale of the property is assessable to tax in the hand of the husband as per the provisions of sec.64 of the Act. Though in the normal course in view of provisions of sec.64 of the Act, the income arising from the sale of the property received by the assessee as gift from the husband is assessable to tax in the hand of the husband. However, in the case in hand, this fact was not explained by the assessee to the Assessing Officer in response to the notice u/sec.148 nor any return of income was filed by the assessee. Only in response to show cause notice dated 12.12.2019 the assessee filed reply dated 18.12.2019 and made this claim that the income arising from sale of the property is assessable to tax in the hand of the husband u/sec.69 of the Act. Thus, it is clear that only after expiry of the limitation for issuing the notice u/sec.148 of the Act in the case of husband of the assessee, the assessee has made this claim. This conduct of the assessee clearly manifest the mischief on the part of the assessee to avoid the assessment of income to tax either in the hand of the assessee or in the hand of the husband of the assessee. It is also pertinent to note that the husband of the assessee has also not filed any return of income for the year under consideration and therefore, in the absence of any return of income filed by the husband of the assessee there was no occasion for the Assessing Officer to assess this income in the hand of the husband of the assessee. Accordingly, in the facts and circumstances of the case, when the assessee has acted mischievously to avoid the tax, the claim of the assessee cannot be accepted. Accordingly, I do not find any reason to interfere with the Orders of the authorities below.
7. In the result, appeal filed by the Assessee is dismissed.
Order pronounced in the open court on 30.09.2026.
