Sivasundar Selvakumari Vs ITO (ITAT Chennai)
LTCG Cannot Be Taxed in Wife’s Hands When Property Settled by Husband – ITAT Deletes Rs. 19.86 Cr Addition
The assessee sold an immovable property for ₹20 crore, out of which ₹19.40 crore was directly paid by the buyer to SBI to discharge mortgage loans relating to the property. AO treated the entire transaction as taxable Long-Term Capital Gain in the hands of the assessee & computed LTCG of ₹19.86 crore, denying deduction for repayment of the mortgage liability.
The assessee explained that the property had been settled by her husband in her favour without consideration, and therefore the capital gains were rightly offered to tax in the husband’s return under the clubbing provisions of section 64(1)(iv). She also contended that the amount paid to discharge the mortgage was an allowable deduction while computing capital gains.
The ITAT held that:
- Section 64(1)(iv) clearly mandates that income arising from assets transferred to a spouse without adequate consideration must be clubbed in the hands of the transferor spouse.
- Since the husband had already offered the capital gain to tax, taxing the same income again in the wife’s hands would result in impermissible double taxation.
- The CIT(A) himself had acknowledged that the capital gain should be clubbed in the husband’s income, yet wrongly upheld the addition.
- Repayment of mortgage to clear title constitutes cost of acquisition / allowable deduction as held by the Supreme Court in R.M. Arunachalam v. CIT.
The Tribunal further observed that reopening itself was unsustainable, since income had already been taxed in the hands of the husband and therefore no income had escaped assessment in the hands of the assessee.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
