Case Law Details
In the present case, though the assessee was to receive monthly alimony which was to be taxable in the each year from conclusion of divorce agreement but in this case monthly payments were not received and, therefore, were not offered tax. The receipt by the assessee represents accumulated monthly installments of alimony which has been received by the assessee as a consideration for relinquishing all her past and future claims. Therefore, we held that there was sufficient consideration in getting this amount and, therefore, section 56(2) (vi) is not applicable. Moreover, if the Revenue’s arguments are to be accepted of it being monthly payments liable for tax as per Bombay High Court order, then also the amounts represented by past monthly payments can not be taxed in this year. Therefore, we held that amount was a capital receipt not liable to tax.
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ‘E’: NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
And
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No. 644/DEL/ 2012
(Assessment Years :2008-09)
ACIT Vs. Meenakshi Khanna
ORDER
PER T. S. KAPOOR, AM
This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-XXV, New Delhi dated 17.11.2011 for the assessment year 2008-09. The grounds of appeal taken by Revenue are as under:
“A. Whether Ld. CIT (A) was justified in deleting addition of Rs.39,98,408/- made by the Assessing Officer u/s 56(2) (vi) when the amount received by the assessee was without consideration.
B. Whether Ld. CIT (A) was justified in deleting addition of Rs.39,98,408/- when provisions of section 56 (2) (vi) were clearly applicable in the case of the assessee.
C. Whether Ld. CIT (A) was justified in the deleting addition of Rs.39,98,408/- when the amount received was not from the relative (ex-spouse) of the assessee and hence falls in exceptions to charging of tax.”
2. The brief facts of the case are that the return of income was filed on 23.07.2008 disclosing a total income of Rs.8,15,050/-. The case of the assessee was selected for scrutiny.
3. During the assessment proceedings, the Assessing Officer observed from the bank statement of assessee that there was a credit of Rs.39,98,408.60 equal into Rs.99,093.15US$. The assessee was asked to submit explanation in respect of aforesaid credit entry to which the assessee replied that the amount was received as alimony due from her husband over a period of time and in support the assessee filed confirmation from Dr. Paul Dax, a national of Germany and ex-husband who has stated as under:“ MS. Meenakshi Khanna is my ex-wife and that I have sent her US $ 99,093 during the month of August, 2007.”
4. The Assessing Officer show caused the assessee as to why not the amount received be added to the income of assessee as per provisions of section 56(2) (vi) of the Act. In response, assessee submitted her reply by letter dated 18.10.2010 stating as under:
“This is regarding the amount of 99,093 US $ received in our saving a/c from US. It is stated that the above said amount received from her ex-husband Dr. Paul Dax for which confirmation has been given earlier. This amount has been received as alimony from ex-husband as per divorce agreement in August 1990. It is also stated that assessee has never received any amount from her ex-husband earlier.”
6. Dissatisfied with the order, the assessee filed appeal before the CIT (A) and submitted various submissions. The CIT (A) after going through the submissions of assessee deleted the addition by holding as under:
“The word consideration has not been defined under the Income Tax Act therefore we need to verify its meaning from the law which govern principles of contract. Consideration has been defined u/s 2(d) of Indian Contract Act which inter-alia reads:-
“That at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
In Currie vs. Misa (1875) LR 10 EX-153 the consideration was defined as
“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.”
This definition has been considered by Hon’ble Supreme Court and compared with the definition given in section 2(d) of Contract Act and approved as being practically the same in Chidambara Iyer V. Renga Iyer (1966) 1 SCR 168.
Going by these definitions it cannot be said that the appellant received the money without consideration which is a prerequisite condition for invoking clause (vi) of sub-section (2) of section 56 of the Act because appellant in the facts received the amount against consideration of relinquishing her personal right of claiming monthly maintenance as provided under law. In view of the above of the fact that amount was received against consideration the addition made by Ld. Assessing Officer of the alimony received is deleted.
Proceeding further with the second question “who is spouse” of the individual? The word ‘spouse’ has not been defined under the Income Tax Act. The word ‘spouse’ as defined under law lexicon second edition (2001) means a wife or a husband or bride as the case may be. Since the amount was received by the appellant from the husband as condition of separation and the amount was paid by way of alimony only because they were husband and wife and the appellant was spouse person who has paid the amount therefore the payment received amounts to have been received from the spouse of the individual and hence falls within the exception clause of relative. Therefore also clause (vi) of sub-section (2) section 56 is not applicable and amount received will not amount to income u/s 2(24) of Act.”
7. Aggrieved, the Revenue is in appeal before us. At the outset, the Ld. Departmental Representative submitted that payments in lieu of divorce were to be made in installments and there was no mention of lump- sum payment in the divorce agreement. He further argued that the divorce was executed in 1990 and the amount was received in the Financial Year 2007- 08 in which year the assessee was not a wife of husband as the divorce had already taken place and, therefore, the amount received by her from him did not fit into the definition of relative as provided in explanation to section 56(2) (vi). Reliance in this respect was placed on the case law of Princes Maheshwari Devi vs. CIT reported in 147 ITR 258 wherein it was held that monthly receipts of alimony were income taxable under the Act.
In view of the above facts and circumstances, we do not find any infirmity in the orders of CIT (A). Hence, the appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 14/06/2013
This case shows the need to differentiate in capital and income. An amount paid by husband or ex-husband to wife or ex-wife, is per say a payment on account of personal expenses and are capital expenses. The receipt is capital receipt. Under Constitution of India tax can be impsoed only on income and not on capital receipt. Payment made on monthly basis or on lump sum bais both bear the same character. The amount is in nature of gift or in consideration of divorce. Both way these are capital receipts.
Therefore, the amounts which are in nature of capital cannot be subject matter of taxation under IT Act.
Capital receipts cannot be taxed as income under the Indian Constitution:
In the List I – Union List under the VII-SCHEDULE in terms of the Article 246 of the Constitution of India we find the following entries in relation to tax on income which the UOI can impose:
82. Taxes on income other than agricultural income.
85. Corporation tax.
We do not find definition of income however we find the following definitions in the Article 366 in The Constitution Of India 1949
366. Definition In this Constitution, unless the context otherwise requires, the following expressions have, the meanings hereby respectively assigned to them, that is to say
(1) agricultural income means agricultural income as defined for the purposes of the enactments relating to Indian income tax;
(6) “corporation tax” means any tax on income, so far as that tax is payable by companies and is a
tax in the case of which the following conditions are fulfilled:—
(a) that it is not chargeable in respect of agricultural income;
(b) that no deduction in respect of the tax paid by companies is, by any enactments which may apply to the tax, authorised to be made from dividends payable by the companies to individuals;
(c) that no provision exists for taking the tax so paid into account in computing for the purposes of Indian income-tax the total income of individuals receiving such dividends, or in computing the Indian income-tax payable by, or
refundable to, such individuals;
(28) taxation includes the imposition of any tax or impost, whether general or local or special, and tax shall be construed accordingly;
(29) tax on income includes a tax in the nature of an excess profits tax;
Income -tax or Corporation tax can be imposed only on income:
From above entries and definitions we can say that the UOI or The central Government of India can impose or levy a tax or impost on income other than agricultural income. And tax on income includes tax in the nature of an excess profits tax.
Any capital receipt is not in nature of income or excess profit, therefore the UOI is not empowered to impose tax on capital receipts of any assessee by way of tax on income, tax on excess profits or by way of corporation tax.
Subsidies are not income:
Subsidies are not income or excess profit, therefore a tax in nature of tax on income or tax on excess profit cannot be imposed as per the provisions of the Constitution of India.
Some provisions of Income-tax Act which imposes tax on capital receipts may be ultravirse the Constitution of India- and need to be judicially examined on proper challenge:
We find that there are many provisions under which capital receipts are treated as income. Now-a-days tendency is to add clauses and sub-clauses or make new provisions to treat any thing as income. It can be said that by expanding definitions, artificial and un-natural meanings are assigned or scope is enlarged in artificial and un-natural manner. For example, provision to treat contributions of employees towards provident funds, and other funds which are liability of employer and funds are held under trust is deemed income. This is ultravirse, however, as per information of the author, this has not be challenged as ultravirse.
If properly challenged, the provisions of clauses (iia), (x) , (xi),(xiii), (xiv) (xv), (xvi) of sub-section 24 of section 2 of the Income-tax Act, 1961 may be held as ultra virse the Constitution of India and the Income-tax Act itself. Because these clauses deems capital receipts as income of assessee. Such treatment is not within the power of UOI. These sums cannot be called income. or excess profit on which income-tax can be levied.
Similarly some of corresponding provisions found in section 28, 41 and 56 can also be beyond the power to tax income.
Unless a receipt is in naaature of income, it cannot be taxed as income. For example an unexplained cash credit can be considered as income by presumption. but when a cash credit in nature of loan, gift, or any other receipt on capital account is proved to be a capital receipt it cannot be taxed as income.
In the case before Tribunal, the nature and source was proved. It was not case of revenue that money belonged to assessee, therefore, even monthly payments must be regarded capital receipt.
U/s 56 also the sum should be in nature of ‘income’. a capital receipt should not fall u/s 56 by presumption of income.
Constitutional validity of such deeming provisions need to be challenged.