Husband Liable for Wife’s ₹17 Crore Land Sale Tax: ITAT Bangalore

 Husband Liable for Wife’s ₹17 Crore Land Sale Tax: ITAT Bangalore

The Income Tax Appellate Tribunal (ITAT) in Bengaluru has passed a significant ruling with a twist: when a wife sold land worth ₹17.26 crore, she walked away without any tax liability—because the responsibility falls on her husband.

Here’s the full story in detail:

📌 How It All Began

• Initial Ownership:Back in 1995, the husband inherited agricultural land in North Bengaluru through a family partition.
• The Gift:In 2009, he gifted the land to his wife via a registered gift deed. Importantly, no money changed hands—it was a “love and affection” gift, a common practice in families.
• The Sale:In 2011, the wife sold this land—after converting it from agricultural to non-agricultural land—for ₹17.26 crore. Her share of the sale proceeds was around ₹8.36 crore.
• Tax Filing:She filed her Income Tax Return (ITR) for AY 2012-13, initially reporting zero taxable capital gains, claiming the property’s fair market value in 1981 as ₹1.5 crore and adjusting cost inflation. She later revised her ITR but didn’t change her claim of zero capital gains.

📌 Tax Department’s Objection

• The tax authorities weren’t convinced.
• They referred to the stamp duty valuation of the land, which pegged the sale value at ₹18.41 crore—higher than what she reported.
• Using Section 50C of the Income Tax Act (which deals with under-reporting of sale consideration in property transactions), they added ₹8.36 crore as taxable income to her account.

This pushed her assessed income to ₹8.83 crore.

📌 Wife’s Argument

The wife appealed to ITAT Bengaluru, arguing:

• Since the land was a gift from her husband, the profits from its sale should not be taxed in her hands.
• Under Section 64(1)(iv) of the Income Tax Act, if an asset is transferred to a spouse without adequate consideration (i.e., as a gift), any income from that asset is to be taxed in the hands of the transferor (the giver)—in this case, the husband.

📌 ITAT’s Decision

The tribunal agreed with her.

• Love & Affection ≠ Consideration: The husband’s gift, though out of love, did not count as “adequate consideration” in the eyes of tax law.
• Clubbing Provisions Apply: As per Section 64(1)(iv), the capital gains must be “clubbed” with the husband’s income—not the wife’s.
• Result: The wife owes no tax on this transaction. The liability shifts entirely to her husband.

This means the wife’s ₹8.36 crore share of gains will be taxed as part of her husband’s income.

📌 Why the Law Works This Way

The clubbing provisions in the Income Tax Act are anti-avoidance measures.

• Without this rule, people could gift assets to spouses or minor children in lower tax brackets and avoid paying higher taxes.
• By clubbing, the law ensures that income from such transfers is taxed at the rightful owner’s slab rates.

So, while this law usually works against taxpayers (by increasing their tax liability), in this case, it actually protected the wife.

📌 Expert Insights

• Not optional: The application of Section 64 is mandatory, not discretionary. Neither the taxpayer nor the tax officer can choose to ignore it.
• Double-edged sword: Often, clubbing raises tax burdens, but here it reduced the wife’s liability completely.
• Lesson for taxpayers: Always disclose such transfers correctly while filing ITR. Had the wife raised this claim earlier, the tax dispute could have been avoided.

📌 Key Timeline

Year	Event
1995	Husband inherits land through family partition.
2009	Land gifted to wife via registered deed.
2011	Wife sells land for ₹17.26 crore (her share: ₹8.36 crore).
2012–13	Wife files ITR, shows zero taxable capital gains.
2013–14	Tax department adds ₹8.36 crore to her income under Section 50C.
2018	Appeal continues—wife claims husband should be taxed, not her.
Aug 2025	ITAT rules in wife’s favour: liability shifted to husband.

📌 Final Takeaway

This ruling is a reminder of how nuanced tax law can be.

• For couples: If you transfer property to your spouse as a gift, remember that any future income or gains from it will be taxed in your name, not theirs.

• For taxpayers: Always check clubbing provisions before filing returns. They can either save you from a tax hit—or increase your burden.

• For the wife in this case: Despite earning crores from the sale, she legally walks away with no tax liability—because the law puts it squarely on her husband.

• More read: Big Tax Refund Promises? Beware of 200% Penalty, Warns Expert