Opinion Of Eminent Legal Luminaries On Controversial Issues

Clubbing of income – Spouse

QUERY: If husband invests his own funds in house property but the property was purchased in his wife’s name and the same is sold, in whose hands the capital gains will be chargeable to tax?
ANSWER: Section 64(1) of the Income-tax Act, 1961 specifically provides that:
“In computing the total income of individual, there shall be included all such income as arises directly or indirectly –
iv) Subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart”.
Thus, from the fact, it is clear that husband has invested his own funds in house property but the property was purchased in his wife’s name. So he has transferred the property to his wife. On sale of the said property the capital gains would be chargeable in the hands of husband.
The Supreme Court in Sevantilal Maneklal Sheth v. CIT [68 ITR 503] held that when the spouse transfers the property to a third person and receives the sale price giving rise to capital gains such capital gains are includible in the name of the transferor spouse as being arising from assets transferred. This follows from the definition of income in the statute.

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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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