A cash loan from the husband to buy property will not be taxed


If a wife has borrowed money from her husband to buy a property, there will be no tax penalty, the Income Tax Appeals Tribunal (ITAT) has ruled. This is the second women-friendly court ruling, the first being the precedent set by ITAT, Agra that cash deposits of up to ₹2.5 lakh made by housewives during the demonetization would not be subject to tax.

The case in question

The purchase of real estate by women is seen as a progressive and empowering measure which the government is also encouraging by lowering the stamp duty. The latest decision comes in a case before ITAT, Jaipur, in which assessee Meera Devi Kumavat took out a loan of ₹9 lakh from her husband Babu Lal to buy land. She argued that the money, ₹6 lakh in sight draft and the rest in cash, which was in her custody could not be treated as a loan. She also argued that husband and wife money cannot be separated and treated as a loan because it is in joint custody. In the case of husband and wife, the assessee argued that repayment is not mandatory and there is no interest charge, so it is not justifiable to impose a penalty.

However, the IT department raised a claim of ₹3 lakh, imposing a penalty under Section 271D of the Income Tax Act, which is the penalty clause for violation of Section 269SS regarding mode acceptance of certain loans or deposits.

“No person shall take or accept from another person, any loan or deposit or specified sum, other than by a payee’s account check or bank draft from the payee’s account or the use of an electronic clearing system via a bank account or through any other electronic mode,” the law says. As ₹3 lakh was in cash, the penalty was increased.

The assessee’s plea was dismissed at the first level of appeal to the Commissioner of Income Tax (Appeal). After several hearings, the bench noted that the money loaned to the assessee had been used to purchase land which was registered in his name.

No dishonest intent

“We find that such a practice of registering property in the wife’s name is guided by various family and societal factors in addition to government encouragement for such transactions entered into by female family members through ‘a reduced stamp duty,’ the bank said, pointing out that there is no dishonest intent as the sales process was duly documented and mentioned payment in combination of sight draft and of species.

“We therefore conclude that the assessee provided a reasonable explanation justifying the cash transactions,” the bench said, ruling that she did not need to be penalized.


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