Husband has to pay income tax for wife’s Rs 17-crore land sale deal due to this reason; ITAT Bangalore ruling explained

Using the income tax clubbing provisions, a wife has won an income tax case after she sold her husband’s gifted non-agricultural land for Rs 17.26 crore. On August 18, 2025, the Income Tax Appellate Tribunal (ITAT), Bangalore bench ruled that she does not need to pay any income tax for selling this land as her husband is liable to pay tax on it.

This land, located in North Bengaluru, was originally agricultural land that her husband received as part of a family partition on May 26, 1995. However, he gifted this land to her on May 4, 2009, and also executed a registered gift deed for it.When she attempted to sell the land, the buyer asked her and her husband to change the land’s status from agricultural to non-agricultural due to restrictions on purchasing agricultural land under the Karnataka Land Reforms Act.

Accordingly, on June 8, 2011, the said land was converted into non-agricultural land. Then, on June 29, 2011, a sale deed was executed for a total sale consideration of Rs 17.26 crore. The wife’s share of the sale consideration was 48.43%, which amounted to Rs 8.36 crore. She reported her share of the sale consideration in her income tax return (ITR), claiming the cost of acquisition as the fair market value of the agricultural land on date of conversion at Rs 1.5 crore as per Government’s guidance value and accordingly computed the taxable capital gain as Nil (0).

The income tax department flagged this land sale transaction and the assessing officer (AO) pointed out that the registration charges for the transaction had been paid for the property value of Rs 18.41 crore, while the actual sale consideration was Rs 17.26 crore.

The tax officer claimed that this was a case of ‘under statement in the consideration’ amounting to Rs 1.14 crore, according to Section 50C of the Income Tax Act, 1961. In the end, the tax officer also disagreed with the her entire capital gains calculation and added Rs 8.36 crore to her total income, which made her liable to pay income tax.

She then filed an appeal with the ITAT Bangalore against this order, and requested that she should not be made liable to pay tax on the Rs 17.26 crore land deal.

ITAT Bangalore after analysing Section 64(1)(iv) of the Income Tax Act and the circumstances of this case said: (Extract): “...we hold that income from transfer of the assets which is received by the assessee as a gift from her husband is chargeable to tax in the hands of the husband of the assessee (wife) and not the assessee and therefore ground No.7 of the appeal succeeds. In the result, appeal of the assessee is allowed. Order pronounced in the open court…”

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Read on to understand why the ITAT Bangalore ruled in her favour, allowing her to pay zero income tax on the Rs 17.26-crore land transaction.

How did this case start?

According to the order of ITAT Bangalore dated August 18, 2025, here’s a timeline of events:

1995: Husband gets land in North Bengaluru (Navrathana Agrahara) as part of his family partition.

2009: He gifts the land to his wife and executes a gift deed.

2011: Wife sells the land for Rs 17.26 crore (17,26,87,500). Her share of the sale consideration was 48.43% amounting to Rs 8.36 crore (8,36,25,000).

2012: She filed her income tax return (ITR) declaring a total income of Rs 33.71 lakh.

2013: She filed a revised ITR declaring her total income as Rs 39.7 lakh.

March 2025: Her ITR was selected for scrutiny and assessment under Section 143(3) was made which fixed her total income as Rs 8.83 crore (8,83,93,880).

August 2025: She wins case in ITAT Bangalore and thus is not required to pay any income tax on her Rs 8.36 crore capital gains.

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Why did ITAT Bangalore rule that she does not need to pay income tax on this Rs 17-crore land sale

The ruling was delivered by a Bench of Bangalore ITAT comprising Prashant Maharishi, Vice President and Soundararajan K, Judicial Member. The ITAT Bangalore (ITA No.49/Bang/2023) said:

Section 64(1)(iv)

• We have considered rival contentions and perused the Orders of the lower authorities. The facts stated herein above are not required to be reiterated. The only issue is applicability of provisions of section 64(1)(iv) of the Act.
• Accordingly, to that section while computing the total income of an individual, it shall also include income that arises to the spouse of such individual from whom assets were transferred directly or indirectly by that individual otherwise for adequate consideration.
• Thus, if any income arises to the spouse of an individual from a property transferred directly or indirectly, such income may be earned by that spouse but shall be chargeable to tax in the hands of the person who transferred the asset to the spouse. The only restriction is provisions of section 27(i)(1).

Object of Section 64(1)(iv)

• The object of the above provision is designed to overtake and circumvent a tendency on the part of the tax payers, an attempt to avoid tax by transfer of the property to the spouse and show income thereof in the hands of the spouse though it substantially belongs to the transferor.
• For application of Section 64(1)(iv), there has to be an existence of asset, the relationship between the transferor and transferee subsists, transfer may be direct or indirect by the spouse, absence of adequate consideration and direct or indirect income accrual to the transferee happens then provisions of Section are attracted. The only exception is that the transfer is for adequate consideration.

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ITAT Bangalore thus said: “In this case, before us, there is a gift from husband to wife and there is no consideration naturally. The gift deed is in writing and registered. It is always a question that when a gift is made by the husband to the wife, there is always a good consideration being love and affection which may be assumed. However, the expression “adequate consideration” is distinguishable from good consideration and both are not the same.”

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Itesh Dodhi, Director, Nangia &Co LLP, says: “The ITAT Bangalore has clarified that the tax incidence remains with the transferor spouse, and such transfers cannot be used as a device to shift tax liability to the spouse to benefit from lower slab rates. It is a pointed reminder that the taxpayers seek professional advice before structuring such transfers.”

Supreme Court judgements applied in this case:

• Tulsidas Kilachand v. CIT (1961) 42 ITR 1 (SC) (TS-5001-SC1961-O)
• Major V.P. Singh v. State of U.P., 1991 Supp (2) SCC 346 : (1993) 199 ITR 188 : 1991 SCC OnLine SC 28
• Sonia Bhatia v. State of U.P., (1981) 2 SCC 585 : 1981 SCC OnLine SC 163

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ITAT Bangalore final judgement: No income tax for wife for this land deal

ITAT Bangalore said:

• In the case before us, apparently there is a gift from husband to the assessee without consideration and the same property is sold which has resulted in capital gain and such capital gain is chargeable to tax only in the hands of the husband.
• The word “income” includes capital gain which is also held so by Hon’ble Supreme Court in the case of Sevantilal Maneklal Sheth v CIT (TS-5072-SC1967-O) and also supported by the Circular No.12/2/62 dated 20.11.1963.
• Therefore, the income of capital gain on sale of the above impugned property is not chargeable to tax in the hands of the assessee (wife) but only in the hands of her husband.

Judgement: “In view of the above facts, we hold that income from transfer of the assets which is received by the assessee as a gift from her husband is chargeable to tax in the hands of the husband of the assessee and not the assessee and therefore ground No.7 of the appeal succeeds.”

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Dodhi also highlights the importance of raising claims at the stage of filing the ITR itself.

He says: “In the instant case, the claim was raised at a subsequent stage, which met with the Revenue’s argument that claims not made in tax returns cannot be raised later. Though the ITAT allowed the taxpayer’s claim, this reinforces the need for proper professional advice while filing the ITR.”

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What does Section 64(1)(iv) states?

Amit Gupta, Partner, Saraf and Partners explains:

• The provisions of Section 64 of the Income tax Act, 1961(‘ITA’), are Clubbing provisions. These are anti-abuse provisions which seek to curb the mischief wherein assessee’s seek to divest themselves of title to their assets in favour of their family members(viz. spouse, minor child) for nil/inadequate consideration in order to avoid payment of taxes on incomes emanating from such assets.
• The provisions of Section 64(1)(iv) deems for the purpose of taxation, that income from asset transferred by the transferor assessee for inadequate consideration to their spouse to be forming part of the income of the transferor assessee, even though such income realised from the transferred asset is, in fact, the income of the transferee. The pre-requisites for the applicability of the provisions are individual assessee, subsisting marital relationship, proximate connection between the transfer of assets and the income, transfer for inadequate consideration barring case of agreement to live apart.

Situations in which income from a gift transferred between husband to wife or wife to husband will not become taxable in the hands of the gift donor

S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan Attorneys, says:

• Under the Income-tax Act, 1961, any income from transfer of assets by an individual to his/her spouse without adequate consideration (which includes gifts) is clubbed and taxed in the hands of the transferor.
• The only exception being where such assets are transferred to spouse for adequate consideration or in connection with an agreement to live apart.
• The same concept though not applicable on transfer of assets by parents to their children but will be applicable on transfers made to daughter-in-laws without adequate consideration.

Vasudevan says: “Receipt of properties like land or building from relatives is not taxable in the hands of the recipient. Accordingly, receipt of property by way of gift from mother/father will not be taxable in the hands of son/daughter/son-in-law/daughter-in-law. But the recipient of a gift will be liable to pay tax when he/she sells the property or receives any income from such property. The only exception being where property is gifted to the daughter-in-law, in which case the income from such property will be clubbed in the hands of the donor/transferor.”

How was Section 64(1)(iv) used in this judgement?

Chartered Accountant (Dr.) Suresh Surana explains:

• Section 64(1)(iv) of the Income-tax Act, 1961 mandates that where an individual transfers an asset to his or her spouse, otherwise than for adequate consideration, the income arising from such asset shall be included in the total income of the transferor spouse. The provision is in mandatory terms using the expression “there shall be included”, leaving no discretion either to the assessee or to the Revenue in its application.

• In the given case, the assessee had received agricultural land from her husband through a registered gift deed, i.e., without any adequate consideration. The subsequent sale of the said property resulted in capital gains. The Tribunal, relying on the principles laid down by the Hon’ble Supreme Court in Tulsidas Kilachand v. CIT (1961) 42 ITR 1 (SC), Nagappa C.R. v. CIT and Muthaiah Chettiar v. CIT, clarified that “adequate consideration” is different from “good consideration” such as love and affection. Since the transfer was purely gratuitous, the condition of inadequate consideration was satisfied, thereby attracting the clubbing provisions of Section 64(1)(iv).

• Accordingly, the Bangalore ITAT held that the capital gains are taxable not in the hands of the assessee-wife, but in the hands of her husband i.e. the transferor of the asset. The Tribunal further observed that the argument of the Revenue that this plea was an “afterthought and was never raised before the lower authorities, thus the Assessee be prevented from raising this argument before the Tribunal for the first time” was irrelevant, since the statutory mandate under Section 64(1)(iv) cannot be waived or ignored by either the assessee or the Assessing Officer.

Surana says: "Thus, it was held that Section 64(1)(iv) is applicable to the facts of the case, and accordingly the capital gains were held to be taxable in the hands of the husband, not the assessee-wife."

What is the significance of this judgement for taxpayers?

ET Wealth Online reached out to various experts to understand the significance of this judgement for taxpayers, here’s what they said:

Chartered Accountant Prakash Hegde, says: “The Order of the Bangalore ITAT is based on the provisions of section 64 of the Income Tax Act.”

• “This section states that income from an asset transferred by an individual to his/her spouse ‘without adequate consideration’ or ‘under an agreement to live apart’ will continue to be taxable in his/her hands i.e. the hands of the transferor.”
• “This provision is a Specific Anti-Avoidance Rule to prevent shifting of income between the spouses that might cause loss to the Government by reduction in the overall tax liability of the spouses.”
• “In usual situations, this rule helps the tax authorities to collect higher income tax. But in this peculiar case, the tax authorities tried to collect tax on capital gain from the wife to whom her husband had transferred the property by way of gift (i.e. without consideration).”
• “Therefore, applying the provisions of this Section, the ITAT held that the capital gain is not taxable in her hands! A weapon in the armoury of the tax authorities was used by the taxpayer to her benefit against the owner of the armoury.”

Mihir Tanna, associate director, S.K Patodia LLP, says: “As per income tax provision, husband-wife can give any amount to each other as gift, but if the gift receiver invests the said amount, income arising from said investment will always be taxable in the hands of the gift giver. Accordingly, even TDS deducted on above said income (in the PAN of gift receiver), same is required to be claimed by gift giver as per rule 37BA.”

• “In the given case, Hon'ble Bangalore ITAT has accepted the argument that clubbing provisions are mandatory and even if the same is not applied while filing income tax return, said clubbing provision should be applied during proceedings.”
• “We usually advise clients that investment should be from their own source or from a gift received from any other relative but should not be from a spouse or father/mother in law. In case gift is given to spouse, daughter in law and minor, clubbing provision will apply.”

Amit Gupta, Partner, Saraf and Partners, says: The ITAT Bangalore, by way of the said ruling, has emphasised on the mandatory nature of Section 64(1)(iv) of the ITA and stated that the neither the assessee nor the Revenue have any option to charge the transferor on such income resulting from asset gifted by the transferor to his spouse.

It also brings out that an essential aspect that whilst the underlying transaction of transfer underlying asset as a gift(for nil consideration) from a relative (spouse) by the assessee (wife) is tax neutral from a capital gains perspective and also such receipt is also carved out from the applicability of the anti-abuse provisions of Section 56(2)(x) of the ITA, the future incomes therefrom can very well attract the rigors of anti-avoidance provision of Section 64(1)(iv) based on the underlying ethos of the provisions and the compulsory nature of the provision as averred by the Hon’ble Bangalore Tribunal.