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A cash loan from husband to buy property won’t be taxed

Shishir Sinha New Delhi | Updated on October 24, 2021

Women’s purchase of asset should be seen as an empowering measure: ITAT

If a woman has borrowed money from her husband to buy a property, it will not attract a tax penalty, the Income Tax Appellate Tribunal (ITAT) has ruled. This is the second woman-friendly ruling by the tribunal, the first being the precedent set by ITAT, Agra that cash deposits up to ₹2.5 lakh made by housewives during demonetisation would not attract tax.

The case in question

Women’s purchase of property is seen as a progressive and an empowering measure which the Government also encourages by lowering of stamp duty. The latest ruling comes in a case before ITAT, Jaipur, wherein the assessee Meera Devi Kumavat took a loan of ₹9 lakh from her husband Babu Lal to buy land. She submitted that the money, ₹6 lakh in demand draft and the remaining in cash, which was in her custody could not be treated as loan. She also argued that the cash of husband and wife cannot be separated and treated as loan as it is in joint custody. In the case of husband and wife, the assessee submitted, repayment is not mandatory and there is no interest burden, so it is not justifiable to impose penalty.

However, the IT Department raised a demand of ₹3 lakh, levying penalty under section 271D of the Income Tax Act which is the penalty clause for violation of Section 269SS pertaining to the mode of accepting certain loans or deposits.

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

The assessee’s plea was rejected at the first level of appeal at the Commissioner of the Income Tax (Appeal). After multiple hearings, the bench noted the money lent to the assessee was used to buy a plot of land which was registered in her name.

No malafide intent

“We find that such a practice of registering the property in the name of the wife is guided by various family and societal factors besides encouragement of the Government for such transactions entered into by female members in the family by way of reduced stamp duty,” the bench said, emphasising that there is no malafide intent as the sale process was duly documented and mentioned payment in combination of demand draft and cash.

“We, therefore, find that the assessee has offered reasonable explanation justifying the cash transactions,” the bench said, ruling that she did not need to be penalised.

Published on October 23, 2021

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