Another Women-Friendly Ruling from ITAT (Jaipur): No Penalty on Wife for receiving Money from Husband for Purchase of Family Property

In a welcoming ruling favoring women in the country, the Income Tax Appellate Tribunal (ITAT), Jaipur on 21st Oct 2021, has held that penalty under section 271D of the Income Tax Act, 1961 cannot levied on wife for receiving money from her husband for purchase of family property. 

The Tribunal bench comprising Judicial Member Sandeep Gosain and Accountant Member Vikram Singh Yadav was considering an appeal filed by an individual assessee Smt Meeradevi Kumavat, against the penalty order passed by the income tax authorities which was later confirmed by the first appellate authority.

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

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 Section in question -

Section 271D of the Income Tax Act lays down the penalty to be imposed on a taxpayer for accepting or taking any loans, deposits or other specified amounts in contravention of Section 269SS

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 - ITAT said  

“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.

Deleting the penalty order, the Tribunal held that -

“we find the explanation so furnished as reasonable and plausible and donot find any malafide in the explanation so submitted as everything is flowing from the registered sale deed where transactions have been duly documented including the payment through demand draft and cash which is from the known sources of funds contributed by the assessee’s husband. Further, the assessee has explained the payment of construction expenses which are also required to be incurred in cash towards the purchase of construction material and payment to labourers. We therefore find that the assessee has offered reasonable explanation justifying the cash transactions and thus, in the entirety of facts and circumstances of the case and considering various decisions cited at the Bar which also support the case of the assessee especially the decision of the Coordinate Bench in case of Tuhinara Begum where there was a reverse situation where the wife gave money to husband for construction of house which was held not exigible for levy of penaty u/s 271D, we are of the considered view that the assessee doesn’t deserve to be punished by way of levy of penalty u/s 271D for receiving money from her husband for purchase of family property and hence, the same is directed to be deleted.”