According to dictionary meaning Pin money is defined as “a small sum of money for spending on essentials.”
Now it is a common practice in the Indian household that the husband, which is the earning member of the family, gives cash to the wife to spend for daily house holds expenses and the wife, because of the nature to save money, saves the money, sometimes without the knowledge of the husband.
Now as per Section 64 of the income tax act, which states that in commuting the income of an individual, the income of the spouse shall be clubbed with the income of the individual if any of the clauses of said section is fulfilled.
Further section 2(42) defines the word income as per the income tax act. On interpretation of the word income, its safe to conclude that it is an inclusive definition not exhaustive. Income includes not only those things that the clause declares but also such things that the word signifies according to nature of import (Raghuvanshi Vs CIT), meaning that anything which can be properly declared as income is taxable under this act, unless its exempt under any other provision of the act. Also only revenue receipts are taxable not capital receipts, on capital receipts, capital gain is payable.
Hence savings of the wife is also taxable as per this definition and liable to be clubbed into the income of his husband as per Section 64.
The court also observed the similar facts in R. B. N. J. Naidu vs Commissioner Of Income-Tax (ITAT Nagpur). In this case the assessee deposited INR 8500, which was amount, saved by the wife from the Pin money given by her husband for household expenses into his wife’s bank account the AO rejected the explanation offered by the assessee that it was money saved by the wife over the period of 5 years
The courts held that since the Department had no material or information to rebut the reason of assessee in such circumstance since the source of the income was established and the money was not liable to be treated as the husbands income merely for the reason that he satisfactorily could not explain how his wife made the savings and why she did not deposit in the bank.
Further the court also held that the amount of savings is in the form of revenue receipts hence shall be taxable in the hands to wife.
So as per the above landmark judgment by the apex court currently, the assessee can deposit amount INR 2.5 lacs (income not chargeable to tax) into the account of his wife and show it as pin money and not pay tax or he can deposit more amount and pay tax.
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