CROSS GIFTS? Kindly Clarify...

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This query is : Resolved

May God Bless You (Querist)

12 May 2010 Hi,

What do you mean by " CROSS GIFT TO WIFE " ?

Is that the gift given by " HUSBAND TO WIFE" and then " WIFE TO HUSBAND "

Is the below treated as " CROSS GIFT " ? WHAT WILL HAPPEN IN THE BELOW SITUATION? PLS CLARIFY.

Husband gives wife a gift of say Rs.5 Lacs. And after 2 or 3 months, wife gives a gift of Rs.3 Lacs to husband. In this case of above where both husband and wife exchange gifts of different value, how clubbing of income is done?

I am thinking that gifts of equal value can be exchanged between husband and wife as their own asset without clubbing provision.

In the above case, Net gift amount given by husband to wife is Rs. 2 Lacs (that is 5 Lacs minus 3 Lacs). Husband will club the income earned by wife on the net gifted of Rs.2 Lacs. And wife and husband each will show the income earned on Rs.3 Lacs by each as their own income because gifts of equal value can be shown as their own capital asset. Income on Rs.3 Lacs will not be clubbed and shown as their own income. And income earned by wife on net gifted amount (Rs.2 Lacs) will be clubbed in husband hands.

Kindly Clarify.

Aditya Maheshwari

Aditya Maheshwari (Expert)

12 May 2010 Cross-transfers are also covered - A chain of transfers, if not comprehended by the word ‘indirectly’ would easily defeat the object of the law which is to tax income of the wife arising out of assets transferred to her by her husband. It is not necessary that there should be consideration in the technical sense. If two transfers are inter-connected and are part of the same transaction in such a way that it can be said that the circuitous method has been adopted as a device to evade implications of section 64, the case will fall within that section - CIT v. C.M. Kothari [1963] 49 ITR 107 (SC).

What is material is not the unreality of the cross-transactions, nor whether the appearance of reality is attempted to be maintained, but whether the transfers are part of the same transaction attempted with a view to evade the implications of section 64 - CIT v. Keshavji Morarji [1967] 66 ITR 142 (SC).

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