Lum sum receipts from divorce
This query is : Resolved
03 December 2014
is receipts from divorse taxable. if not under which section it is excluded. please be accurate.
03 December 2014
Monthly payments of Alimony should be taxable where as lump sum may be treated as capital receipt.
In a landmark decision on this issue in the case of Princess Maheshwari Devi of Pratapgarh v. CIT, (1984) 147 ITR 258 (Bom.), the Bombay High Court observed that :
"The decree is the source of the payment of alimony. It cannot be said that the decree is a mere recognition or continuation of an earlier obligation. If the decree were set aside, the assessee could not claim the monthly alimony from her ex- husband. If the ex-husband failed to pay the amount, it is the decree which the assessee would have to execute. It is clear that the decree is the definite source of these receipts. The amount is what the assessee periodically and regularly gets and entitled to get under this decree. This amount must, therefore, be looked upon as a return from the said decree which is the definite source thereof.
The word ‘return’, in a case like this, can never be interpreted as meaning only a return for labour or skill employed or capital invested. Such a definition of ‘return’ would be too narrow and would exclude the case of voluntary payments, when it is settled position in law that in some cases even voluntary payments can be regarded as income. Although it is true that it could never be said that the assessee entered into the marriage with any view to get alimony, on the other hand, it cannot be denied that the assessee consciously obtained the decree and obtaining the decree did involve some efforts on the part of the assessee. The monthly alimony being a regular and periodical return from a definite source, being the decree, must be held to be ‘income’ within the meaning of S. 2(24).
The monthly payments of alimony have their origin in a definite source, viz., they are regular in nature and the said decree was obtained by some efforts on the part of the assessee. Hence these payments can never be regarded as a series of windfall or casual payments.
So far as a lump sum payment is concerned , the decree must be regarded as a transaction in which the right of the assessee to get maintenance from her ex-husband was recognised and given effect to. That right was undoubtedly a capital asset. By the decree, that right has been diminished or partly extinguished by the payments of the lump sum alimony, and the balance of that right has been worked out in the shape of monthly payments of alimony, which could be regarded as income. Had the amount not been awarded in a lump sum under the decree of the assessee, a larger monthly sum would have been awarded to her on account of alimony. It is not as if the payment can be looked upon as a commutation of any future monthly or annual payments, because there was no pre-existing right in the assessee to obtain any monthly payments at all. Nor is there anything in the decree to indicate that the lump sum alimony was paid in commutation of any right to any periodic payments. In these circumstances, the receipt of that amount must be looked upon as a capital receipt."
In a landmark decision on this issue in the case of Princess Maheshwari Devi of Pratapgarh v. CIT, (1984) 147 ITR 258 (Bom.), the Bombay High Court observed that :
"The decree is the source of the payment of alimony. It cannot be said that the decree is a mere recognition or continuation of an earlier obligation. If the decree were set aside, the assessee could not claim the monthly alimony from her ex- husband. If the ex-husband failed to pay the amount, it is the decree which the assessee would have to execute. It is clear that the decree is the definite source of these receipts. The amount is what the assessee periodically and regularly gets and entitled to get under this decree. This amount must, therefore, be looked upon as a return from the said decree which is the definite source thereof.
The word ‘return’, in a case like this, can never be interpreted as meaning only a return for labour or skill employed or capital invested. Such a definition of ‘return’ would be too narrow and would exclude the case of voluntary payments, when it is settled position in law that in some cases even voluntary payments can be regarded as income. Although it is true that it could never be said that the assessee entered into the marriage with any view to get alimony, on the other hand, it cannot be denied that the assessee consciously obtained the decree and obtaining the decree did involve some efforts on the part of the assessee. The monthly alimony being a regular and periodical return from a definite source, being the decree, must be held to be ‘income’ within the meaning of S. 2(24).
The monthly payments of alimony have their origin in a definite source, viz., they are regular in nature and the said decree was obtained by some efforts on the part of the assessee. Hence these payments can never be regarded as a series of windfall or casual payments.
So far as a lump sum payment is concerned , the decree must be regarded as a transaction in which the right of the assessee to get maintenance from her ex-husband was recognised and given effect to. That right was undoubtedly a capital asset. By the decree, that right has been diminished or partly extinguished by the payments of the lump sum alimony, and the balance of that right has been worked out in the shape of monthly payments of alimony, which could be regarded as income. Had the amount not been awarded in a lump sum under the decree of the assessee, a larger monthly sum would have been awarded to her on account of alimony. It is not as if the payment can be looked upon as a commutation of any future monthly or annual payments, because there was no pre-existing right in the assessee to obtain any monthly payments at all. Nor is there anything in the decree to indicate that the lump sum alimony was paid in commutation of any right to any periodic payments. In these circumstances, the receipt of that amount must be looked upon as a capital receipt."
03 December 2014
The word ‘Income’ is defined in S. 2(24) of the Income-tax Act. This definition does not specifically cover ‘Alimony’. But at the same time this definition is an inclusive definition and hence whatever can fall under natural meaning of the word ‘Income’ is covered under this definition.
Now to look at the natural meaning of the word ‘Income’, we must consider the following factors.
We first have to decide whether the receipt is a capital receipt or it is a revenue receipt. Capital receipts are not taxable unless otherwise specifically taxed by the law and all revenue receipts are taxable unless otherwise exempted by the law.
Refer following case laws:
1) Bombay High Court in Princess Maheshwari Devi of Pratapgarh v. Commissioner of Income-tax 147 ITR 258 (Bom)
2) INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’: NEW DELHI) - ACIT Vs. Meenakshi Khanna
Now to look at the natural meaning of the word ‘Income’, we must consider the following factors.
We first have to decide whether the receipt is a capital receipt or it is a revenue receipt. Capital receipts are not taxable unless otherwise specifically taxed by the law and all revenue receipts are taxable unless otherwise exempted by the law.
Refer following case laws:
1) Bombay High Court in Princess Maheshwari Devi of Pratapgarh v. Commissioner of Income-tax 147 ITR 258 (Bom)
2) INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’: NEW DELHI) - ACIT Vs. Meenakshi Khanna
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