Capital or revenue receipt

Where, under a decree, the assessee received, from her ex-husband, a lump sum together with a monthly alimony, it was held, that while the monthly alimony would be a taxable, the lump sum would be a capital receipt being in lieu of a capital asset viz. a right to get maintenance from her husband.

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 :
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"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.
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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).
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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.
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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."