NRI HUSBAND GIFTS NRI WIFE BY WAY OF CASH.PLEASE HELP!!

 Dear Hareesh,

Pl. see the attached decision of Mumbai ITAT on similar issue which is self explanatory.

Good Order, Mr.CA. Aravind, but where is the similar issue??

This case is clear case where the provisions of clubbing is applicable, but the case deals with whether the clubbing is applicable to non-resident persons?. And, in this case, the wife has invested the money in India, that fact has not been deliberated.

That is, both sides have agreed that the amount is to be clubbed if the assessee are Residents. But the Dept argued that it shall also apply to NR, whereas the Assessee argued it is not so, finally, the ITAT agreed with the Dept. An excellent case, but not identical to the case on hand

Thanks, for sharing this case.

Shiva

Dear Friends,

Priliminery I would like to thank u all to carrying on such an interesting discussion.

Further, I think Sir CA Arvinda's contentions are proper. My thinking is based on reading section 64(1) starting lines "In computing the total income of any individual, there shall be included all such income as arises directly or indirectly"

Also to be more simple, In the attached case law provided by CA Arvinda Sir, you may say that the instance of gift of money or Cash is an assets, his wife and child transfer this amount to Indian in any of the Bank account is also asset and further wherever they have invested is also different asset.

Considering above, It is clear that Income arising directly or indirectly out of assets transfered directly/indirectly without adequate consideration [u/s.64(1)(iv)] shall be clubbed in the hands transferor being spouse.

Do let me know what ur take on this?

Thanks and Regards

Juzer

It will be clubbed, ideally cash is converted into the house property and income is earned from that,so basically it is a form of indirect transfer of an asset.

Tthere's a special case where income is not clubbed - Suppose , the person gifts cash to his spouse, and subsequently the spouse invests in a bank account and from the interest earned from this bank account (which will be clubbed), she buys a house, the rental from the aforementioned house will NOT be clubbed. In the case we are talking about, say a house is purchased from cash transfered, the income will be clubbed for sure.

@ Hareesh : The point you are mentioning is valid however -- interest earned (which would have been clubbed as per section 64), which is reinvested in an another asset, the income from that asset will NOT be clubbed. This provision is known as the 'income from accretion of property/asset transfered or income from accumulated income of asset transfered' .  Income earned from Accumulated income from an asset transfered is not clubbed.

Hence, income from house property will be clubbed in the hands of the spouse , since the property is in India, it is Indian income, Section 5 always overrides Section 64, thus it will be Indian income in the hands of the husband (irrespective if he is resident or non resident as per section 9 ) and will be taxable as clubbed house property income.