A cash loan from the husband to buy a property will not be taxed

If a woman has borrowed money from her husband to buy property, it will not incur a tax penalty, the Income Tax Appeal Tribunal (ITAT) has ruled. This is the court’s second female-friendly ruling, the first being the precedent set by ITAT, Agra, that cash deposits of up to 2.5 lakh made by housewives during demonetization would not attract no tax.

The case in question

The purchase of property by women is seen as a progressive and empowering measure that the government is also promoting by lowering the stamp duty. The latest ruling comes in a case before ITAT, Jaipur, in which appraiser Meera Devi Kumavat took out a 9 lakh loan from her husband Babu Lal to purchase land. She argued that the money, ₹ 6 lakh in sight draft and the rest in cash, which was in her custody could not be treated as a loan. She also argued that husband and wife’s money cannot be separated and treated as a loan because it is in shared custody. In the case of husband and wife, said the appraised, repayment is not obligatory and there is no interest charge, so it is not justifiable to impose a penalty.

However, the IT department raised a claim for ₹ 3 lakh, imposing a penalty under Section 271D of the Income Tax Act, which is the penalty clause for violation of Section 269SS regarding the mode acceptance of certain loans or deposits.

“No one shall take or accept from any other person, a loan or deposit or a specified sum, other than by a check from the beneficiary of the account or a bank draft from the beneficiary of the account or the use of an electronic clearing system through a bank account or through some other electronic mode, “the law says. As ₹ 3 lakh was in cash, the penalty was increased.

The appraise’s plea was dismissed at the first level of appeal to the Income Tax Commissioner (appeal). After multiple hearings, the judiciary noted that the money loaned to the appraised had been used to purchase land that was registered in her name.

No malicious intent

“We find that such a practice of registering property in the name of the wife is guided by various family and societal factors in addition to the encouragement of the government for such transactions entered into by female family members through ‘reduced stamp duty,’ said the bench, stressing that there was no malicious intent, as the sales process was duly documented and mentioned payment in combination of sight draft and cash.

“We therefore find that the assessor has provided a reasonable explanation justifying the cash transactions,” said the judiciary, ruling that it did not need to be penalized.

Dorothy H. Lewis