2014 (1) TMI 848 - AT - Income Tax

Tribunal Decision: Capital Receipt Exempt from Tax under Section 56(2)(vi)

The Tribunal upheld the decision to delete the addition under section 56(2)(vi) as the amount received was considered to have sufficient consideration and ... Deletion made u/s 56(2)(vi) of the Act – Scope of Section 56(2)(vi) of the Act - Amount received was having consideration or not – Held that:- The divorce agreement was though entered in 1989-90 and monthly payments were promised to be paid to the assessee by husband – but he did not pay the same – the amount was paid by way of alimony only because they were husband and wife and appellant was spouse of the person who has paid the amount and, therefore, payment received from spouse did fall within the definition of relative - the amount was received against consideration of relinquishing her personal right of claiming monthly payments as provided under the divorce agreement. The assessee was to receive monthly alimony which was to be taxable in the each year from conclusion of divorce agreement but in this case monthly payments were not received and, therefore, were not offered tax - The receipt by the assessee represents accumulated monthly installments of alimony which has been received by the assessee as a consideration for relinquishing all her past and future claims - there was sufficient consideration in getting this amount - thus, section 56(2) (vi) is not applicable – the amount was a capital receipt not liable to tax – Decided against Revenue. Issues:1. Justification for deleting addition under section 56(2)(vi) made by Assessing Officer.2. Applicability of section 56(2)(vi) in the case.3. Determination of whether the amount received falls within exceptions to charging of tax.Analysis:1. The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs.39,98,408 made under section 56(2)(vi) for the assessment year 2008-09. The Assessing Officer observed a credit entry in the bank statement of the assessee and questioned the nature of the amount received. The assessee explained that the amount was received as alimony from her ex-husband. The Assessing Officer held that the amount was taxable under section 56(2)(vi) as the assessee did not fall under the definition of relative as provided in the exceptions to the section.2. The CIT (A) deleted the addition after considering the definition of consideration under the Indian Contract Act and various legal precedents. The CIT (A) determined that the amount received was not without consideration as it was in exchange for relinquishing the right to claim monthly maintenance. The CIT (A) also analyzed the definition of 'spouse' and concluded that the amount received from the ex-husband fell within the exception clause of relative, thereby making section 56(2)(vi) inapplicable.3. The Revenue appealed the decision, arguing that the payments were not mentioned as lump-sum in the divorce agreement and that the amount received did not fit the definition of relative as per the explanation to section 56(2)(vi). The AR countered by stating that the amount was part of a settlement agreement after the divorce, containing consideration for relinquishing the right to live with the husband. The Tribunal found that the lump-sum payment was made to settle all claims against the husband, including past non-payments, and held that there was sufficient consideration for the amount received. The Tribunal dismissed the Revenue's appeal, concluding that the amount was a capital receipt not liable to tax.In summary, the Tribunal upheld the CIT (A)'s decision to delete the addition under section 56(2)(vi) as the amount received was deemed to have sufficient consideration and fell within the exception clause of relative, making it a capital receipt not subject to tax.