I-T told to adjust tax paid by wife with demand on husband

Mumbai, July 23, 2023

The Income-tax Appellate Tribunal’s (ITAT) Mumbai bench recently dealt with a case where the long-term capital gains earned by a non-resident Indian on sale of property were mistakenly disclosed in the tax return of his wife, also a non-resident. In turn, she had duly paid taxes against such capital gains.

The income-tax (I-T) official sought to add Rs 1.2 crore (the undisclosed long-term capital gains) to the income of the husband and raise a tax demand, but the ITAT took a more practical view.

The ITAT bench noted it is a peculiar case where income has been declared and tax paid, but by the wrong person. It said the same income cannot be taxed twice.

It directed the wife should get a refund (for the taxes on long-term capital gains paid by her) and this refund should be adjusted against the demand raised in the husband’s case. “The method by which it (this adjustment) has to be carried out is left to the tax authorities without there being any burden on the taxpayer,” said its order.

Shrikant Shah, who had appealed to ITAT, had sold two immovable properties during the financial year 2012-13. He had offered capital gains tax for one transaction, but seemingly did not for the other. What happened was that the tax consultant by mistake declared the capital gains income in the hands of Shah’s wife. In the course of the appeal, Shah said there was no loss of revenue since the tax had already been paid by his wife.

Both fell in the same tax bracket. Moreover, the rate of tax on long-term capital gains is a flat rate and the tax figure would work out to be the same even in Shah’s hand. The time limit for revising his wife’s tax return had lapsed by the time the reassessment was initiated by the international tax ward. As the due taxes were already paid, ITAT emphasised that the intention of the legislature is not to impose tax on the same transaction twice.

[The Times of India]