The AO clubbed my wife's rental income with mine and denied my HRA. Is that right?
No. The Tribunal found the sources for the wife's purchase of the house were proved and never doubted, so s.64(1)(ii) had no foundation; there is no legal impediment to paying house rent to your wife, and the HRA exemption could not be denied.
Decided by the ITAT (ITAT Delhi Bench 'A' — A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member); order authored by Dr. B.R.R. Kumar) on 2022-02-08, reported as [2022] 136 taxmann.com 78 / [2022] 194 ITD 224 (Delhi)(Trib.); IT Appeal No. 3385 (Delhi) of 2019, assessment year 2013-14. It bears on section 10(13A), section 64 of the Income Tax Act 1961, in Salary & Perquisites and House Property matters.
This is the reported decision to lead with when an officer attacks a rent-to-spouse arrangement, because it deals with both limbs of the attack - the clubbing and the exemption - in one order. It also exposes the internal contradiction in the assessment: the deduction under s.24 had been allowed in computing the wife's house property income, and that income was then clubbed with the husband's. Once the transferee spouse's source of funds is established and unchallenged, there is no transfer without adequate consideration for the clubbing provision to undo.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2013-14 the assessee claimed exemption under s.10(13A) for rent of Rs. 5,34,000 paid to his wife for September 2012 to March 2013. The property, worth Rs. 1.15 crore, stood registered in the wife's name; Rs. 87.50 lakh of the price had been funded by the assessee and the balance was said to have come from the maturity of her fixed deposits of Rs. 33.25 lakh. The assessee's case was that the Rs. 87.50 lakh was a loan, part of which the wife repaid on 2 August 2013 (Rs. 7,50,000) and 19 July 2015 (Rs. 50,00,000) out of redemption of mutual funds and liquidation of fixed deposits. The assessment was completed under s.143(3) on 3 March 2016 at Rs. 66,88,240: the Assessing Officer held the wife had no independent source for the investment, allowed 30 per cent of the rent as deduction and clubbed the balance of Rs. 3,73,800 in the assessee's hands under s.64. The Commissioner (Appeals)-21, New Delhi, by order dated 21 January 2019, confirmed the addition, relying on the wife's returned income from 2001-02 to 2012-13, none of it substantial, and on the assessee being second holder in several of her investments.
The assessee's appeal was allowed in full; nothing was restored to the Assessing Officer. The Tribunal found the wife had received a loan from the assessee and repaid it from redemption of mutual funds and liquidation of fixed deposits, that there is no bar on a husband extending a loan to his wife from known sources or on her repaying it from her own assets, that the rent was declared by her under 'income from house property' in returns the revenue had accepted, and that the sources for the purchase of the house in her hands were proved and had never been doubted. The Commissioner (Appeals)'s contention that a husband cannot pay rent to his wife was held to be devoid of any legal implication supporting it. The clubbing addition of Rs. 3,73,800 accordingly went (para 8).
The order is short and turns on the factual premise of the clubbing rather than on any construction of s.10(13A). At para 8 the Bench records that the wife's returned income was low but that she had received a loan from the assessee and repaid it out of redemption of mutual funds and liquidation of fixed deposits; that there is no bar on the assessee extending a loan to his wife from his known sources of income, and none on her repaying it from her own mutual funds and fixed deposits; that the rent paid was declared by the wife under the head 'income from house property' in returns accepted by the revenue; and that the house stood registered in her name. On that footing the Commissioner (Appeals)'s reasoning that the assessee had meagre income and so could not afford to buy a house was rejected, because the sources for the purchase in the wife's hands were proved and had never been doubted. The further premise that a husband cannot as a matter of law pay rent to his wife was rejected as unsupported by anything in law. The order cites no authority at all and contains no discussion of the conditions in s.10(13A) or of any sub-clause of s.64; the account previously given here of the exemption's requirements being satisfied and of the s.24 computation standing in the wife's hands is not in the order and has been removed.
The ld. CIT(A)'s contention that the husband cannot pay rent to the wife is devoid of any legal implication supporting any such contention.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal found the sources for the wife's purchase of the house were proved and never doubted, so s.64(1)(ii) had no foundation; there is no legal impediment to paying house rent to your wife, and the HRA exemption could not be denied. This was decided by the ITAT (ITAT Delhi Bench 'A' — A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member); order authored by Dr. B.R.R. Kumar) and bears on section 10(13A), section 64 of the Income Tax Act 1961. It is reported as [2022] 136 taxmann.com 78 / [2022] 194 ITD 224 (Delhi)(Trib.); IT Appeal No. 3385 (Delhi) of 2019, assessment year 2013-14. This is the reported decision to lead with when an officer attacks a rent-to-spouse arrangement, because it deals with both limbs of the attack - the clubbing and the exemption - in one order. It also exposes the internal contradiction in the assessment: the deduction under s.24 had been allowed in computing the wife's house property income, and that income was then clubbed with the husband's. Once the transferee spouse's source of funds is established and unchallenged, there is no transfer without adequate consideration for the clubbing provision to undo. If it applies to you, the first step is this: Trace and document the wife's funding of the purchase - her own sources and the bank loan - because the clubbing collapses once the source is established and unchallenged.
For assessment year 2013-14 the assessee claimed exemption under s.10(13A) for rent of Rs. 5,34,000 paid to his wife for September 2012 to March 2013. The property, worth Rs. 1.15 crore, stood registered in the wife's name; Rs. 87.50 lakh of the price had been funded by the assessee and the balance was said to have come from the maturity of her fixed deposits of Rs. 33.25 lakh. The assessee's case was that the Rs. 87.50 lakh was a loan, part of which the wife repaid on 2 August 2013 (Rs. 7,50,000) and 19 July 2015 (Rs. 50,00,000) out of redemption of mutual funds and liquidation of fixed deposits. The assessment was completed under s.143(3) on 3 March 2016 at Rs. 66,88,240: the Assessing Officer held the wife had no independent source for the investment, allowed 30 per cent of the rent as deduction and clubbed the balance of Rs. 3,73,800 in the assessee's hands under s.64. The Commissioner (Appeals)-21, New Delhi, by order dated 21 January 2019, confirmed the addition, relying on the wife's returned income from 2001-02 to 2012-13, none of it substantial, and on the assessee being second holder in several of her investments. The matter was decided on 2022-02-08 by the ITAT (ITAT Delhi Bench 'A' — A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member); order authored by Dr. B.R.R. Kumar). On those facts the ITAT held as follows. The assessee's appeal was allowed in full; nothing was restored to the Assessing Officer. The Tribunal found the wife had received a loan from the assessee and repaid it from redemption of mutual funds and liquidation of fixed deposits, that there is no bar on a husband extending a loan to his wife from known sources or on her repaying it from her own assets, that the rent was declared by her under 'income from house property' in returns the revenue had accepted, and that the sources for the purchase of the house in her hands were proved and had never been doubted. The Commissioner (Appeals)'s contention that a husband cannot pay rent to his wife was held to be devoid of any legal implication supporting it. The clubbing addition of Rs. 3,73,800 accordingly went (para 8).
The order is short and turns on the factual premise of the clubbing rather than on any construction of s.10(13A). At para 8 the Bench records that the wife's returned income was low but that she had received a loan from the assessee and repaid it out of redemption of mutual funds and liquidation of fixed deposits; that there is no bar on the assessee extending a loan to his wife from his known sources of income, and none on her repaying it from her own mutual funds and fixed deposits; that the rent paid was declared by the wife under the head 'income from house property' in returns accepted by the revenue; and that the house stood registered in her name. On that footing the Commissioner (Appeals)'s reasoning that the assessee had meagre income and so could not afford to buy a house was rejected, because the sources for the purchase in the wife's hands were proved and had never been doubted. The further premise that a husband cannot as a matter of law pay rent to his wife was rejected as unsupported by anything in law. The order cites no authority at all and contains no discussion of the conditions in s.10(13A) or of any sub-clause of s.64; the account previously given here of the exemption's requirements being satisfied and of the s.24 computation standing in the wife's hands is not in the order and has been removed. In the words reproduced by the source cited on this page: "The ld. CIT(A)'s contention that the husband cannot pay rent to the wife is devoid of any legal implication supporting any such contention."
It was decided by the ITAT on 2022-02-08 and is reported as [2022] 136 taxmann.com 78 / [2022] 194 ITD 224 (Delhi)(Trib.); IT Appeal No. 3385 (Delhi) of 2019, assessment year 2013-14. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(13A), section 64, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The assessee's appeal was allowed in full; nothing was restored to the Assessing Officer. The Tribunal found the wife had received a loan from the assessee and repaid it from redemption of mutual funds and liquidation of fixed deposits, that there is no bar on a husband extending a loan to his wife from known sources or on her repaying it from her own assets, that the rent was declared by her under 'income from house property' in returns the revenue had accepted, and that the sources for the purchase of the house in her hands were proved and had never been doubted. The Commissioner (Appeals)'s contention that a husband cannot pay rent to his wife was held to be devoid of any legal implication supporting it. The clubbing addition of Rs. 3,73,800 accordingly went (para 8). It arises in Salary & Perquisites and House Property matters, on section 10(13A), section 64 of the Income Tax Act 1961, and was decided by ITAT Delhi Bench 'A' — A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member); order authored by Dr. B.R.R. Kumar. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the officer has allowed the s.24 computation in her hands, put that inconsistency in writing before he clubs the same income with yours. Do not accept a bare assertion that a husband cannot in law pay rent to his wife; the Tribunal held there is no such bar.
Validity check could not be completed. The order has been read in full: [2022] 136 taxmann.com 78/194 ITD 224 (Delhi - Trib.), IT Appeal No. 3385 (Delhi) of 2019, assessment year 2013-14, decided 8 February 2022 by A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member), the assessee's appeal allowed. It carries no citator banner and no case review, and nothing later applying, following or affirming it was traced. The claim previously made here that it was 'positively confirmed as applied' rested on a commentary survey recording that the Delhi Bench in Aman Kumar Jain v. DCIT (ITA 267/Del/2023) relied on it; an author saying so in a survey is not a court applying it, and that order could not itself be found in a full-text database. No appeal or special leave petition was traced. The order cites no authority whatever, so it rests entirely on its own facts and on the absence of any statutory bar. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order has been read in full. It is dated 8 February 2022, not 8 August 2022 as previously recorded here — which removes the apparent conflict with the BCAJ April 2022 note, since a February order can be written up in an April issue. The Members are A.D. Jain (Vice President) and Dr. B.R.R. Kumar (Accountant Member), Delhi Bench 'A', and the order was authored by Dr. Kumar. Two things a reader should know. The order names the wife inconsistently — Smt. Shivani Mittal at paras 3 to 5 and Smt. Shivani Bansal at para 8, where the operative findings are made. And it cites no authority at all and has no case review, so para 8 stands on its own facts and on the absence of any statutory bar; it is a short order, not a considered treatment of s.10(13A). The clubbing question was decided on the footing that the wife's sources were proved and never doubted, not on any construction of s.64, and no sub-clause of s.64 is identified in the order. The order is very short — the reasoning occupies a single paragraph — and it cites no authority, so it offers no analysis of the conditions in s.10(13A) or of the sub-clause of s.64 under which the clubbing was made. Nothing later applying or following it was traced, and no appellate history was found. A Tribunal decision, persuasive only. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The assessee's appeal was allowed in full; nothing was restored to the Assessing Officer. The Tribunal found the wife had received a loan from the assessee and repaid it from redemption of mutual funds and liquidation of fixed deposits, that there is no bar on a husband extending a loan to his wife from known sources or on her repaying it from her own assets, that the rent was declared by her under 'income from house property' in returns the revenue had accepted, and that the sources for the purchase of the house in her hands were proved and had never been doubted. The Commissioner (Appeals)'s contention that a husband cannot pay rent to his wife was held to be devoid of any legal implication supporting it. The clubbing addition of Rs. 3,73,800 accordingly went (para 8).
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