Tax Column

In March 2022, I entered into an agreement for the purchase of a residential property. An allotment letter dated March 2022 was issued and the initial payment was made. However, the actual possession of the property was given in March 2025 along with the registered documents. I am planning to sell the property by June 2025 as I am fetching a good price. I just want to know whether the gain arising would be short term or long term as I have taken possession one month back? [EasyDNNnews:PaidContentStart]

It is a settled law that for calculating the holding period, it should be reckoned from the date of the agreement and not from the date of registration or possession. In your case, you entered into an agreement in March 2022 and a letter of allotment was also issued to you. Therefore, you acquired the right/title and interest in the impugned property in March 2022 itself. Now you desire to sell the same in June 2025 i.e., after three years of holding. As such, the capital gain arising would be a long-term capital gain. You will be entitled to reinvest the entire gain in a new residential property or may pay tax at 12.5 per cent plus the applicable surcharge. The Tax Department may raise an issue in the assessment but the Court decisions will help you. The latest decision of the Hon’ble Bombay Tribunal in the case of Mohammed Farhan Mohammed Yunus Attarwala Vs ITO (173 taxmann. com 8) will come to your help if any litigation arises. 

I am a lady and received a gift of `2 crore from my stepbrother. Whether the said gift would enjoy exemption under section 56(2) (x) of the Income Tax Act by considering a stepbrother as a relative? 

The term ‘relative’ defined in section 56(2)(x) of the Income Tax Act states that ‘relative’ means brother and sister of an individual. It is not specified that brother and sister include stepbrother and stepsister. In the absence of specific mention of stepbrother and stepsister, one has to refer to the dictionary meaning of the term ‘relative’. According to it, it includes a person related by ‘affinity’ which means the existence of a connection in consequence of marriage between the parents of the stepbrother and stepsister. The Courts have held that where either father is the same or mother is the same or both the parents are legally married, the stepbrother and stepsister become brother and sister and accordingly can be treated as ‘relative’. 

Therefore, in my view, if the term stepbrother and stepsister of an individual has not been defined under the Income Tax Act, then the meaning defined in common law has to be adopted and in the absence of any negative covenant in the Act, then brother and sister should also include stepbrother and stepsister which by virtue of the marriage of their parents have become brother and sister. Accordingly, the gift received by you, from your stepbrother, would fall within the meaning of a ‘relative’ and the entire amount of `2 crore would not be taxed under section 56(2)(x) of the Income Tax Act. However, you have to keep the paperwork watertight to establish the relationship. 

Our family has an HUF. My father was the Karta and died, and as an elder son, I became the Karta. Now the dispute has arisen between brothers and sisters. Therefore, we have decided to dissolve the HUF and distribute the property. What would be the tax implication in the hands of the individual member who receives the asset/ fixed deposit? Whether the distribution could be unequal? 

Under section 10(2) of the Income Tax Act, any income/asset received by the individual member on the dissolution of HUF, the same is exempt and not taxable. Further, the distribution could be unequal and disproportionate. What is ultimately received by the individual members in their hands is exempt in view of the above provision. However, a proper dissolution deed needs to be prepared, duly signed by all the members and filed with the Assessing Officer who after inquiry issues the order of closure of the HUF. Further, you have to satisfy certain procedures and conditions referred to in Section 171 and Section 64(2) of the Income Tax Act. 

Further, you must go for a full partition instead of a partial partition. If you go for a partial partition, then the HUF as an entity may continue and any liability of HUF could be recovered from individual members. 

I am a lady and my divorce petition is pending. I am likely to receive alimony partly lump sum and partly by way of monthly payment over a period of five years. Whether the alimony received is taxable in my hand? 

The taxability of alimony received by a wife on divorce depends on how it is structured. If you receive a lump sum alimony as a one-time settlement, under consent terms before the Court, then the entire lump sum alimony is not taxable under the Income Tax Act as the Courts have considered the same as a capital receipt and not revenue income. Therefore, whatever lump sum you receive will certainly not be taxable in view of the settled law as the Courts have held that it is a settlement of marital obligation and not income from other sources. 

In my opinion, recurring monthly alimony subsequently post-divorce, may be taxable under section 56(2)(x) of the Income Tax Act. In section 56(2)(x) of the Income Tax Act, a divorced spouse is not a relative. Therefore, it is not technically exempt under section 56(2)(x) of the Income Tax Act. However, one can argue that monthly recurring alimony is not gratuitous or voluntary payment but arises from a legal obligation in view of the divorce decree/settlement. Hence, the amount of alimony is not a gift but a legal obligation. Therefore, it should be outside the purview of section 56(2)(x) of the Income Tax Act and may not be taxable. 

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