In a notable ruling, the Income Tax Appellate Tribunal (ITAT) Bangalore has stated that a wife is not liable to pay income tax on the capital gains from the sale of non-agricultural land that was originally gifted to her by her husband. The case arose after she sold this land for ₹17.26 crore, with the ruling handed down on August 18, 2025.

Case Background

The land in question is located in North Bengaluru and was initially part of a family partition that her husband received on May 26, 1995. He gifted the land to his wife on May 4, 2009, executing a registered gift deed. In June 2011, the land was converted from agricultural to non-agricultural status to comply with restrictions under the Karnataka Land Reforms Act. Shortly thereafter, the wife sold the land on June 29, 2011, with her share of the sale proceeds amounting to 48.43%, or ₹8.36 crore.

When she filed her income tax return (ITR), she reported her share of the sale consideration while claiming that the cost of acquisition was only ₹1.5 crore—determined by the government’s guidance value—leading to a calculated taxable capital gain of ₹0. However, the income tax department contested her claim, citing an under-reporting of the property value. The assessing officer added ₹8.36 crore to her total income, thereby imposing tax liability.

Appeal and ITAT Ruling

The wife subsequently appealed to the ITAT Bangalore, arguing against the tax imposition. Upon reviewing the case, the tribunal analyzed Section 64(1)(iv) of the Income Tax Act, which addresses income from transferred assets between spouses. The tribunal stated:

“...we hold that income from transfer of the assets which is received by the assessee as a gift from her husband is chargeable to tax in the hands of her husband and not the assessee.”

The ITAT emphasized that when a gift is made without adequate consideration—characterized by love and affection—it does not shift tax liability onto the recipient spouse. The ruling further clarified that the income from capital gains resulting from such gifts is taxable solely in the hands of the transferor.

Significance of the Ruling

Experts have highlighted the significance of this ruling in emphasizing the mandatory nature of Section 64(1)(iv). It acts as a safeguard against tax avoidance through the transfer of assets between spouses. The tribunal illustrated that under this provision, the income arising from an asset transferred to a spouse without adequate consideration will continue to be taxed in the hands of the transferor.

Dr. Suresh Surana observed:

The provisions of Section 64(1)(iv) deems for the purpose of taxation, that income from assets transferred by the transferor assessee for inadequate consideration to their spouse to be forming part of the income of the transferor assessee.

Expert Opinions

Amit Gupta, Partner at Saraf and Partners, noted that the ITAT ruling emphasizes both the anti-avoidance objectives of tax law and the need for clear understanding in structuring asset transfers.

Itesh Dodhi, Director at Nangia & Co LLP, remarked that the case serves as a critical reminder for taxpayers to seek professional advice when structuring transfers between spouses to prevent any unintended tax liabilities.

Conclusion

This ruling from the ITAT Bangalore reinforces the importance of understanding tax implications surrounding gifted assets. By clearly defining the tax liabilities incurred from such transfers, it not only clarifies the standing of current income tax provisions but also serves as a reference point for future cases involving transfers between spouses. Taxpayers must remain vigilant and consult professionals to navigate the complexities of tax law effectively.