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[2017] 81 taxmann.com 3 (Article)

[2017] 81 taxmann.com 3 (Article)

Income Tax on Alimony Earned After Divorce

HEMANT SINDHWANI
ACA, ACMA, CS

Marriages are made in heaven, but a divorce happens on earth and with it comes the inevitable question
of alimony and its tax implications

Now days, there is increasing trends in number of divorce in India. In many cases, there is only one
spouse who is earning and spouse who is not earning need maintenance from other one. This amount is
known as Alimony.

In Hindu Marriage Act, 1955 Section 25 defines the Permeant Alimony and maintenance.

Alimony may be fixed amount or periodical sum for a fixed period or for whole life. Alimony is does not
include the payment made for child Support. The payments cannot be contingent on the status of a child.
This is to prevent child support from being disguised as deductible alimony. Alimony may be monetary
consideration or share in Immovable property.

Income Tax and Alimony

As per Income Tax Act, Section 2(24) defines the Income, which has not specifically cover Alimony as
Income and there is no specific provision which govern its taxability. But at the same time this definition
is an inclusive definition and hence whatever can fall under natural meaning of the word 'Income' is
covered under this definition.

However, there is general principal of Income Tax that only Revenue Receipt is taxable,
capital receipt is not taxable unless otherwise specifically taxed by the law.

When during the course of continuance of marriage the husband gives money to his wife for the upkeep
and maintenance of his family including her, the same is called as PIN Money and not regarded as her
income, as by the customary laws, the earning husband is duty bound to maintain his family.

Payment of alimony arises out of the same duty recognized by various statutes; the only difference being
that in this case the marriage does not subsist.

(1) Lump-sum Amount at the Time of Divorce

If Alimony is settled in the form of lump-sum payment at the time of Divorce and then it will
be treated as capital receipt and will not be taxable in the hand of recipient.

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In a landmark decision on this issue in the case of Princess Maheshwari Devi of

Pratapgarh v. CIT, [1984] 147 ITR 258/[1983] 12 Taxman 220 (Bom.), the Bombay
High Court observed that Lump-sum alimony received by assessee from ex-husband under
section 25 of Hindu Marriage Act, 1925 on the nullity of marriage will not be treated as income
in the hand of Recipient and the same will be treated as capital receipt.
Further, in the matter of Asstt. CIT v. Meenakshi Khanna [2013] 143 ITD 744/34
taxmann.com 297 (Delhi) it is held that Lumsum Alimony received against the
consideration of relinquishing her personal right of claiming monthly payments as provided
under the divorce agreement will be treated as capital receipt and will not liable to tax.
(2) Monthly Alimony at the Divorce
Monthly alimony being a define source of income which is arise from the decree of court,
moreover it is regular and periodical income constitute Taxable income.
In a landmark decision on this issue in the case of Princess Maheshwari Devi of
Pratapgarh (supra), the Bombay High Court observed that that monthly alimony received
by the assessee from her ex-husband on the nullity of marriage is income in her hands will be
taxable in the hand of recipient. It is observed by Hon'ble court that Monthly Alimony arises
due to decree of court. It cannot be said that the decree is a mere recognition or continuation
of an earlier obligation. If the decree were set aside, the assessee could not claim the monthly
alimony from her ex-husband. If the ex-husband failed to pay the amount, it is the decree
which the assessee would have to execute. It is clear that the decree is the definite source of
these receipts. The amount is what the assessee periodically and regularly gets and entitled to
get under this decree. This amount must, therefore, be looked upon as a return from the said
decree which is the definite source thereof.
The monthly alimony being a regular and periodical return from a definite source, being the
decree, must be held to be 'income' within the meaning of S. 2(24).
The monthly payments of alimony have their origin in a definite source, viz., they are regular
in nature and the said decree was obtained by some efforts on the part of the assessee. Hence
these payments can never be regarded as a series of windfall or casual payments
In view of above Judgment of Hon'ble Bombay high Court, Monthly Alimony will be treated as
Income as per the Income Tax Act, thus recipient is liable to pay income tax on it.
(3) Reimbursement of maintenance expenses for Children
If instead of monthly alimony, the spouse is directly paying or making reimbursement of
school fee of children or paying house rent directly to owner and bearing any other
maintenance expenses, the same will not constitute of taxable income in the hand of divorcee
recipient spouse as the same is not having any define source and periodical source of income,
its merely reimbursement of expenses.
(4) Transfer of Assests and Income thereon
Normally, when any asset is transferred by spouse without consideration when the marriage
exists, will be tax-free in the hands of the recipient as per Section 56(2)(vii) of the Act.
However, any income arises from the assets transferred will be clubbed in the hand of
transferor spouse as per the clubbing provision of Income Tax Act. For application of clubbing
provision, relationship of spouse isessential.

However, after divorce (when relation of spouse ceased to exist), any asset transferred to the former
spouse without consideration, would be treated as a gift from stranger/non relative/friend (whatever
the name may be) and would be taxable in the hand of recipient.

In case of transfer of assets other than immovable properties (such as securities, jewelry, etc.), if the
asset's fair market value is more than Rs. 50,000, the entire value at the time of transfer will be taxable
for the recipient. Where such an asset is received for some consideration lower than the fair value by
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more than Rs. 50,000, the difference is taxable. In case of transfer of an immovable property, if its stamp
duty value is more than Rs. 50,000, the entire value will be taxable for the recipient. Rules have been
prescribed to arrive at such values.

Any income from the assets gifted after divorce would not be clubbed with the income of transferor
spouse as relationship of spouse ceased to exist. After divorce, any income from these assets would be
taxable in the hands of the recipient spouse.

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