Alimony taxable?

  The word ‘Income’ is defined in S. 2(24) of the Income-tax Act. This definition does not specifically cover ‘Alimony’. 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.

Now to look at the natural meaning of the word ‘Income’, we must consider the following factors.

We first have to decide whether the receipt is a capital receipt or it is a revenue receipt. Capital receipts are not taxable unless otherwise specifically taxed by the law and all revenue receipts are taxable unless otherwise exempted 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 herself, the same is 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 recognised by various statutes; the only difference being that in this case the marriage does not subsist.

In CIT v. Shaw Wallace and Co., AIR (1932) PC 138; (1932) 2 Comp. Cases 276; it has been held that :

"The object of the Indian Act is to tax income, a term which it does not define. It is expanded, no doubt, into income, profits and gains, but the expansion is more a matter of words than of substance. Income, in this Act connotes a periodical monetary return coming in with some sort of regularity, or expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree or the crop of a field."

In Dooars Tea Ltd. v. Commr. of Agri., IT (1963) 44 ITR 6, the Supreme Court has pointed out that it is necessary to bear in mind that the word ‘income’ as used in the Indian IT Act, 1922, is a word of elastic import and its extent and sweep are not controlled or limited by the use of the words ‘profit and gains’ and they have pointed out that the diverse forms which income may assume cannot exhaustively be enumerated, and so in each case the decision of the question as to whether any particular receipt is income or not must depend upon the nature of the receipt and the true scope and effect of the relevant taxing provisions.

In H.H. Maharani Shri Vijaykuverba Saheb of Morvi v. CIT, (1963) 49 ITR 594, it was held that a voluntary payment, which is made entirely without consideration and is not traceable to any source which a practical man may regard as a real source of his income but depends entirely on the whim of the donor, cannot fall in the category of ‘income.’ Thus voluntary and gratuitous payments which are connected with the office, profession, vocation or occupation may constitute income, although if the payments were not made, enforcement thereof cannot be insisted upon. These payments constitute income because they are referable to a definite source, which is the office, profession, vocation or occupation. It could thereof be said that such payment is taxable as having an origin in the office, profession, or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian IT Act is income from every source (barring the exception provided in the Act itself) and even a voluntary payment, which can be regarded as having an origin, which a practical man can regard as a real source of income, will fall in the category of income, which is taxable under the Act."

The motive of payer is not relevant while deciding whether a receipt is revenue or capital in nature. [P. H. Divecha v. CIT, (1963) 48 ITR 222 (SC)]

In CIT v. Smt. Shanti Meattle, (1973) 90 ITR 385 (All.) it was held that "In the circumstance of the case, the allowance received by the assessee from her husband was held to be taxable as income in her hands."

In CIT v. M. Ramalaxmi Reddy, (1980) 19 CTR (Mad.) 270; (1981) 131 ITR 415, it has been held by the Division Bench of the Madras High Court that a receipt cannot be treated as income where no characteristics of income can be detected in it. Where a person gets some receipt of money where he does not angle for it, or where it is not the product of an organised seeking after emoluments, or where it is merely a chance encounter with a venture, which while enriching him does not form part of any scheme of profit making, the idea of income is absent. It has been held there that the real basis for the concept of non-taxable casual receipt is that the transaction in question which produces it does not constitute any trade or an adventure in the nature of trade.

It has been held in the case of Mehboob Production P. Ltd v. CIT, (1977) 106 ITR 758 (Bom.) that :

"In order to constitute of income, the receipt must be one which comes in (a) as a return, and (b) from a definite source. It must also be of the nature which is of the character of the income according to the ordinary meaning of that word in the English language and must not be of the nature of a windfall."

A receipt in lieu of source of income is a capital receipt and a receipt in lieu of income is a revenue income.

It has been held in the case of Commissioner of Income-tax v. M. P. Poncha, (1995) 125 CTR (Bom.) 274; (1995) 211 ITR 1005 (Bom.) that :

"Payment of alimony to divorced wife — payment made by employer out of assessee’s salary under instructions of assessee.

This is a clear case of application of income by the assessee for payment of alimony to his ex-wife and maintenance of his minor child. The direction to the employer or the agreement with the employer to pay the agreed amount of Rs.650 per month to the ex-wife every month is only a mode of payment .It does not in any way amount to diversion of salary income before it accrues to the assessee. The employer is obliged to pay the amount only after the salary income accrues to the assessee and becomes payable to him. It is at that point of time that the employer has agreed or undertaken to pay as per the wishes of the assessee the sum of Rs.650 per month to his ex-wife. The employers have only agreed to deal with the amount of salary accrued to the assessee in such a manner as directed by him. It is a clear case of application of income which has accrued in the hands of the assessee. This is not a case of diversion of income by overriding title."

Just because the alimony is based on the income of the payer, it cannot make the receipt a revenue receipt. There is no relation between the measure that is used for the purpose of calculating a particular receipt and the quality of the figure that is arrived at by means of application of the test. — Glenboig Union Fireclay Co. Ltd. v. IRC, (1922) 12 TC 427. It is the quality of payment that is decisive of the character of the payment and not the method of payment or its measure. — Sevairam Doongarmall v. CIT, (1961) 42 ITR 392 (SC).

2.2 It flows from above that at the first instance we have to decide whether the concerned receipt is revenue in nature or not. Once a receipt is considered as revenue, it is not material whether it is received in parts or it is received in lump sum.

2.3 S. 25 of the Hindu Marriage Act, 1995 deals with permanent alimony and maintenance. Ss.(1) of the said Section runs as follows :

"Any court exercising jurisdiction under this Act may, at the time of passing any decree or at any time subsequent thereto, on application made to it for the purpose by either the wife or the husband, as the case may be, order that the respondent shall, while the applicant remains unmarried, pay to the applicant for her or his maintenance and support such gross sum or such monthly or periodical sum for a term not exceeding the life of the applicant as, having regard to the respondent’s own income and other property, if any, the income and other property of the applicant and the conduct of the parties, it may seem to the Court to be just, and any such payment may be secured, if necessary, by a charge on the immovable property of the respondent."