Whether money received by divorced wife out of sale proceeds of property owned by her husband as alimony is capital receipt – YES: HC

THE issue is – Whether the money received by divorced wife out of the sale proceeds of a property acquired by the husband as alimony is a capital receipt. YES is the verdict.

Facts of the case
The assessee is an individual. She married Mr D Chowdhury in the year 1966. However, it was dissolved on 12th January 1994 by a decree of divorce. The assessee filed her return for the A.Y 1997-98 disclosing an income of Rs.44,870/- and long-term capital gain consequent to sale of 50% of her share in the matrimonial house at 25, Mandeville Gardens, Calcutta sold at Rs.22,81,500/- and sought to deduct 50% of the cost of acquisition amounting to Rs.5,18,002/-. The assessee claimed exemption u/s 54 with respect to the aforesaid long-term capital gain. The assessee further claimed deduction of brokerage amounting to Rs.50,000/- from the amount of capital gain. The return was processed u/s 143(1). Later on the assessee received a notice u/s 148 alleging that income had escaped assessment. During reassessment, the assessee was asked to furnish evidence against the cost of acquisition of the matrimonial house. The assessee contended that the matrimonial house at 25, Mandeville Gardens was acquired using the sale proceeds of a flat situated at 9, Mandeville Gardens, Calcutta and that she was a co-owner of the said matrimonial house, having 50% share therein. The AO deputed an inspector to verify the claims. Relying upon a report filed by the inspector, the AO held that Mr. D. Chowdhury, the exhusband of the assessee was the exclusive owner of the flat at 9, Mandeville Gardens and the assessee was his nominee. The AO also observed that since the flat at 9, Mandeville Gardens was owned exclusively by the former husband of the assessee and the sale proceeds from the said property were utilized to purchase the matrimonial house at 25, Mandeville Gardens, therefore the former husband of the assessee was the full owner of the newly purchased matrimonial house. The AO on the aforesaid basis held that the assessee could not get the benefit of cost of acquisition u/s 48, as she did not contribute any investment to purchase the flat at 25, Mandeville Gardens, Calcutta. The AO by the aforesaid order also disallowed the claim for brokerage.
Having heard the parties, the High Court held that,
++ the Tribunal has categorically held that it was on account of alimony that the husband mutually agreed to part with 50% thereof as is noted in the decree of divorce. The Revenue’s counsel contended that the assessee cannot make out a new case. We are unable to agree with this contention either. It was open to the assessee to contend that the receipt was capital in nature and therefore not taxable. She must have been advised to claim benefit on the basis of capital gains. When the alternative case, which the assessee could have made, has not only been found against her but has also been put forward as an answer to her claim, it is not improper to grant her the benefit on that basis. The revenue cannot also in that case be heard to contend that it has been taken by surprise. When the revenue did not prefer any appeal against the finding of the Tribunal that the payment was “on account of alimony”, the revenue must be deemed to have been satisfied by such finding. For the aforesaid reasons, the amount received by the assessee was a capital receipt and hence not taxable.