Clubbing Provisions in Action: Why Husband Paid Tax on Wife’s ₹17 Crore Land Sale

Bhagya Lakshmi
3 minutes ago
3 min read

📌 Introduction

Tax planning often involves transferring assets to family members. But what many forget is that the Income Tax Act has built-in “clubbing provisions” to prevent misuse of such transfers. The latest ruling from the ITAT Bangalore (August 2025) is a timely reminder: even if the asset is in your spouse’s name, the tax liability may come back to you.

🏷️ The Current Case: ITAT Bangalore, 2025

A wife sold land, earning ₹17.26 crore in capital gains.
The land wasn’t purchased by her—it was gifted by her husband.
She declared the gains in her return, but the Assessing Officer applied Section 64(1)(iv).

Tribunal’s Verdict:The ITAT Bangalore agreed with the AO:👉 The land originated from the husband.👉 Section 64(1)(iv) mandates clubbing of any income arising from assets transferred to a spouse without adequate consideration.👉 Result: The capital gains were taxed in the husband’s hands, not the wife’s.

Significance: This ruling expands the scope of clubbing provisions beyond recurring incomes (like rent or dividends) and reaffirms that even capital gains fall within its net.

🔎 Understanding Section 64(1)(iv)

This section says:

If an individual transfers an asset to their spouse without adequate consideration, any income arising from such asset is included in the income of the transferor.

In plain words:

Gifting assets to your spouse may feel generous 💝, but the taxman still sees the income as yours.

⚖️ How Courts Have Looked at Clubbing Over the Years

When Clubbing Applies (Direct Nexus)

Tulsidas Kilachand v. CIT (1961) – Gift of shares to wife → dividend income taxed in husband’s hands.
Philip John Plasket Thomas v. CIT (1963) – Gift of house property → rent taxed in husband’s hands.
Smt. Mohini Thapar v. CIT (1972) – Gifted cash invested in shares/FDs → dividend/interest taxed in husband’s hands.
B. Sunita Devi v. CIT (2017, AP HC) – Gifted property sold by wife → capital gains taxed in husband’s hands.
ITAT Bangalore, 2025 – Gifted land sold → capital gains taxed in husband’s hands.

When Clubbing Does Not Apply (Indirect Nexus)

CIT v. Prem Bhai Parekh (1970) – Father gifted cash to minors who joined a partnership → partnership profits were not clubbed, since income came from the partnership deed, not the cash gift.
CIT v. V.J. Aleykutti (1991, Kerala HC) – Reinforced the same principle: only direct nexus leads to clubbing.

📈 Evolution of Judicial Thinking

Early Rulings (1960s) – Broad: any income from gifted assets gets clubbed.
Parekh (1970) – Introduced nuance: no clubbing if the link is indirect.
Mohini Thapar (1972) – Brought balance: direct income is clubbed, indirect escapes.
Modern Cases (2017, 2025) – Even capital gains are clubbed; courts lean toward strict enforcement to curb tax shifting.

💡 Practical Takeaways for Taxpayers

Gifts to spouse ≠ tax savings → any income, even capital gains, will usually come back to the transferor.
Think beyond immediate tax → consider long-term implications of gifting property, especially real estate.
Plan smarter → instead of gifting, explore joint ownership, family settlements, or other structures where clubbing provisions won’t apply.
Document carefully → if you must gift, ensure clear records, since disputes often hinge on the nature of transfer.

🚀 Conclusion

The ITAT Bangalore ruling is a reality check: in the tax world, substance prevails over form.Even if the property stands in your spouse’s name, if it came from you, the tax liability stays with you.

As Section 64 continues to evolve, taxpayers and professionals must remember: clubbing provisions are not loopholes, they are traps to catch attempted loopholes.