2004 (5) TMI 59 - AAR - Income Tax

Applicant a non-resident gifted shares of Indian companies to his wife out of natural love - Out of these shares some were sold by her - This resulted in earning income in the form of capital gains on the investment originally made by the applicant - Income under the head Capital Gains made by the wife of the applicant will be clubbed with the income of the applicant - Such income under the head Capital Gains shall be excluded from the total income of applicant s wife.

Summary

Issues:
1. Whether the capital gain made by the donee will be clubbed with the income of the donor NRIRs.
2. If the income is included in the donor's income, should it be excluded from the total income of the doneeRs.
3. Any other compliance required by the donorRs.

Analysis:

Issue 1:
The applicant believed that as per Section 64(1)(vii) of the Income Tax Act, 1961, the capital gain made by his wife should be included in his income and taxed accordingly. However, the Commissioner of Income-tax argued that Section 64(1)(iv) is applicable in this case since the shares were transferred without consideration. The Commissioner stated that the capital gain should be clubbed with the donor's income and then excluded from the income of the transferee.

Issue 2:
Section 64(1)(iv) mandates that income arising to the spouse from assets transferred without adequate consideration must be included in the transferor's income. In this case, since the shares were directly transferred to the spouse, Section 64(1)(iv) is applicable. The ruling stated that the capital gains made by the wife would be clubbed with the donor's income and excluded from the wife's total income.

Issue 3:
The ruling declined to answer the vague question regarding any other compliance required by the donor. It was not addressed in the ruling.

In conclusion, the Authority for Advance Rulings decided that the capital gains made by the wife of the applicant would be clubbed with the income of the applicant, as per Section 64(1)(iv) of the Income Tax Act, 1961. The ruling also specified that the capital gains included in the applicant's income would be excluded from the total income of the applicant's wife. The ruling was pronounced on May 24th, 2004, by the Authority for Advance Rulings.