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March 8, 2022

ITAT Delhi: Assessee paying rent to his wife is entitled to claim benefit of HRA

ITAT Delhi: Assessee paying rent to his wife is entitled to claim benefit of HRA

Fact and Issue of the case

The assessment in this case has been completed u/s 143(3) of the Act on 03.03.2016 at taxable income of
Rs.66,88,240/- inter al ia making an addition of Rs.3,73,800/-. On perusal of assessment order, it is observed that assessee claimed to have paid rent to his wife Mrs. Shivani Mittal during the period September 2012 to March 2013 totaling to a sum of Rs.5,34,000/-. During assessment proceedings, Assessing Off icer required the assessee to explain the capacity of assessee’s wife to purchase the property giving details of source/sources of funds for the same. It was explained by the assessee that property worth Rs.1.15.Crore was claimed to be purchased by assesssee’s wife for which amount of Rs.87.50 lacs were funded by the assessee himself and remaining amount was claimed to have been invested out of her own sources i.e. maturity of FD amounting to Rs.33.25 lacs. However it was noticed by the Assessing Officer that assessee’s wife, in fact, had no independent source of income to make the
investment in the FDR’s and the major share of Rs. 87.50 lacs was also funded by the assessee. In these circumstances, it was held by the Assessing Of ficer that the rental income earned by Mrs. Shivani Mittal, the W/o the assessee is liable to be clubbed in the hands of the assessee since it is proved that the investment to have purchased the property was in fact was made without having any independent source of income. Accordingly Assessing Off icer clubbed the rental income of Rs.5,34,000/- after al lowing deduction u/s 24A @ 30% (Rs. 1,60,200/-) in the hands of the assessee and addition of Rs. 3,73,800/- was made in the hands of the assessee.

The ld. CIT(A) confirmed the addition holding that the claim of the appellant that the investment has been made in the house property by his wife from her own independent resources, is also not found to be acceptable. Whi le confirming, the ld. CIT(A) rel ied on the income summary statement of Smt. Shivani Mittal, for the assessment year 2001-02 and 2003-04 wherein she has shown income from profession of Rs.57,400/- and Rs.1,48,900/- respectively. The ld. CIT(A) further relied on the total taxable income shown in the ITR fi led from the assessment year 2001-02 ti ll A.Y 2012-13

The ld. CIT(A) held that it is evident that there is no substantial taxable income shown by appellant’s wife during the above assessment years, on the basis of the same, it can easily be inferred that she had no substantial source of income through which she can make investment in her own capacity either in the property or in the mutual funds etc. The ld. CIT(A) also observed that in most of the cases, appellant is the second holder in various investments made in the name of Shivani Mittal. Before us, it was submitted that Income Tax Act does not prohibit claiming HRA exemption on the rent paid to one’s spouse, that her wife is qualified medical practitioner and she has returned the loan extended to her by the assessee from liquidation of mutual funds and fixed deposits.

Observation of the Tribunal

The Tribunal has Heard the arguments of both the parties and perused the material avai lable on record. The assessee’s wife who has low returned income but received loan from the assessee and she has repaid the loan from the redemption of mutual funds and liquidation of fixed deposits. There is no bar on the part of the assessee to extend loan from his known sources of income to his wife. Similarly, there is no bar on the assessee’s wife to repay the loan from her own mutual funds and fixed deposits. The assessee has paid house rent and the recipient, the assessee’s wife has declared the same under the head “income from house property” in her returns which has been accepted by the revenue. The copy of which has been placed before us. The house has been registered in the name of Smt. Shivani Bansal. The ld. CIT(A)’s observation that the assessee has got meager income hence he cannot afford to purchase a house cannot be accepted as the sources for purchase of the house in the hands of Smt. Shivani Bansal are proved rather never doubted. The ld. CIT(A)’s contention that the husband cannot pay rent to the wife is devoid of any legal implication supporting any such contention. Hence, keeping in view the entire facts of the case, we hereby al low the appeal of the assessee.In the result, the appeal of the assessee is al lowed. Order Pronounced in the Open Court on 08/02/2022.


The tribunal has disposed off the appeal and ruled in favour of the assessee

Read the full order from below


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