The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) recently delivered an important ruling in the case of Smt. Sushama Rajesh Rao v. DCIT (ITA No. 49/Bang/2023, order dated 18 August 2025). The dispute centered on whether capital gains arising from the sale of land, originally owned by the husband but gifted to his wife, should be taxed in the hands of the wife (who executed the sale) or the husband (the original owner). The Tribunal clarified that under the mandatory provisions of Section 64(1)(iv) of the Income-tax Act, 1961, income derived from an asset transferred to a spouse without adequate consideration must be included in the income of the transferor. Accordingly, the capital gain from the sale of the gifted land was held taxable in the hands of the husband and not the wife. This decision reinforces the principle that clubbing provisions override mere ownership by transfer through gift.

Case at a glance

• Case: Smt. Sushama Rajesh Rao v. Deputy Commissioner of Income Tax — ITA No. 49/Bang/2023 (Bangalore Bench).
• Order date (reported): 18 August 2025 (bench: Shri Prashant Maharishi — VP and Shri Soundararajan K — JM).

Facts (short)

• The assessee (wife) received agricultural land as a gift from her husband by deed dated 04-05-2009. The land had originally belonged to the husband (allotted under family partition in 1995). The land was converted to non-agricultural use in 2011 and later sold by the wife.

Issue

• Who is taxable on the capital gain arising on sale of the land gifted by husband to wife — the wife (who sold) or the husband (the original owner/transferor)?

Tribunal holding (essence)

• The Tribunal applied the clubbing provision (Section 64(1)(iv) of the Income-tax Act) and held that income (here, capital gains) arising from the asset which was transferred to the spouse without adequate consideration must be included in the hands of the transferor (husband). Consequently the capital gains were held taxable in the husband’s hands and not in the wife’s. The bench rejected the Revenue’s technical objection that this plea was an “afterthought” — Section 64(1)(iv) is mandatory and cannot be bypassed.

Consequence in this matter

• The Tribunal applied the clubbing rule and accordingly set aside / directed taxation in the husband’s hands (the order also records deletion of the addition made against the assessee and the tax consequence placed on the transferor).

Key legal point / takeaways

1. A gift to spouse is not the end of tax liability: where an asset is transferred to spouse without adequate consideration, any income (including capital gains on subsequent sale) is clubbed back to the transferor under Section 64(1)(iv).
2. “Love and affection” as a description in a gift deed does not, by itself, convert the character of the transfer so as to avoid clubbing; the statutory clubbing rule is mandatory.

3. Tax practitioners and taxpayers should remember: stamp-duty / gift deed formalities do not change clubbing; the correct owner for capital-gains tax may still be the transferor.