Facts in the Case
- Y, the husband, gives money to his wife X for domestic household expenses.
- X is frugal and manages to save Rs 3 lakhs over the course of one year from the amount given for running the household.
- The Income Tax authorities assess the saved amount as taxable income in the hands of X.
- X challenges this assessment, claiming that the amount is not her income but merely savings from household allowances.
Issues in the Case
- Whether savings made by a housewife from money given for domestic purposes by her husband is taxable as income.
- Whether such savings can be treated as income earned or received under the Income Tax Act, 1961.
- What type of interpretation should be applied to resolve this taxation issue?
Principles Applied
1. Definition of ‘Income’ under the Income Tax Act
- Under Section 2(24) of the Income Tax Act, ‘income’ includes:
- Profits, dividends, voluntary contributions, salary, capital gains, winnings from lotteries, etc.
- For an amount to be taxed as income, it must be a recurring or regular receipt, or one which is earned.
- A gift or allowance made by a husband to a wife for personal or household expenses is not income unless invested to generate returns.
2. Nature of the Savings
- The money given by Y to X was meant for domestic expenses, and any unspent amount saved by her is simply a leftover of an allowance.
- X did not earn this amount nor did she receive it as remuneration or income.
- There is no consideration or quid pro quo for the amount saved; thus, it is not income arising from work or investment.
3. Presumption in Favour of Non-Taxability
- In cases of ambiguity in tax statutes, courts follow the rule that tax laws must be interpreted strictly.
CIT v. Lakshmi Narayan, AIR 1963 SC 1185
- The Supreme Court held that no one can be taxed by implication, and a charge must be clearly stated in the law.
Smt. Shanti Devi v. CIT, [1988]
- It was held that personal savings made from allowances cannot be treated as income unless they are invested and income is earned from them.
Judgment
- The Rs 3 lakhs saved by X from the household allowance is not income as defined under the Income Tax Act.
- It is merely unutilized money given for a non-taxable purpose.
- Since the amount was not earned, received as income, or invested to earn returns, it cannot be taxed.
- The tax authorities’ assessment is invalid, and the challenge by X must be upheld.
