Income tax & Permanant Alimony

SANJAY DIXIT (Querist) 04 July 2008 This query is : Resolved
Whether the permanant alimony received by a wife in a divorce settlement is exempted from Income Tax?
pls. clarify in detail.

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Guest (Expert) 07 July 2008
Income from alimony

A: Diversion of income by overriding title is taxable in the hands of the ultimate beneficiary whereas the application of income is taxable in the hands of the recipient.

Income received from property charged under a court’s decree with maintenance allowance to a dependent and spent on maintenance is diversion of income at source and therefore, taxed in the hands of the dependent — Raja Bejoy Singh Dudhuria v CIT [1933] 1ITR135 (PC). As far as the payer is concerned, income from property, though paid as maintenance allowance under a decree of court (without maintenance being a charge upon the property yielding the income) is application of income and therefore, chargeable to tax — CIT v Sitaldas Tirathdas [1961] 41ITR367 (SC).

In the case presented by you, the court has earmarked a certain property worth Rs 11 lakh for generating income for your maintenance. This amount of Rs 11 lakh is not income but a capital receipt in your hands. However, any income therefrom is taxable in your hands.

As far as your former husband is concerned, but for the court decree, the income arising from these Rs 11 lakh would have been taxable in his hands. In the instant case, it is diversion of income at source and therefore, not taxable for him.