Income tax impact on compensation from her ex-husband at the time of divorce

kishorkumar d adhia (Querist) 24 July 2013 This query is : Resolved
WHAT IS THE INCOME TAX IMPACT ON THE AMOUNT RECEIVED BY DIVORCEE GIRL RECEIVED ONE TIME SETTLEMENT AMOUNT / COMPENSATION FROM HER EX-HUSBAND AT THE TIME OF DIVORCE.

IS IT TAXABLE ?

IF IT IS NOT TAXABLE THEN EXEMPT UNDER WHICH SECTION OF IT ACT

WHETHER IT IS A CAPITAL OR REVENUE RECEIPT.
PLEASE GUIDE ME AND OBLIGE

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Raj Kumar Makkad (Expert) 25 July 2013
Such amount is a revenue receipt liable for income tax.

prabhakar singh (Expert) 25 July 2013
Law is not so clear as nothing in black and white can be found in I.T. Act,

However i would like to differ and argue with ITOs(or Finance Minister) if they call alimony (a lump sum receipt for whole life)
REVENUE RECEIPT INSTEAD OF CAPITAL AS ALLOWANCE MONTH TO MONTH CAN BE CALLED REVENUE RECEIPT BUT NOT LUMP SUM ALIMONY AS THE SAME SERVES AS CORPUS TO GENERATE ALLOWANCE MONTH TO MONTH.

Rajendra K Goyal (Expert) 25 July 2013
The Bombay High Court in Princess Maheshwari Devi of Pratapgarh v. Commissioner of Income-tax 147 ITR 258 (Bom)
“The monthly payments of alimony have their origin in a definite source, viz., they are regular in nature and the said decree was obtained by some efforts on the part of the assessee. Hence these payments can never be regarded as a series of windfall or casual payments.
So far as a lump sum payment is concerned , the decree must be regarded as a transaction in which the right of the assessee to get maintenance from her ex-husband was recognised and given effect to. That right was undoubtedly a capital asset. By the decree, that right has been diminished or partly extinguished by the payments of the lump sum alimony, and the balance of that right has been worked out in the shape of monthly payments of alimony, which could be regarded as income. Had the amount not been awarded in a lump sum under the decree of the assessee, a larger monthly sum would have been awarded to her on account of alimony. It is not as if the payment can be looked upon as a commutation of any future monthly or annual payments, because there was no pre-existing right in the assessee to obtain any monthly payments at all. Nor is there anything in the decree to indicate that the lump sum alimony was paid in commutation of any right to any periodic payments. In these circumstances, the receipt of that amount must be looked upon as a capital receipt."

Conclusion of above case:

The monthly alimony shall be taxable and single payment alimony shall be dealt as capital receipt