Bombay High Court
Princess Maheshwari Devi of Pratapgarh vs. Commissioner of Income-tax 147 ITR 258 (Bom) answered the two questions raised before it
(1) Whether, alimony received by the assessee under section 25 of the Hindu Marriage Act, 1955, on nullity of marriage, is income in her hands and liable to tax ?
The Court held : No . The reasons were as under
In our view, from the point of view of taxability, the decree must be regarded as a transaction in which the right of the assessee to get maintenance from her ex husband was recognized and given effect to. That right was undoubtedly a capital asset. By the decree that right has been diminished or partly extinguished by the payment of the lump, sum of Rs. 25,000 and balance of that right has been worked out in the shape of monthly payments of alimony of Rs. 750 which, as we have pointed out, could be regarded as income. It is, in our view, beyond doubt that, had the amount of Rs. 25,000 not been awarded in a lump sum under the decree to the assessee, a larger monthly sum would have been awarded to her on account of alimony. It is not as if the payment of Rs. 25,000 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 payment at all. Nor is there anything in the decree to indicate that Rs. 25,000 were paid in commutation of any right to any periodic payment. In these circumstances, in our view, the receipt of that amount must be looked upon as a capital receipt.
(2) Whether, on the facts and in the circumstances of the case, the alimony of Rs. 750 per month received by the assessee from her ex husband on the nullity of marriage is income in her hands liable to tax ?
The amount of Rs. 750 per month is what the assessee periodically and regularly gets and is entitled to get under this decree. This amount must, therefore, be looked upon as a return from the said decree which is the definite source thereof. The word ” return “, in our view, in a case like this, can never be interpreted as meaning only a return for labour or skill employed on capital invested. Such a definition of ” return ” would be too narrow and would exclude the case of voluntary payments, when it is the settled position in law that in some cases even voluntary payments can be regarded as ” income “. Although it is true that it could never be said that the assessee entered into the marriage with any view to get alimony on the other hand, it cannot be denied that the assessee consciously obtained the decree and obtaining the decree did involve some effort on the part of the assessee. *The monthly alimony being a regular and periodical return from a definite source, being the decree, must be held to be “income” within the meaning of the said term in the said Act.*
So, monthly payments should be *taxable where *as lump sum may be treated as capital receipt. However , important to note that if the settlement is as per court , the Revenue authorities will not raise question ..If the settlement is out of court, the Revenue authorities , as is the nature, may raise the question regarding the *taxability of Lump sum* payments. Therefore, it is better to get the stamp of Court in case of settlement.