Alimony paid to ex-wife will not be taxed

dubai - On income diverted to the ex-wife under a competent court's decree, you will not have to pay tax

Q: I have purchased a house in Bengaluru after selling my ancestral property. I paid the full amount for the new house to the builder within two years from the date of sale of the ancestral property. However, the possession of the house has been given after the expiry of the two-year period. The tax officer has denied the exemption under section 54 of the Income-tax Act on the ground that the construction of the new house was completed two years after the sale of the old property. Do I have any remedy against this assessment order?
- R. Murlidhar, Dubai
A: Under section 54 of the Income-tax Act, the new residential property should be acquired within two years from the date of sale of the old house. Courts have given a liberal interpretation to this provision by taking a view that if the taxpayer has paid the full sale price within the period of two years from the date of sale of the old house, the condition laid down in section 54 should be deemed to have been complied with. Since you have utilised the full capital gains made on sale of the ancestral property, you would be entitled to claim the benefit of the exemption under section 54. Therefore, you should file an appeal to the Commissioner of Income-tax (Appeals) within 30 days of receipt of the assessment order. Litigation will have to be pursued as the tax department will press this issue upto the Supreme Court.

Q: My brother in India has obtained a decree of divorce from the local church court. He has agreed to pay alimony to his ex-wife. Can my brother get some tax benefit for the alimony?
- C. Rodrigues, Doha
A: The Supreme Court of India does not accept divorce decrees granted by church courts. Even recently, the Supreme Court reiterated this position and said there is no legal sanctity for a decree passed by church courts. Hence, if a person remarries after obtaining the decree of a church court, it would amount to bigamy which is punishable under section 494 of the Indian Penal Code. The Supreme Court settled this issue in 1996.
Therefore, your brother should get a divorce under the provisions of the Divorce Act, which has legal sanctity and is recognised by Indian Courts, before he decides to remarry. Further, if a divorce decree is granted by a competent court, the alimony paid to his ex-wife would be treated as diversion of income by an overriding title. Hence, the amount paid as alimony would be reduced from your brother's taxable income. In short, on such amount of income which is diverted to the ex-wife under a decree of a competent court, no tax would be payable by your brother.

Q: I plan to set up a garment factory in South India. I am told there are some incentives given for the textile sector. I need some more clarity regarding this.
- T. Chacko, Doha
A: Some reforms have been initiated for the garment industry and a special package, which will cost the government Rs60 billion every year, has been announced. The subsidy under the Amended Technology Upgradation Fund Scheme has been increased from 15 per cent to 25 per cent. State taxes will be refunded under the duty drawback scheme to garment exporters.
Further, the government has decided to bear the entire contribution of 12 per cent of the salary of employees which employers are required to make. This would be in respect of new employees and would be limited to three years. Garment factories will now have the flexibility to hire contractual workers for a fixed period. This would enable the industry to meet supply commitments during the peak season.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.

• India