Top Stories Husband Transferring Portion of Residential Building to Wife Amounts to Luxury Tax Evasion: Kerala HC dismisses Petition [Read Order] The Court further held that “While tax planning is permissible in law, evasion of tax is not permissible in law.” By Yogitha S. Yogesh – On October 30, 2024 1:32 pm – 3 mins read The Kerala High Court has dismissed the petition moved by a husband who transferred a portion of his residential building to his wife’s name to secure an exemption from payment of luxury tax under Section 5A of the Kerala Building Tax Act, 1975. The Court observed that the act amounts to tax evasion and it was held that while tax planning is permissible in law, evasion of tax is not permissible in law. Kottila Veetil Krishnakumar, the petitioner’s residential building was assessed in 2014 and it was found that he was liable to pay luxury tax for his residential building of 315.08 square meters.

He submitted that he has transferred a portion of his residential building in 2018 to his wife and that he was no longer in possession of the entire residential building. He stated that now he only owns the second floor of the residential house which is 162.30 square meters and that he is to be exempted from payment of luxury tax. The petitioner has approached the Court challenging the levy of luxury tax under the provisions of the Kerala Building Tax Act, 1975 (‘1975 Act’). It is the case of the petitioner that the petitioner had initially constructed a two story residential building with a total area of 315.08 Sq.m. It is stated that the assessment was completed by Ext.P1 proceedings dated 14-08-2014 levying luxury tax on the building and the petitioner continued to pay luxury tax on the building. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

According to the petitioner, by registered document No.1356/2018 of SRO Mathamangalam, the 1st floor of the residential building has been settled/transferred to the wife of the petitioner (One Kaniyeri Sreekala) and she is the owner of the 1st floor of the building. It is the case of the petitioner that with the transfer of the 1st floor of the building to his wife, the area of the building in occupation of the petitioner has been reduced to 162.30 Sq.m, which is below the limit for levy of luxury tax. Counsel appearing for the petitioner refered to the provisions of the 1975 Act and submitted that there can be a levy of luxury tax at the hands of the petitioner only if the petitioner is in possession of a residential building having an area equivalent to or above the limit specified in Section 5A of the 1975 Act.

It is submitted that since a portion of the residential building belonging to the petitioner has been transferred/settled in favour of his wife, the area of the building has fallen below the limit specified in Section 5A of the 1975 Act, and therefore the petitioner is no longer liable to pay luxury tax. Senior Government Pleader  submitted that the claim of the petitioner cannot be accepted. It was argued that after constructing a residential building having an area which is admittedly above the limit specified in Section 5A of the 1975 Act and after being subjected to the levy of luxury tax, the petitioner cannot escape from the liability by transferring a portion of the building to his near relatives. It is submitted that if such a device is permitted, every person who is liable to pay luxury tax under the provisions of Section 5A of the 1975 Act could transfer/settle a portion of their residential building in the name of their close relatives and escape from the liability to pay luxury tax. The Single bench of Justice Gopinath P viewed that the residential building of the petitioner as it originally stood had an area in excess of the limits specified in Section 5A of the 1975 Act, and thus it was liable to the levy of luxury tax under that provision. The building was also duly assessed to luxury tax. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The Court further held that “While tax planning is permissible in law, evasion of tax is not permissible in law. The device adopted by the petitioner was not an effort at tax planning; it was clearly an attempt to evade tax. Therefore, I am of the view that the petitioner is not entitled to the reliefs sought in the writ petition. The writ petition fails, and it is accordingly dismissed.