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Income Tax Act Does Not Prohibit HRA Exemption On Rent Paid To Wife: ITAT Delhi

[04 March 2022] The Delhi Bench of Income Tax of Appellate Tribunal (ITAT), consisting of members A. D. Jain (Vice President) and Dr. B. R. R. Kumar (Accountant Member), has ruled that HRA exemption under Income Tax Act, 1961 cannot be denied on the ground that the Assessee pays rent to its spouse.
The Assessing Officer (AO), while making assessment, clubbed the rental income earned by Assessee’s wife in the hands of the Assessee on the ground that she had no independent source of income to purchase the house property. The Commissioner of Income Tax (Appeals) confirmed the additions made to the Assessee’s income on the ground that there was no substantial taxable income shown by the wife in the previous assessment years. Also, the CIT (A) disallowed the exemption on House Rent Allowance (HRA) on the rent paid by the Assessee to its spouse. The Assessee filed an appeal against the impugned order before the ITAT.
The ITAT held that there is no bar on the Assessee to extend loan to his spouse from known sources of income or on the spouse to repay the same from liquidation of her own assets. The ITAT allowing the Assessee’s appeal, ruled that there is no bar under the Income Tax Act on the Assessee husband to pay rent to his wife and the disallowance of exemption on HRA by the CIT(A) cannot be upheld.

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