Tax Planning Is Permissible But Evasion Is Impermissible: Kerala HC On Husband Transferring Portion Of Residential Building To Wife To Evade Luxury Tax

It is to be noted that as per Section 5A of the Kerala Building Tax Act, 1975, a luxury tax is charged on a residential building if its plinth area exceeds 278.7 square meters.

Justice Gopinath P. observed that the attempt of the husband was to evade tax which is impermissible in law.

“…. if the contention of the learned counsel for the petitioner is accepted, any person who is liable to pay luxury tax under the provisions of Section 5A of the 1975 Act could escape from the liability by transferring a portion of the building to his/her spouse or a near relative. The fact remains that the entire building continues to be in the occupation and enjoyment of the petitioner, and such a device would amount to evasion of tax as distinguished from tax planning. While tax planning is permissible in law, evasion of tax is not permissible in law.”

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.

On the other hand, the Senior Government Pleader submitted that the petitioner cannot escape from the liability of payment of luxury tax by transferring a portion of the building to his wife or near relatives. It was stated that every person liable to pay luxury tax 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 Court found that admittedly the residential building of the petitioner has an area in excess of the limits specified in Section 5A of the 1975 Act for payment of luxury tax.

The Court also noted that the residential building of the petitioner was assessed in 2014 and he continued to pay luxury tax till 2018. It thus noted that the petitioner transferred a portion of the residential building to his wife's name in an attempt to evade tax payment.

Court said, “The device adopted by the petitioner was not an effort at tax planning; it was clearly an attempt to evade tax.”

As such, the Court dismissed his petition.

Counsel for Petitioners: Advocates George Mathews, M M Anto

Counsel for Respondents: Senior Government Pleader Thushara James

Case Number: WP(C) NO. 31300 OF 2024

Case Title: Kottila Veetil Krishnakumar v State of Kerala

Citation: 2024 LiveLaw (Ker) 684