Tax Evasion Not Tax Planning: Kerala HC Refuses To Order Refund Of Luxury Tax To Man Who Transferred Portion Of Residential Building In Favour Of His Wife

The petitioner had approached the High Court challenging the levy of luxury tax under the provisions of the Kerala Building Tax Act, 1975.

The Single-Judge Bench of Justice Gopinath P. said, “While tax planning is permissible in law, evasion of tax is not permissible in law.”

The Petitioner was represented by Advocate George Mathews while the Respondents were represented by Senior Government Pleader Thushara James.

It was the case of the petitioner that the petitioner had initially constructed a two-story residential building and the assessment was completed by necessary proceedings levying luxury tax on the building. The petitioner continued to pay luxury tax on the building.

The petitioner submitted that the first floor of the residential building had been transferred to the wife of the petitioner and the area of the building in occupation of the petitioner had been reduced to 162.30 Sq.m, which is below the limit for levy of luxury tax. The petitioner approached the Court for issuance of an order directing the respondents to uphold that the petitioner is the owner of the remaining building alone and is not liable for payment of luxury tax. The petitioner also prayed for refund of luxury tax paid by the petitioner for the period after the transfer of ownership of the floor in question.

Referring to the provisions of the 1975 Act, the petitioner’s Counsel 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. However, since a portion of the residential building has been transferred/settled in favour of his wife, the area of the building has fallen below such a limit.

On the other, the Government Pleader appearing for the respondent 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.

The Bench affirmed the argument of the Senior Government Pleader that if the contention of the petitioner was accepted, any person who was 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 Bench said.

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

Thus, in view of such factual and legal aspects, the Bench dismissed the petition.

Cause Title: Kottila Veetil Krishnakumar vs. State of Kerala [Neutral Citation: 2024:KER:76572]

Appearance:

Petitioner: Advocates George Mathews & M.M. Anto

Respondents: Senior Government Pleader Thushara James.

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