Same Sex Couple Moves Bombay HC Against Gift Tax Rules; Calls Them Unequal

Income Tax Act

A same-sex couple has recently approached the Bombay High Court, challenging what they call discriminatory provisions in the Income Tax Act.

Their petition contests the Act’s unequal treatment of gifts exchanged between spouses, arguing that it excludes same-sex couples from availing the same benefits as heterosexual couples.

The plea specifically targets the term ‘spouse’ used in the explanation to the fifth proviso of Section 56(2)(x) of the Income Tax Act, contending that its restrictive interpretation is unconstitutional. According to the petition, this exclusion denies same-sex couples the exemption available to married heterosexual partners.

What The Law Currently States

Section 56(2)(x) of the Income Tax Act provides that if any individual receives money, property, or assets valued at more than ₹50,000 without adequate consideration, the amount is treated as “income from other sources” and taxed accordingly.

However, the fifth proviso to this section makes certain exceptions. Gifts received from ‘relatives’ are exempt, and this category includes ‘spouses’. The problem, the petition highlights, is that the law does not provide a separate definition of ‘spouse’. In practice, this has led to the exclusion of same-sex partners from claiming the exemption.

High Court Issues Notice

On August 14, a division bench of Justice B. P. Colabawalla and Justice Firdosh Pooniwalla took note of the plea. Since the petition questions the constitutional validity of a statutory provision, the bench issued a notice to the Attorney General of India for response.

The court acknowledged that the petition involves an important constitutional question of equality before law, especially in light of evolving jurisprudence on the rights of LGBTQ+ citizens in India.

Significance Of The Petition

The case is expected to test the boundaries of existing tax law in relation to same-sex relationships. While the Supreme Court of India decriminalized homosexuality in 2018 through the Navtej Johar judgment, and more recently considered petitions on marriage equality, the absence of legal recognition for same-sex marriages continues to affect financial, tax, and inheritance rights of LGBTQ+ couples.

By seeking parity in taxation, the petitioners aim to ensure that same-sex couples are not penalized for exchanging gifts that heterosexual spouses are freely allowed to transfer without tax implications.

The Attorney General’s response and subsequent hearings will determine whether the judiciary expands the interpretation of the word ‘spouse’ to include same-sex partners. If successful, this case could become a landmark in extending financial and legal recognition to same-sex couples in India, furthering the principle of equality enshrined in the Constitution.