Tax Evasion, Not Tax Planning: Kerala High Court Denies Refund of Luxury Tax to Man Who Gave Part of His Home to His Wife.

The Kerala High Court has rejected a writ petition from a man who wanted a refund of luxury tax after transferring part of his building to his wife. He challenged the luxury tax imposed under the Kerala Building Tax Act of 1975. Justice Gopinath P. stated, “Tax planning is allowed, but tax evasion is not.” The petitioner was represented by Advocate George Mathews, while Senior Government Pleader Thushara James represented the respondents. The petitioner argued that he had built a two-story residential building, which was assessed for luxury tax, and he had been paying this tax regularly.

The petitioner stated that the first floor of the residential building was given to his wife, reducing his occupied area to 162.30 Sq.m, which is under the threshold for luxury tax. He went to court to request an order confirming that he is the sole owner of the remaining building and not responsible for luxury tax payments. The petitioner also asked for a refund of any luxury tax he paid after the ownership transfer of the first floor. The petitioner’s lawyer pointed out that according to the 1975 Act, luxury tax can only be charged if the petitioner occupies a residential building with an area at or above the limit set in Section 5A. Since part of the building was transferred to his wife, the area he occupies is now below that limit.

The Government Pleader for the respondent argued that the petitioner cannot avoid paying luxury tax after building a residential property that exceeds the limits set in Section 5A of the 1975 Act, even if they transfer part of the building to family members. The Bench supported the Senior Government Pleader’s point that if the petitioner’s argument was accepted, anyone liable for luxury tax could simply transfer part of their property to a spouse or relative to avoid payment.

The building is still occupied and used by the petitioner, and using such a method would be considered tax evasion, not tax planning. The law allows tax planning, but tax evasion is illegal, the Bench stated. The Court also mentioned that the method used by the petitioner was not a legitimate tax planning effort; it was clearly an attempt to avoid paying taxes. Therefore, based on these facts and legal points, the Bench rejected 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.