No 'Intelligible Differentia' In Excluding Same-Sex Couples From Spousal Gift-Tax Benefits: Karnataka High Court Told

A same-sex couple challenging the denial of gift-tax exemption available to married couples under the Income Tax Act, 1961 has told the Karnataka High Court that the test of “intelligible differentia” under Article 14 of the Constitution cannot justify their sex-based exclusion, and the same would attract anti-discriminatory provision of Article 15.

The submission was made before Justice B M Shyam Prasad during the hearing of a petition challenging the exclusion of same-sex partners from the definition of “spouse” for claiming tax exemption on gifts received from each other.

The petitioners have challenged the denial of the exemption under the fifth proviso to Section 56(2)(x) of the Income Tax Act, which exempts gifts received from specified relatives, including a spouse, from being taxed as income.

The case arose after a 22-karat gold bracelet allegedly gifted by one same-sex partner to the other attracted tax. The petitioners contend that a heterosexual married couple would have been entitled to the exemption in similar circumstances.

Advocate Dr. Dhruv Janssen-Sanghavi appearing for the petitioners argued that the Union's defence based on 'under-inclusion' is misconceived, because the intelligible differentia test belongs to Article 14, and Article 15 does not permit any differentia drawn on the prohibited ground of sex.

He submitted that the correct constitutional framework for the current case is not 'under-classification' under Article 14, but indirect discrimination under Article 15 r/w Article 14.

For context, the Union had argued earlier, relying on Supriyo [2023], that under-classification is not per se discriminatory. The centre had also cited State of Gujarat v. Shri Ambica Mills Ltd., N. Venugopala Ravi Varma Rajah v. Union of India and Income Tax Officer, Shillong v. N. Takim Roy Rymbai.

Sanghavi stated that three precedents relied upon by the Union were decided under Article 14, where the court applied the test of intelligible differentia and rational nexus. In the present case, however, Article 15 is attracted because the exclusion operates on the ground of sex, and sexual orientation is included within the term 'sex' in Article 15(1).

“…The instant case is solely about indirect discrimination on the basis of sex,” the rejoinder states…The concept of justified under-inclusion is irrelevant to the instant case”, the petitioner submitted.

The petitioners also argued that once Article 15 is attracted, no intelligible differentia can be drawn on the prohibited ground of sex, unless it can be saved by Article 15(3).

It was pointed out that in Supriyo, the denial of access to the institution of marriage was permissible on account of Article 15(3), which permits special provisions for women and children. The context for such protection would be that statutes governing domestic violence, maintenance, alimony, and dowry prohibition are deeply rooted under Article 15(3). No such exception is available in the present case, which concerns an economic benefit under a taxing statute, the petitioners added.

According to the petitioners, Article 15 is the starting point of the analysis. However, the equal protection guarantee under Article 14 follows once it is established that Article 15 prohibits discrimination between the petitioners and an identically situated heterosexual couple, the petitioners told the court. The intelligible differentia test, the petitioners said, cannot be imported into Article 15 once a prohibited ground is attracted.

Before the High Court, the petitioners also relied on Part VI of Supriyo, authored by Justice Bhat, which expressly recognised indirect discrimination as unconstitutional. The petitioners also cited Lt. Col. Nitisha v. Union of India [2021], where the Supreme Court laid down a two-step test: firstly, whether the impugned rule disproportionately affects a particular group, and secondly, whether the law has the effect of reinforcing, perpetuating or exacerbating disadvantage, including economic exclusion.

On another note, the petitioners contended that the Cabinet Secretary's Committee formed after Supriyo [to protect the queer community's interests in financial and administrative spheres] is not the appropriate forum, as it cannot amend the statute for facts that have already occurred in financial year 2024-25, with taxes due in assessment year 2025-26. Only the High Court, according to them, can grant the relief under Article 226, it was stated.

Hence, the petitioners urged the court to extend the equal protection of the impugned provision to them.

After hearing both sides in detail, the court has now reserved the matter for orders.

The case concerns Section 56(2)(x) of the Income-tax Act, which exempts gifts received from 'relatives', including a 'spouse', from being treated as income. The petitioners say that because they are not included in the ambit of 'spouses' under the provision, a gold bracelet received by one partner from the other was taxed, while an identically situated heterosexual couple would not have faced such taxation.

Before the High Court, the petitioners have sought a declaration that the benefit of the provision is available equally to them, or, in the alternative, that it be read into the term 'spouse' for the purposes of the impugned provision alone.