The Karnataka High Court has taken up a same-sex couple's challenge to the Income Tax Act's gift-tax exemption, which shields only married spouses from tax on gifts received from partners. Petitioners Anurag Kalia and Akhilesh Godi argue that the exclusion of same-sex partners from that exemption is constitutionally unsustainable and penalises them for expressing love for their life partners.

The single-judge bench of Justice B.M. Shyam Prasad heard rejoinder submissions and fixed November 2 for clarification of certain documents, after which it is expected to reserve its verdict.

The case arose after Godi gave Kalia a 22-karat gold bracelet described as a family heirloom. The couple challenged the tax treatment of the gift, asserting that the exemption available to a spouse under the fifth proviso to Section 56(2)(x) of the Income Tax Act, 1961 should equally apply to same-sex partners.

A family heirloom and a tax divide

Under the impugned provision, gifts from specified relatives, including a spouse, are excluded from taxable income. Gifts from outside that defined circle can be taxed if they exceed the prescribed threshold. The petitioners say their relationship, although not recognised as marriage, is functionally comparable for this purpose, and the tax law's line between married and unmarried couples violates the right to equality.

Advocate Dr. Dhruv Janssen Sanghvi , for the petitioners, submitted that a nation's tax treatment of its people reveals the values it protects. Same-sex partners, he argued, are singled out for a tax burden that married couples do not carry. "Also how a nation taxes its people reflects the values it holds. Distinguishing between its people, in how it taxes them, reflects who it thinks deserves liberty and who it does not. And in the instant case, it translates to who deserves to express their love for their life partners, and who must pay taxes for expressing," he submitted.

Why marriage should not be an automatic line

Sanghvi accepted that marriage could be a reasonable ground for classification in some settings, but said the classification must be examined in the context of the provision and the constitutional rights it affects. A marriage-based distinction may be justified, he said, for access to religious and social institutions protected under Article 25 or for protection of women and children under Article 15(3). Neither concern applies to a gift-tax exemption.

He also pointed out that the spousal gift exemption is gender-neutral: a gift from a wife to her husband is excluded just as one from husband to wife is. Denying the same treatment to same-sex partners, he argued, cannot be justified merely by invoking marital status.

He sought to distinguish the Supreme Court of India's Constitution Bench decision in Supriyo v. Union of India , on which the respondents apparently relied. Supriyo , he submitted, primarily dealt with the right to marry and its legal consequences; its concerns about adoption by same-sex couples arose from the absence of a legislative framework on child custody and maintenance. The gift-tax exemption involves no comparable concerns relating to children, religion or cultural rights.

The under-inclusion defence

The respondents invoked under-inclusion to defend the classification, arguing that a law giving a benefit to some but not all is not necessarily arbitrary. Sanghvi countered that the label does not automatically insulate a distinction from judicial review. Under-inclusion, he argued, can be valid in some circumstances but not here, where the exclusion is not justified by any constitutional goal identified by the respondents.

Relying on State of Gujarat v. Ambica Mills , he said the Supreme Court had left open whether an under-inclusive classification could be remedied by extending the legislation to the omitted class. The passage, he argued, shows that under-inclusion is not beyond judicial scrutiny. "Our case is the exact inverse of it. We are the underincluded class and we are saying these extend the benefit of the provision to us," he added.

He also addressed reliance on Venu Gopala Ravi Varma Raja v. Union of India , which concerned the Expenditure Tax Act, 1957 and Hindu undivided families, and on Tukkin Roy Rymbai , concerning Scheduled Tribe exemptions. Those decisions, he argued, show that under-inclusion does not automatically escape constitutional scrutiny; the justification and the rights affected matter. He further cited Lawrence Singh Indi v. State of Assam , where a benefit was extended to an excluded assessee.

He also relied on Lt. Col. Nitisha v. Union of India to argue that constitutional scrutiny must consider the actual effect of a law on the affected group, not merely legislative intention.

Excluding same-sex partners from the spousal exemption, he concluded, imposes a different tax consequence on their relationships even though the exchanged gifts are comparable. The court, he urged, should examine whether the classification withstands constitutional scrutiny.

Clarifications due before verdict

The bench asked for clarification on certain documents filed in the case and posted the matter for November 2. Once clarified, it is expected to reserve its judgment. The outcome could determine whether the marriage-based gift-tax exemption must be read to include same-sex partners or left to Parliament to redraw.