The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that if the sale deed does not mention the share held by co- owners, there would be equal income tax liability on rental income.
The aforesaid observation was made by the Delhi ITAT, when an appeal was preferred before it by an appellant, as against the order dated 11.09.2020, of the Commissioner of Income Tax (Appeals), New Delhi (CIT(A)), pertaining to assessment year (AY) 2015-16.
The question involved in the assessee’s appeal being as to whether, contrary to the facts on record and in disregard of settled law, the CIT(A) has erred in confirming the addition of Rs.9,80,000/- ,on account of Notional Rent of self-occupied house property fully assessed in the hands of her husband, in which the contribution of the appellant was only 5.4% of the total purchase consideration, the brief facts pertaining to the case were that a search was conducted in Adam Smith Group of cases, on 28.11.2017, under section 132 of the Income Tax Act, 1961 , and the residential premises of the assessee was also covered.
Consequent thereto, a notice under section 153A of the Income Tax Act was issued to the assessee on 26.04.2019 which was duly served, to which the assessee responded by filing return on 14.08.2019 declaring income of Rs. 21,09,800/- as against the original return filed on 21.08.2015 declaring income of Rs. 20,95,490/-
However, the search material revealed a purchase of first, second and third floor of property J-278, Saket, Delhi for Rs. 3.50 crores in the joint ownership with the husband of the assessee on 08.03.2011, based on which, during the assessment proceedings the Assessing Officer (AO), asked the assessee, vide note sheet entry dated 09.12.2019, to explain why income from the aforesaid property shall not be charged to tax under the head “income from house property”.
Thereafter, vide reply submitted on 10.12.2019, it was submitted by the assessee that the said property was a single unit and was owned by her husband, that her name in the sale deed was only for security purposes, and that she had contributed Rs. 20 lacs only during AY 2011- 12.
The explanation of the assessee was not acceptable to the Ld. AO, as according to him, the registered sale deed of the property has not defined the shareholding between the co-owners. Therefore, he was of the opinion that the ownership of the property would be considered 50-50 and thus liable to tax as per section 23(1)(a) of the Income Tax Act. And, since the assessee did not provide any expected reasonable rent of the property, he assessed the annual letting value at 8% of the cost of property as shown in the sale deed and computed income from house property, with income assessable in hands of the assessee (50% share) i.e., at Rs 980000/-
Aggrieved by the same, the assessee filed an appeal before the CIT(A) who confirmed the impugned addition, thus leaving the assessee with the only option of filing an appeal before the Delhi ITAT.
During the hearing of the case, it was submitted by Shri Sahil Sharma and Ms. Jyoti Sharma, the Advocates for the assessee, that the assessee had made an investment of 5.4% amounting to Rs. 20 lacs, but that it being customary to include wife’s name in the sale deed, that the assessee’s name was also included in it.
They added that the property though being in the name of both the husband as well as the wife, the amount contributed by the wife being only 5.4% of the total investment, taxing 50% of house property income in the hands of the assessee is not justified.
With the AR for the assessee, referring to section 26 of the Income Tax Act, while submitting that since the shares of husband and wife who are co-owner of the property are definite and ascertainable, the share of the assessee in the income from property being contribution of 5.4% only towards the purchase cost, the same can at best, be brought to tax to the extent of 5.4% only, he relied upon the decisions of the Allahabad Bench of Tribunal in ACIT vs. C.K. Malik as well as that of Calcutta High Court in CIT vs. Ajit Kumar Roy, to support his claim.
Shri H.K. Choudhary, the DR on the other hand, submitted that ownership in the property was determined as per the mutation records, and that the sale deed nowhere specified the share of the co-owners. Therefore, the share of co-owners being non- ascertainable, he relied on the orders of the Lower Authorities.
Hearing the opposing contentions of either sides and perusing the materials available on record, the Bench of Delhi ITAT consisting of Anil Chaturvedi, the Accountant Member, along with Astha Chandra, the Judicial Member, observed:
“The decision of Hon’ble Calcutta High Court in Ajit Kumar Rao’s case (supra) relied upon by the Ld. AR also does not help the assessee. In that case, the assessee’s wife had purchased a flat in her name but she being the housewife did not have independent source of income and the entire investment was made by the assessee (husband). It was in such a scenario that the Hon’ble Calcutta High Court held that the income from property should be taxed in the hands of the assessee (husband) and not in the hands of his wife.”
“In the case before us, the property has been purchased by husband and wife in co-ownership jointly. The assessee is not a housewife. Computation of income for AY 2015-16 appearing at page 2 of Paper Book shows that she is salary earner and earned salary of Rs. 24 lacs from Adam Smith Associates Pvt. Ltd. in AY 2015-16. Therefore, on facts the case of the assessee before us differs from the Ajit Kumar Rao’s case”, the ITAT Bench added.
Thus, dismissing the assessee’s appeal, the Delhi ITAT held:
“For the reasons set out above, we find no substance in the ground of the assessee and reject the same. In the result, the appeal of the assessee is dismissed.”
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