In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal observed that the spouse, who has not invested in the property, will not have the liability to pay income tax for the capital gains though she is a co-owner of the said property.
The assessee, a medical professional has filed her return for the relevant assessment year. The Assessing Officer rejected the said return by holding that the assessee sold one of her property in the relevant year and the capital gain arose out of the sale of such property did not shown in her returns. The assessee maintained that the said property was purchased by her husband out of his own income. Though the property was in the joint name of the assessee and her husband, the husband was the real owner. The husband of the assessee, being the real owner of the property has shown the income from capital gain in his return of income.
The AO however, rejected the contentions of the assessee by holding that that the whole arrangement surrounding the transaction in respect of the said property was worked out to avoid legitimate tax and defraud the Revenue Department. It was further alleged by the AO that though the capital gains on sale of the said property were disclosed by the assessee’s husband, he has actually not paid any tax on the profit on the sale thereof as the same was set off against short term capital loss (STCL) on sale of some shares. It was further observed that the case of the assessee’s husband case was not selected for scrutiny for A.Y. 2005-06 and 2009-10 and also since the assessee was shown to be the first holder of the said property as per the agreement and AIR information, proceeded to bring to tax 50% of the short term capital gains (STCG) arising on sale of the said property in the assessee’s hands as co-owner of the property. Accordingly, the AO has completed assessment by adding the capital gains from the above transaction to the total income of the assessee.
The Tribunal on appeal filed by the assessee, found that the Assessing Officer while re-opening the assessment for the year 2005-06 for considering the investments made in the acquisition of the said property admitted the fact that the assessee is the owner of the impugned property.
The Tribunal observed that “In this factual matrix of the case, we concur with the finding rendered by the learned CIT(A) that the entire STCG arising on sale of the said property is to be assessed in the hands of Sri Arjun Bulchandani, the assessee’s husband and not in the assessee’s hands and consequently uphold his direction to the AO to delete the addition of `45,38,254/- on account of 50% STCG arising on sale of the said property. Revenue’s grounds at Sr. No. 1 to 3 are accordingly dismissed.”
Read the full text of the order below.
