The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has recently held that income earned and declared by the wife on sale of joint-owned property is not taxable at the hands of the husband.
The aforesaid appeal was filed by the assessee Dilip Divakaran Kanath, who filed his return of income and declared total income of ₹.3,31,080/-. Thereafter his case was selected for scrutiny.
During the assessment proceedings, the AO observed that the assessee has declared income from capital gains , income from rent, income from other sources.
The assessing officer observed that the assessee and his wife purchased a joint property. Subsequently, they sold the said property in assessment year 2009-10 and computed long term capital gain. Therefore, the Capital Gain arising out of it was to be availed by both the parties in 50:50 share.
However, the assessee’s wife claimed the entire Long Term Capital Gain in her hand and claimed deduction under Section 54 of Income Tax Act, 1961.
Between the assessment proceedings, AO of assesee’s wife took 50% of capital gain in the hands of the assessee from sale of residential premises and added the same to the total income of the assessee without allowing deduction under Section 54 of the Income Tax Act for investment made in new residential property and states that assessee’s share in the said property is 50% and balance 50% belongs to assessee’s husband.
Against the order assesse’s wife filed appeal before CIT(A) and they allowed 50 % deduction of the capital gain as deduction for investment in purchase of new residential flats in the hands of the assessee’s wife.
After considering the assesee’s wife case AO issued notice under Section 142(1) of the Income Tax Act to show cause as to why 50% of the long term capital gain should not be taxed in his hands as the assessee had not offered any income from long term capital gain in his return.
Thereafter, the AO proceeded to make the addition in the hands of the assessee with the observation that the assessee has not offered any income from long term capital gain in his return of income.
Aggrieved assessee filed appeal before CIT(A). The CIT(A) dismissed the appeal. Further, the assessee filed a second appeal before the tribunal.
Before the tribunal bench, Malav P. Sheth, counsel for the assessee, submitted that income has already been declared in the hands of the assessee’s wife and assessee’s wife has claimed the deduction under Section 54 of the Income Tax Act.
Therefore, the Assessing Officer could not initiate separate proceedings for the same set of income in the hands of the assessee also.
Milind Chavan, counsel for the revenue submitted that property was purchased in the joint name of assessee and his wife and also supported the findings of the lower authorities
It was observed that whole income earned by the assessee’s wife was brought to tax and therefore the same income could not be separately brought to tax in the hands of the assessee.
The two-member bench of Amit Shukla, (Judicial Member) and S. Rifaur Rahman, (Accountant Member) viewed that income cannot be taxed in the hands of two persons.
Hence, the bench allowed the appeal filed by the assessee.
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