Capital Gains on Jointly Owned Property cannot be Taxed In Hands of One Co-Owner: ITAT [Read Order]
ITAT Mumbai ruled that capital gains from jointly owned property must be taxed proportionately among co-owners.
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gains arising from the sale of jointly owned property cannot be assessed in its entirety in the hands of one of the joint owners.
The Tribunal held that each of the joint owners is liable to tax only in respect of their respective share in the property, and that an assessment made without regard to the joint ownership is not sustainable.
The assessee, Hariprasad Vedasubramanian, jointly owned a residential property with his wife, which was sold during the relevant assessment year for a total consideration of ₹2.64 crore. In his return of income, the assessee offered to tax only his proportionate share of the long-term capital gains arising from the sale.
However, subsequently, the Assessing Officer reopened the assessment and, through an ex parte reassessment order, assessed the entire capital gains, including the co-owner’s share, to tax in the hands of the assessee. The Assessing Officer also disallowed the exemption under Section 54EC and certain deductions under Chapter VI-A.
The assessee challenged the legality of the reassessment and the computation of capital gains through an appeal filed before the Income Tax Appellate Tribunal.
The assessee argued that the property was jointly owned, as evident from the sale deed and ownership papers, and thus the capital gains tax had to be shared by the joint owners. It was further argued that the assessment of the wife’s share of the property in the assessee’s hands was not in accordance with the settled law.
Regarding the denial of exemption under Section 54EC, the assessee argued that the investment in REC Bonds was made within six months of the date of transfer, and thus the denial of exemption was not justified. The assessee also disputed the ex parte assessment and disallowance of deductions.
The Revenue Department supported the assessment order and argued that the assessee had failed to substantiate his claims before the Assessing Officer.
Partially allowing the appeal, the ITAT comprising Justice Anikesh Banerjee[Judicial Member] Makarand Vasant Mahadeokar[Accountant Member] held that the joint ownership of the property was evident, and thus the wife’s share of the capital gains cannot be taxed in the hands of the assessee. The Tribunal held that the Assessing Officer was wrong in not taking into account the joint ownership of the property while calculating the capital gains.
Regarding the issue of exemption under Section 54EC and other deductions, the Tribunal held that the relevant facts were to be verified. In the interest of justice, the ITAT remitted this issue to the file of the Assessing Officer for fresh consideration with a direction to give a reasonable opportunity to the assessee.
Accordingly the appeal was allowed for statistical purposes.
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