Spouse’s name on property papers? ITAT says taxability depends on who paid for the flat

Simply adding a spouse's name to a property does not automatically make that person liable for tax on the entire sale proceeds, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled, stressing that tax authorities must determine who actually funded and owned the asset.

The ruling came as a relief for a Mumbai taxpayer who faced an addition of Rs 62.5 lakh to her income after the tax department treated the full sale value of a flat as taxable in her hands.

The case involved Gupta, whose assessment for AY2018-19 was reopened after the Income Tax Department received information that she had sold an immovable property worth Rs 62.5 lakh during FY2017-18 but had not filed an income-tax return.

The assessing officer completed the assessment ex parte and treated the entire sale consideration as taxable income after noting that details relating to acquisition cost and capital gains computation had not been furnished.

Before the ITAT, Gupta argued that she was merely a nominal co-owner and that the flat had been entirely purchased and sold by her husband using his own funds and loan proceeds. She also submitted that the capital gains arising from the transaction had already been disclosed in her husband's income-tax return.

Purchase and sale agreements, bank statements, loan disbursement records and the husband's tax return acknowledgement were placed before the tribunal.

The tax department said these factual claims required verification as both the assessment order and the first appellate order had been passed ex parte.

The ITAT bench of Amit Shukla, judicial member, and Makarand Vasant Mahadeokar, accountant member, observed that the taxpayer's contention "goes to the root of the matter" as it directly affects taxability in her hands.

The tribunal noted that neither the assessing officer nor the Commissioner of Income Tax (Appeals) had examined her claim that she was only a nominal co-owner.

It directed the assessing officer to verify the ownership pattern and determine whether the capital gains had already been taxed in the hands of her husband before taking a fresh view.

The ruling is important for property owners because spouses are often added to property documents for convenience, security, succession planning or financing requirements, even when one person has funded the entire purchase.


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