If the spouse has not invested in a property and is merely a co-holder, then on sale of such property, she cannot be liable for tax on capital gains, the Mumbai Income-Tax Appellate Tribunal (ITAT) has recently ruled.
The ITAT order will help many taxpayers as married couples are increasingly opting for property registration in joint names, even if only one of them is the investor.
Anil Harish, an advocate specializing in real estate, said: "Co-holding of property is popular. Often the name of a spouse (say wife) is added to provide a sense of comfort, to ensure ease of succession on death of the partner or other reasons such as facilitating voting in a general body meeting of the housing society."
The ITAT gave the order on Wednesday while hearing a case of a medical professional, Vandana Bhulchandani.
An income-tax (I-T) officer, based on information in his possession, noted that Bhulchandani had not disclosed the capital gains arising from the Rs 2.12-crore sale of a property in Parel that she jointly held with her husband in her I-T return for the financial year 2008-09.
She informed the I-T officer that her husband had made the entire investment and the property was reflected in his books of accounts—from the date of purchase till the date of sale. The officer also observed that Bhulchandani's husband did not incur any I-T liability on the capital gains arising from the sale—the husband had set off the short-term capital gains arising from the Parel property sale against the short-term capital losses incurred by him on the sale of shares. Under the I-T Act, short-term capital losses can be set off against capital gains arising in the same financial year and only the surplus, if any, is taxable.
But the I-T officer claimed that the entire arrangement was done to avoid tax payment and held Bhulchandani to be liable for 50% of the total short-term capital gains arising from the property sale and added Rs 45.38 lakh to her taxable income. Short-term capital gains are taxed at the applicable I-T slab rates, which depending on an individual's income varies between 10% and 30% in addition to applicable surcharge and cess.
Bhulchandani approached the commissioner of income-tax (appeals) who directed deletion of the addition. The I-T officer then filed an appeal before the ITAT. But the tribunal took into cognizance that the husband had bought the property, which was duly reflected in his books of accounts, and had also disclosed the details of the sale in his I-T return and thus, dismissed the appeal.
The ITAT order will help many taxpayers as married couples are increasingly opting for property registration in joint names, even if only one of them is the investor.
Anil Harish, an advocate specializing in real estate, said: "Co-holding of property is popular. Often the name of a spouse (say wife) is added to provide a sense of comfort, to ensure ease of succession on death of the partner or other reasons such as facilitating voting in a general body meeting of the housing society."
The ITAT gave the order on Wednesday while hearing a case of a medical professional, Vandana Bhulchandani.
An income-tax (I-T) officer, based on information in his possession, noted that Bhulchandani had not disclosed the capital gains arising from the Rs 2.12-crore sale of a property in Parel that she jointly held with her husband in her I-T return for the financial year 2008-09.
She informed the I-T officer that her husband had made the entire investment and the property was reflected in his books of accounts—from the date of purchase till the date of sale. The officer also observed that Bhulchandani's husband did not incur any I-T liability on the capital gains arising from the sale—the husband had set off the short-term capital gains arising from the Parel property sale against the short-term capital losses incurred by him on the sale of shares. Under the I-T Act, short-term capital losses can be set off against capital gains arising in the same financial year and only the surplus, if any, is taxable.
But the I-T officer claimed that the entire arrangement was done to avoid tax payment and held Bhulchandani to be liable for 50% of the total short-term capital gains arising from the property sale and added Rs 45.38 lakh to her taxable income. Short-term capital gains are taxed at the applicable I-T slab rates, which depending on an individual's income varies between 10% and 30% in addition to applicable surcharge and cess.
Bhulchandani approached the commissioner of income-tax (appeals) who directed deletion of the addition. The I-T officer then filed an appeal before the ITAT. But the tribunal took into cognizance that the husband had bought the property, which was duly reflected in his books of accounts, and had also disclosed the details of the sale in his I-T return and thus, dismissed the appeal.
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