Co-owners of property have to pay their share of notional rent, 50% if share not defined: ITAT




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Co-owners of property have to pay their share of notional rent, 50% if share not defined: ITAT

 

Shivani Madan (ITA No. 1642/Del/2020)

 

Facts:

  1. Property was purchased for Rs. 3.50 crores in joint ownership with the husband of the assessee on 08.03.2011. During assessment proceedings the Ld. Assessing Officer (“AO”) asked the assessee vide notesheet entry dated 09.12.2019 to explain why income from the aforesaid property be not charged to tax under the head “income from house property”.
  1. Vide reply submitted on 10.12.2019 it was submitted that the said property is a single unit and is owned by her husband. Her name in the sale deed is only for security purposes and that she contributed Rs. 20 lacs only during AY 2011-12.
  1. The registered sale deed of the property has not defined shareholding between the co-owners. Therefore, the AO held that the ownership of the property would be considered 50-50 and taxed as per section 23(1)(a) of the Income Tax Act. Since the assessee did not provide any expected reasonable rent of the property, he assessed the annual letting value at 8%.

ITAT Delhi held as below:

  1. In the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares.
  1. Husband and wife purchased equal shares and therefore, the Revenue is justified in bringing to tax 50% of the income from house property in the hands of the assessee.
  1. The appeal of the assessee is dismissed.

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI

BEFORE

SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER

AND

MS. ASTHA CHANDRA, JUDICIAL MEMBER

 

ITA No. 1642/Del/2020

Asstt. Year: 2015-16

Smt. Shivani Madan J-278, Saket,

New Delhi- 110 017

PAN AGGPM2632Q

 Vs. ACIT,

Central Circle-05, New Delhi.
(Appellant) (Respondent)
Assessee by: Shri Sahil Sharma, Advocate

Ms. Jyoti Sharma, Advocate
Department by : Shri H.K. Choudhary,CIT-DR
Date of Hearing 29.11.2022
Date of pronouncement 05.01.2023

O R D E R

PER ASTHA CHANDRA, JM

  

  • The appeal by the assessee is directed against the order dated 11.09.2020 of the Ld. Commissioner of Income  Tax  (Appeals)  –  24,  New Delhi (“CIT(A)”) pertaining to assessment year (“AY”) 2015-16.
  1. The assessee has taken the following grounds of appeal:-
  1. That on the facts and circumstances of the case and in law, the order  dated 11.09.2020 passed u/s.250 of the Income  Tax  Act,  1961  (“Act”)  by  the Commissioner of Income Tax (Appeals)-24, Delhi  [“Ld.  CIT(A)”] confirming/upholding the order dated 30.12.2019 passed by the ACIT, Central Circle-5, Delhi (“AO”) is bad in law.

 

  1. That contrary to the facts on record and in disregard of settled law, the Ld. CIT(A) erred in confirming the addition of Rs.9,80,000/- on account of Notional Rent of self-occupied house property fully assessed in the hands of her husband, in which the contribution of the appellant was only 4% of the total purchase consideration.”

 

  • Ground 1 is general.
  • Ground 2 is being adjudicated herein below.
  1. It is a search Search was conducted in  Adam  Smith  Group  of cases on 28.11.2017 under section 132 of the Income Tax Act,  1961  (the “Act”) and the residential premises of the assessee was also covered. Consequent thereto, notice under section 153A of the Act was issued to the assessee on 26.04.2019 which was duly served. The assessee responded by filing return on 14.08.2019 declaring income  of  Rs.  21,09,800/-  as  against the original return filed on 21.08.2015 declaring income of Rs. 20,95,490/-.
  1. Search material revealed purchase of first, second and third floor of property J-278, Saket, Delhi for Rs. 3.50 crores in joint ownership with the husband of the assessee on 03.2011. During assessment proceedings the Ld. Assessing Officer (“AO”) asked the assessee vide notesheet entry dated 09.12.2019 to explain why income from the aforesaid property  be  not charged to tax under the head “income from house property”. Vide reply submitted on 10.12.2019 it was submitted that the said property is a  single unit and is owned by her husband. Her name in the sale deed is only for security purposes and that she  contributed Rs. 20 lacs only during AY 2011- 12.
  1. The explanation of the assessee was not acceptable to the AO. According to him the registered sale deed of the property has not defined shareholding between the co-owners. Therefore, ownership of the property would be considered 50-50 and taxed as per section 23(1)(a) of the Act. Since the assessee did not provide any expected reasonable rent of the property, he assessed the annual letting value at 8% of the cost of property as shown in the sale deed and computed income from house property as under:
Value of property as per details submitted by the assessee

(jointly owned)

 3,50,00,000/-
Gross ALV @ 8% of above value 28,00,000
Standard deduction @ 30% u/s 24a 840000
Income from house property 1960000
Income assessable in hands of the assessee (50% share) 980000
  • 5.1    Accordingly, the Ld. AO taxed the assessee’s share of 50% amounting to Rs. 9,80,000/- in her hands.
  1. Aggrieved, appeal was filed before the Ld. CIT(A) who confirmed the impugned addition by observing as under:

“4.1.5   I have considered above facts as well as submissions of the appellant. As per the provisions of Section 22 of the Act, the ownership of a property is a condition precedent for levy of tax and the word “owner” in Section 22 of the Act is related with the taxability of the income from house property and not with the interest of a person in the property. Part of the payment, however small, has been made by the appellant. The dominion over the property existed in the name of wife and she was lawfully entitled to claim the income emerging from the property. Considering the fact that the appellant was joint owner of the property along with her husband and the sale deed did not specify the percentage of ownership, the Assessing Officer was justified in holding that the appellant was 50% owner of the property. Reliance is placed on the following case laws: 

  • B. Jodha Mai Kuthiala v. CIT [1971 ] 82. ITR 570 (SC)
  • Kaur Singh CIT [1982] 11 Taxman 207/[1983] 144 ITR 756 (Punj. & Har.)
  • Biraj Mohan Biswal CIT [1992] 198 ITR 465 (Ori.)
  • Keshardeo Chamria, in re [1937] 5 ITR 246 (Cal.)

  

  • Since the property was vacant during the year, ALV of the property was liable to be taxed in view of provisions of section 23(1 )(a) of Tax Act.

 

  • The property was purchased by the appellant and her husband for 3,68,00,000/- and the Assessing Officer was justified in taking its value at Rs. 3,50,00,000/-. Hon’ble 1TAT Ahmedabad in the case of Emtici Engineering Ltd. v. Asstt. Commissioner [1997] 58 TTJ 27 (Ahmedabad) held that in the absence of any better way of estimating the rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of property, more particularly when the property is occupied by the owners themselves or by their close relatives. It was held that in view of the size of the properly, its quality of construction and the capital invested thereon, the action of the authorities below, fixing the ALV at 8 per cent return on the cost is fair and reasonable and no interference is called for. The Assessing Officer has estimated ALV of the property at Rs. 28,00,000/- which is reasonable from which standard deduction @30% amounting to Rs. 8,40,000/- has been allowed as deduction. Out of income from house property taxable at Rs. 19,60,000/-, the Assessing Officer has rightly assessed 50% of it amounting to Rs. 9,80,000/- in the hands of the appellant. Hence, addition of Rs. 9,80,000/- is confirmed.”
  1. Dissatisfied, the assessee is in appeal before the
  1. The Ld. AR submitted that the assessee has made investment of 5.4% amounting to Rs. 20 lacs. However, it is customary to include wife’s name in the sale deed. The property is in the name of both husband and wife but the amount contributed by the wife is only 4% of the total investment. Therefore, taxing 50% of house property income in the hands of the  assessee is not justified. Referring to section 26 of the Act, the Ld. AR submitted that since shares of husband and wife who are co-owner of the property are definite and ascertainable, share of the assessee in the income from property being contribution of 5.4% only towards the purchase cost, can at best be brought to tax to the extent of 5.4% only. He relied on the decision of Allahabad Bench of Tribunal in ACIT vs. C.K. Malik (2004) 89 ITD 249 (Alld) and the decision of Calcutta High Court in CIT vs. Ajit Kumar Roy (2001) 252 ITR 468 (Cal).
  1. The DR on the other hand submitted that  ownership  in  the property is determined as per the mutation records. The sale deed nowhere specified the share of the co-owners. Therefore, share of co-owners is not ascertainable. Drawing our attention to the payment schedule appearing at page 24 of the  assessee’s  Paper Book, the  Ld. DR  pointed out that no name has been mentioned and the entire consideration of Rs. 3.50  crores was paid by the vendee, namely both the  co-owners  husband and wife. Only  inference of 5.4% share of wife is drawn from payment made by her. Otherwise in the entire sale deed, there is no definite and ascertainable share  of  the  co- owners. The mutation is in the name of both husband and wife.
  1. In rebuttal, the AR submitted that payment made by the wife evidenced by the bank statement appearing at page 19 of the Paper Book has not been disputed by the Ld. AO.
  1. We have given careful thought to  the  rival submission of the  parties and perused the The material seized in search conducted on 28.11.2017 revealed that during the year, the assessee had purchased a property at 816, Gaur Heights, Vaishali. This property has been declared as her Self Occupied Property. Material seized in search also revealed that the assessee has purchased property J-278, Saket, Delhi in joint ownership  with her husband in AY 2011-12. The issue for consideration before us is the assessment of income from house property, J-278, Saket, Delhi in the hands of the assessee.
  1. Co-ownership of property comes into existence, interalia, by virtue of a joint purchase of the Property J-278, Saket, New Delhi was purchased vide sale deed executed on 8.2.2011 by the husband Mr. Ashish Madan and the assessee jointly on payment of Rs. 3,50,00,000/- in the following manner to the transferor, M/s. Dayal Project Pvt. Ltd. :

 

Pay order/ Bank Draft No./Cheque No. . Date Amount Rs. Drawn on In Favor of
203301 1/2/2011 5,00,000/- IDBT Bank Ltd. M/s Dayal Projects Pvt. Ltd.
203306 5/2/2011 5,00,000/- IDBI Bank Ltd.’ M/s Dayal Projects Pvt. Ltd.
203307 9/2/2011 20,00,000/- IDBI Bank Ltd. M/s Dayal Projects Pvt. Ltd.
213915 9/2/2011 20,00,000/- IDBI Bank Ltd. M/s Dayal Projects Pvt. Ltd.
474480 7/3/2011 16,50,000/-

 

 

 

3,50,000/-

 Axis Bank Ltd. M/s Dayal Projects Pvt. Ltd.
1451395 7/3/2011 Citibank N.A. M/s Dayal Projects Pvt. Ltd.
686337 8/3/2011 2,80,00,000/- Axis Bank Ltd. M/s Dayal Projects Pvt. Ltd.

The copy of sale deed appears at pages 20-31 of the Paper Book.

  1. On perusal of the sale deed, the AO was of the view that the shareholding has not been defined between the co-owners.  The  Ld. CIT(A) has also recorded the finding in para 4.1.5. of his appellate order that the assessee was joint owner of the property  alongwith  her  husband and  that the sale deed did not specify the percentage of ownership. It was for this reason that the Ld. AO held the assessee to be 50% owner of the property.
  • The Ld. DR also highlighted the fact that the ownership in the property is determined as per the mutation record and the sale deed nowhere specified the share of the co-owners. We are inclined to agree with the stand taken by the Ld. AO/CIT(A) and the Revenue that the sale  deed  only speaks  of  the joint ownership of the property by the husband and wife without specifying their definite and ascertainable share in the property.  Moreover,  the  total cost of the property J-278, Saket, Delhi stated before the Ld. AO during assessment proceeding in reply submitted by the assessee  on  10.12.2019 does not match with the sale consideration paid as  per  the  sale  deed executed on 08.03.2011. Therefore, the claim  of  the  assessee  that  she  is joint owner of the property to the extent of 5.4% only is baseless as the facts and circumstances of the case do not support this claim.
  1. Reliance by the Ld. AR on the decision of Allahabad Bench of the Tribunal in C.K. Malik’s case (supra) is misplaced. In that case, there was no sale deed in favour of the assessee and others. It was a case of construction of the property at total cost of 6,82,692/- in which the assessee contributed Rs. 5,54,791/-; his wife, Rs. 1,00,400/-; son Rs. 16,500/- and another son Rs. 12,000/-. The shares of the co-owners were definite and ascertainable. It was in the backdrop of such a factual matrix that the Tribunal held that the Ld. AO has rightly assessed the share of the assessee in the rent according to his investment as per section 26 of the Act. The facts in the case before us are different. Here the sale deed has been executed and the shares of co-owners are not specified at all.
  1. It is interesting to note that in K. Malik’s case (supra) there is reference of decision of Hon’ble Allahabad High Court in Saiyad Abdulla vs. Ahmad AIR 1929 All 817, and the Tribunal observed that in this authority it is held as under:
  • “In the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares.”

  

  1. In the case at hand also there is sale deed and the co-ownership is evidenced therein but there is no specification of shares of the husband and wife in the sale deed. Therefore, following the decision of the Hon’ble Allahabad High Court in Saiyad Abdulla’s case (supra), it must be held that husband and wife purchased equal shares and therefore, the Revenue is justified in bringing to tax 50% of the income from house property in the hands of the assessee.
  1. The decision of Hon’ble Calcutta High Court in Ajit Kumar Rao’s case (supra) relied upon by the Ld. AR also does not help the  In that case, the assessee’s wife had purchased a  flat  in  her  name  but  she  being the housewife did not have independent source of income and the entire investment was made by the assessee (husband). It was in such a scenario that the Hon’ble Calcutta High Court held that the income from property should be taxed in the hands of the  assessee  (husband)  and  not  in  the hands of his wife. In the case before us, the property has been purchased by husband and wife in co-ownership jointly. The assessee is not a housewife. Computation of income for AY 2015-16 appearing at page 2 of Paper Book shows that she is salary earner and earned salary of Rs. 24 lacs from Adam Smith Associates Pvt. Ltd.  in  AY  2015-16.  Therefore,  on  facts the case of the assessee before us differs from the Ajit Kumar Rao’s case (supra).
  1. For the reasons set out above, we find no substance in ground No. 2 of the assessee and reject the
  1. In the result, the appeal of the assessee is

Order pronounced in the open court on 5th January, 2023.

 

sd/-                                                                                                                   sd/-

(ANIL CHATURVEDI)                                                                                                                     (ASTHA  CHANDRA)

ACCOUNTANT MEMBER                                                                                                                JUDICIAL MEMBER

Dated:         05.01.2023

Veena

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  1. Applicant
  2. Respondent
  3. CIT
  4. CIT (A)
  5. DR:ITAT

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ITAT, New Delhi

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