Mumbai: If a spouse’s name is added to a property merely for convenience or security, the income-tax (I-T) department cannot automatically tax the entire sale proceeds in that person’s hands without examining who actually funded and owned the property, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held.In a relief for a Mumbai taxpayer who was saddled with a Rs 62.5 lakh addition to her income, the tribunal directed the I-T officer to verify her claim that she was only a nominal co-owner, while the flat was fully purchased and sold by her husband using his own funds, and that the capital gains were already disclosed in his I-T return.The case involved one Gupta, whose assessment for AY 2018-19 was reopened after the tax department received information that she had sold an immovable property for Rs 62.5 lakh during the financial year 2017-18, but had not filed an I-T return. The tax officer completed the assessment ex parte (without hearing the taxpayer) and treated the entire sale consideration as taxable income in her hands after noting that no details regarding acquisition cost or computation of gains were furnished.Before the ITAT, Gupta contended that she was only a co-owner in name and that the property was entirely funded by her husband through his own bank accounts and loan proceeds. It was also submitted that the husband had already disclosed the capital gains arising from the sale of the property in his I-T return. Supporting documents, including purchase and sale agreements, bank statements, loan disbursement records and the husband’s tax return acknowledgement, were placed on record with the ITAT.The I-T department stated that these factual claims required proper verification since both the I-T assessment and first appellate orders were 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 tax tribunal noted that neither the I-T nor the commissioner (appeals) had examined her claim that she was only a nominal co-owner.The tax tribunal said the I-T officer must now verify the ownership pattern and whether the capital gains were already taxed in the hands of her husband.Tax experts said the ruling is consistent with a line of ITAT decisions recognising that, in many family property transactions, names of spouses or relatives are often added as co-owners for security, succession planning or convenience, without them contributing funds or deriving any real income from the asset. In such cases, tribunals have repeatedly stressed that taxation must follow the real owner and beneficial contributor rather than mere inclusion of a name in property documents.
