MUMBAI: The Income Tax Appellate Tribunal (ITAT) in Mumbai has ruled that if a spouse’s name is included on a property for convenience or security, the income-tax department cannot automatically attribute the entire sale proceeds to that individual without assessing who actually funded and owned the property.
This decision comes as a relief to a Mumbai taxpayer who faced a ₹62.5 lakh increase to her income. The tribunal instructed the I-T officer to validate her claim that she was merely a nominal co-owner, with the flat being entirely purchased and sold by her husband using his funds and that these capital gains had already been reported in his income tax return.
The case involved a taxpayer named Gupta, who had her assessment for AY 2018-19 reopened after the tax department learned she sold property for ₹62.5 lakh during the financial year 2017-18 without filing an income-tax return. The tax officer made an ex parte assessment (without hearing the taxpayer) and assessed the entire sale amount as taxable income, citing a lack of documents related to acquisition costs or capital gains computation.
Before the ITAT, Gupta argued she was only name-listed as a co-owner and that her husband fully financed the property through his personal bank accounts and loan proceeds. Additionally, it was asserted that her husband had reported the capital gains from the sale in his income tax return. Gupta presented supporting documents, including purchase and sale agreements, bank statements, loan records, and tax return acknowledgments, to the ITAT.
The I-T department acknowledged that these claims needed proper verification since both the original assessment and first appeal were decided ex parte.
The ITAT bench, comprising Amit Shukla (judicial member) and Makarand Vasant Mahadeokar (accountant member), noted that Gupta’s argument “goes to the root of the matter” as it directly impacts her tax liability. They highlighted that neither the I-T department nor the appellate commissioner had examined her assertion of being a nominal co-owner.
The tribunal emphasized that the I-T officer must now confirm the ownership structure and whether capital gains were already taxed under her husband’s name.
Tax experts commented that this ruling aligns with previous ITAT decisions that recognize that, in numerous family property transactions, spouses or family members are sometimes included as co-owners purely for security or convenience, often without contributing financially or benefiting from the asset. In such circumstances, tribunals have consistently maintained that taxation should reflect true ownership and financial contribution rather than a mere inclusion on documentation.
