Assessee liable to equal tax on the income from house property where joint owner's shares are not mentioned in sale deed

The ITAT, Delhi in Smt. Shivani Madan v. ACIT [ITA No. 1642/Del/2020 dated January 5, 2023] has held that the husband and wife will have equal shares in the house property purchased by them as joint owners, wherein, the sale deed had been executed and the shares of co-owners is not specified. Further, the assessee would be liable to pay tax on the 50% of the income from house property. 

Facts

A search was conducted at the Adam Smith Group on November 28, 2017 under Section 132 of the Income Tax Act, 1961 ("the IT Act") wherein, the residential premises of Smt. Shivani Madan ("the Appellant") was also searched. Thereafter, a notice dated April 26, 2019 ("the Impugned Notice") under Section 153A of the IT Act was issued to the Appellant, to which the return was filed by the Appellant on August 14, 2019, declaring income of INR 21,09,800/- as against the earlier filed income of INR 20,95,490/-.
The search revealed a purchase of a house property on March 8, 2011 for INR 3.50 crores in joint ownership with the husband of the Appellant, for which the Revenue Department ("the Respondent") asked the Appellant to explain why the income from such house property should not be chargeable to tax in the hands of the Appellant. Consequently, the Appellant submitted that the house property is a single unit and is owned by her husband and her name is only for the security purposes for which the Appellant contributed INR 20 lacs only during AY 2011-12. 

The Respondent submitted that the registered sale deed of the property has not defined shareholding between the co-owners therefore, equal ownership of the property would be considered and taxed as per Section 23(1)(a) of the IT Act. Accordingly, the Respondent taxed the Appellant's share of 50% amounting to INR 9,80,000/- vide order dated December 30, 2019 ("the OIO").

Being aggrieved, an appeal was filed before the Commissioner of Income Tax (Appeals), wherein vide order dated September 11, 2020 ("the OIA"), the addition for the Appellant share in house property was confirmed. Hence, this appeal.

Issue

Whether the addition made by the Respondent in the OIO for 50% share of the Appellant in the house property is maintainable?

Held

The ITAT, Delhi in ITA No. 1642/Del/2020 held as under:

• Observed that, the Appellant was joint owner of the property along with her husband and that the sale deed did not specify the percentage of ownership, therefore, the Respondent held the Appellant to be 50% owner of the property.
• Opined 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.
• Noted that, the sale deed only speaks of the joint ownership of the property by the husband and the Appellant without specifying their definite and ascertainable share in the property.
• Further observed that, the total cost of the property in the sale deed does not match with the reply submitted by the Appellant on December 10, 2019. 
• Stated that, the claim of the Appellant that it is a joint owner of the property to the extent of 5.4% only, is baseless. 
• Relied on the judgment of the Hon'ble Allahabad High Court in (Saiyad) Abdullah Versus Ahmad and Ors. [AIR 1929 All 817 dated June 10, 1922], wherein it was held that husband and wife purchased equal shares and therefore, the Revenue Department is justified in bringing to tax 50% of the income from house property in the hands of the assessee.
• Held that, the addition of INR 9,80,000/- on account of 50% share in ‘Income from House Property' to be taxable in the hands of the Appellant. 

Relevant Provisions

Section 153A of the IT Act

"Assessment in case of search or requisition.

(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 but on or before the 31st day of March, 2021, the Assessing Officer shall-

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years] referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years   immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and of the relevant assessment year or years :

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years :

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-sectionpending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.

Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. and for the relevant assessment year or years 

Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless-

(a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years;

(b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and

(c) the search under section 132 is initiated or requisition under   section 132A is made on or after the 1st day of April, 2017.

Explanation 1.–For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.

Explanation 2.–For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account.'

(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner:

Provided that such revival shall cease to have effect, if such order of annulment is set aside.

Explanation.-For the removal of doubts, it is hereby declared that,-

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;

(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."

Section 23(1) of the IT Act

"Annual value how determined

(1) For the purposes of section 22, the annual value of any property shall be deemed to be-

(a) the sum for which the property might reasonably be expected to let from year to year; or

(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise."