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Chintan Shah (-)     07 February 2010

Clubbing of capital gains in the case of house property

Friends,



Section 64(1)(iv) reads as below:

(iv) subject to the provisions of clause (i) of section 27, 40[* * *] to the spouse41 of such individual from assets transferred41 directly or indirectly to the spouse by such individual otherwise than for adequate consideration41 or in connection with an agreement to live apart ;

Hence Section 64 (1)(iv) is not applicable to house property for which seperate provision has been prescribed.

Hence in case of house property, Section 27 states that when the same is transferred without adequate consideration,etc, the transferror is deemed to be the owner of the property.

However the section starts, for the purposes of Section 22 to section 26. Hence it is not applicable to any other income.

My question is if an individual transfers his property to her spouse without adequete consideration who sells it for profit will the capital gains on the same be clubbed in the hands of the individual or it will be chargeable in the hands of his spouse?

Similarly, if the spouse further demolishes the house property and constructs a commercial building on the land and rents out offices, will the commercial rent income be chargeable to tax as business income or income from house property and will it be clubbed in the hands of individual?



 6 Replies

Amir

Amir (Learner)     07 February 2010

Dear Chintan Shah,

The words "Subject to 27" used in Sec 64(1)(iv), doesnot mean that the latter caluse is not applicable on House Property(s), it simply means that in cases of contradiction the provisions of Sec 27 shall prevail over Sec 64(1)(iv)....

Further the use of pharase "For the purposes of sec 22 to sec 26" in Sec 27, itself means that the provisions of Sec 27 prevails over Sec64(1)(iv) only for the purposes of "Income under House Property"

This means the Capital Gain (which is computed u/s 45) arising on the Property can very well be clubbed with the income of Spouse who transferred it, since it falls within the ambit of Sec 64(1)(iv)...Capital Gain will be clubbed, no doubt about it.......

Now regarding ur second query, The income from letting out of commercial building is chargeable under "house property, since I don't think in this case wife is carring on any business, therefore the question of PGBP doesnot arise'..

Whether it will be clubbed or not, If wife has constructed this commercial building from her own sources of funds/income then "No, it will not be clubbed". Otherwise - Yes it will be clubbed

1 Like
Chintan Shah

Chintan Shah (-)     07 February 2010

thx

Chintan Shah

Chintan Shah (-)     07 February 2010

The income from rent would be taxable under PGBP if the the owner of a large commercial property is doing the business of renting the shops in such commercial property on an on going basis and if he is also providing the ancilliary services such as maintanence of the property, lift, maintanence of parking facilities, watchmen, gatekeeper, etc. So it may be taxable under PGBP. It has also been held by the H'ble supreme court and high courts in several judgements. Definitely depends on the facts of the case but yes income from rent of property may be taxed as PGBP if facts and circumstances show the intention of the party of doing business on a continious basis and not to earn just rent income. There must be some effort on the part of the owner to prove it to be a business income. If the income is more passive in naturee than only it would be taxable under the head house property.

Amir

Amir (Learner)     07 February 2010

Dear Chintanshah,

Bother u have rightly mentioned this thing that's why I mentioned above that I don't think she is carrying on any business...............

Now regarding ur second query, The income from letting out of commercial building is chargeable under "house property, since I don't think in this case wife is carring on any business, therefore the question of PGBP doesnot arise'..

1 Like
Bharat

Bharat (Executive-Finance & Accounts)     24 June 2011

minor received property from grandfather on death ,Whether capital gain on sale of such property is clubbed in hands of parents or taxed in hands of minor?

SIDDHESH SHIRKE

SIDDHESH SHIRKE   21 July 2021

If my Mr A sells the property and the new property brought is under Mrs A name , can I club my Mr A's LTCG with Mrs A's Income and take the benefit of LTCG exemption


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