The Delhi High Court recently ruled that tax liability on income from house property should be imposed on the person who actually derives the income, rather than on someone who is merely a signatory to the conveyance deed [Shivani Madan v. Commissioner of Income Tax, Delhi].
A Division Bench comprising Justices Yashwant Varma and Harish Vaidyanathan Shankar observed:
“The Act does not create a legal presumption that income must necessarily be assessed in the hands of an individual merely because they are a signatory to a conveyance instrument. In our view, taxability must be determined based on the individual who actually benefits from the property.”
Case Background
The case concerned the assessment of income from a residential property in Saket, New Delhi, jointly owned by the appellant and her husband. The property was purchased in 2011 for ₹3.5 crore. During the assessment process, the appellant was asked why she should not be taxed for ‘income from house property.’
She contended that she had contributed only ₹20 lakh toward the purchase in AY 2011-12 and that her name was included in the sale deed solely for that reason. She argued that her husband was the primary owner and that she should not be taxed on the income generated from the property.
However, the Assessing Officer (AO) held that, since the property was jointly owned, 50% of the income should be taxed in her hands. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) upheld this decision, ruling that the absence of a specified ownership share in the sale deed implied equal ownership.
High Court Ruling
The High Court overturned the ITAT’s decision, clarifying that the Income Tax Act, 1961 does not assume equal ownership solely because a person’s name appears on a property deed. It emphasized that Section 22 of the Act focuses on the individual entitled to receive income from the property, rather than legal ownership.
Referring to a Supreme Court ruling, the Bench reiterated that taxability must be determined by identifying the actual recipient of the income. The Court further noted that the Act differentiates between income derived from house property and mere ownership interest.
“We find that both the Tribunal and the lower authorities proceeded on the assumption that since the appellant was a signatory to the sale deed, she was liable for tax on 50% of the income. This approach is incorrect.”
Legal Representation
- The appellant was represented by Advocates Hasneeta Matta, Prateek Kumar, and Ankita.
- The Income Tax Department was represented by Senior Standing Counsel Sunil Kumar Agarwal, along with Advocates Shivansh B Pandya, Viplav Acharya, Priya Sarkar, and Utkarsh Tiwari.
