Income tax tribunal ruling clarifies capital gains tax liability for property sale

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, has ruled that an individual whose name is added as a co-owner of a property without being its actual beneficiary is not liable for capital gains tax when the property is sold. The tribunal emphasised that ownership is determined by financial interest rather than just the name on the property title. The ruling came in the case of V N Jain, who jointly held a property with his brother, a TOI report stated. The property was sold for Rs 54 lakh in the financial year 2014-15. The Income-Tax (I-T) officer held that Jain had no prior family arrangement relinquishing his right to the property and therefore considered Rs 27 lakh, Jain’s share of the proceeds, as taxable capital gains.

Appeals and ITAT’s Observations

Jain challenged the tax liability, arguing that the property was originally purchased by his brother, who had full possession and rights over it. His name was added as a joint owner only out of familial consideration. The ITAT reviewed purchase deeds and bank statements and noted that Jain had neither contributed to the purchase nor received any share of the sale proceeds. Additionally, his brother had declared the entire sale amount in his own tax returns.

Final Ruling and Implications

The ITAT ruled in Jain’s favor, stating that since he was not the beneficial owner, he could not be taxed on the capital gains. This decision provides relief to taxpayers in similar situations where their names are added to property documents for non-financial reasons.

Tax experts have welcomed the ruling, highlighting that it upholds the principles of fairness and prevents undue tax burdens on individuals who are not actual beneficiaries of a property.