Name on Deed doesn’t necessarily mean Ownership and No Capital Gains Tax; Says ITAT

In a major decision, the Income Tax Appellate Tribunal (ITAT) Mumbai bench distinguished between a legal owner (an individual whose name is simply added to a property upon purchase, such as a spouse or brother) and a beneficial owner (to whom it actually belongs).

ITAT underlined that simply having a name on a property title does not automatically imply ownership if there is clear evidence to the contrary. Thus, when the property is sold and the proceeds go only to the beneficial owner, the individual whose name has only been added is not required to pay capital gains tax.

When a property is purchased, the name of another family member is frequently added out of ‘love and affection’ for example, to create a sense of security for a spouse. However, upon the sale of such property, tax demands are made against even the legal owner for his or her portion of capital gains tax. This ITAT order in the case of V N Jain will help taxpayers in a similar situation.

In this case, V N Jain owned a property jointly with his brother, which was sold for Rs. 54 lakh in FY 2014-15. The Income Tax official observed that there was no familial arrangement under which Jain abandoned his right to the property prior to its sale. Thus, he determined that Jain’s share of the Rs. 27 lakh of the sale proceeds would be taxable in his hands as capital gains.

When Jain filed an appeal, the appellate commissioner granted partial relief, saying that capital gains should be computed after removing the proportionate share of the property’s purchasing cost from the Rs. 27 lakh. Capital gains tax would be levied only on the net amount realised.

Jain then approached ITAT. He claimed that the property sold was originally purchased by his brother, who had complete possession and rights to it. His name was inserted as a co-owner out of natural love and affection.

The ITAT bench determined that the sibling had stated the entire sale consideration in his own Income Tax forms. It was also discovered that Jain had not paid for the property nor received the proceeds of the sale. As a result, no capital gains tax liability could be imposed on him.