2014 (8) TMI 940 - AT - Income Tax

Disallowance of rental income - Property in the name of both husband and wife - In the return of income, assessee and her husband declared 50% rental income from this property and paid tax accordingly - Held that - Property was registered in the name of assessee, Smt. Neelam Kaur Chhabra and her husband, Shri P.S. Chhabra. The Assessing Officer draw an adverse view with regard to the mentioning by Estamp Authority on the sale deed wherein the second party was shown Smt. Neelam Kaur Chhabra and other. In our considered view, when there is a clear mention of both the purchasers in the sale deed then only on the basis of simply mentioning by the Estamp Authority as Smt. Neelam Kaur Chhabra and Other shall not be a sufficient ground to draw an adverse inference with regard to the ownership of the property. The rent agreement also provided with regard to the rent to be paid to these co-owners. The whole rent was credited in the account of Smt. Neelam Kaur Chhabra and TDS was also deducted in her name. However, Shri P.S.Chhabra has declared the 50% rent income in his return of income and paid the taxes accordingly. In our considered view, the rental income accrued to Shri P.S. Chhabra from the property owned by him in 50% share, therefore, subsequent act of crediting the rent to his wife s account will not make any difference with regard to the accrual of the income in the hands of Shri P.S. Chhabra. Therefore, we hold that this property was co-owned by two persons in equal ratio, viz., the assessee and her husband. The rental income has been accrued in the same ratio to them. Subsequent act of crediting the rent in assessee s name shall not make her liable to be assessed for the rental accrued on the half share of the property belonging to her husband, Shri P.S. Chhabra. Shri P.S. Chhabra had already declared the income in his return. Considering all these aspects, we set aside the orders of the authorities below - Decided in favour of assessee.

Summary

Issues:
Ownership of jointly owned property for rental income taxation.

Analysis:
The appeal pertains to the assessment year 2009-10, where the assessee and her husband jointly purchased a property and let it out during the relevant year. The rent was to be shared equally between them, but the entire rent was deposited in the wife's account with TDS deducted. The husband did not claim credit for the TDS. The Assessing Officer and CIT (A) held that the entire rental income should be taxed in the wife's hands. The grounds of appeal highlighted the disagreement with the addition of income and the ownership structure of the property as per the sale deed and rent agreement.

Upon hearing both sides, the Tribunal observed that the property was registered in the names of both the assessee and her husband, with clear ownership specified as 50% each in the sale deed. Despite the rent being credited to the wife's account, the Tribunal held that the rental income accrued to the husband for his 50% share in the property. The husband had already declared and paid taxes on his 50% share of the rental income. Therefore, the act of crediting the rent to the wife's account did not make her liable for the husband's share of rental income. The Tribunal concluded that the property was co-owned in equal shares, and the rental income accrued accordingly. Consequently, the Tribunal set aside the lower authorities' orders and allowed the appeal of the assessee.

In conclusion, the Tribunal's decision focused on the ownership structure of the jointly owned property and the accrual of rental income in proportion to the ownership shares. The judgment emphasized that the mere crediting of rent to one owner's account does not alter the ownership rights or tax liability concerning the rental income. The ruling clarified the tax treatment based on the actual ownership shares as documented in the sale deed and upheld the principle of taxation in accordance with ownership interests.