2025 (3) TMI 709 - AT - Income Tax

Addition as Capital gains u/s. 45 - Assessee was the joint owner of the property along with his brother - exemption u/s 54F - beneficial owner of property - CIT(A) directed the AO to consider the cost of acquisition and cost of improvement if any and allow the deduction accordingly HELD THAT - Once the assessee s brother has paid the entire purchase consideration for the purchase of the property and was in actual possession and had 100% rights over the said property in such circumstances even though assessee s name was mentioned in the purchase deed as one of the joint owner the consideration received on the sale of the said property cannot be added in the hands of the assessee once his brother has declared the entire consideration in his return of income for the year under consideration. Therefore no basis in making the addition on account of Long-Term Capital Gains in the hands of the assessee in the facts and circumstances of the present case when assessee s brother was the sole owner of the property for all practical purposes and assessee s name appears to have been added only out of natural love and affection. Therefore assessee is not a beneficial owner of the said property. Accordingly the addition under section 54 of the Act made in the hands of the assessee is deleted - Appeal by the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal question considered in this case is whether the addition of Rs. 27,00,154/- as Long-Term Capital Gains under section 45 of the Income Tax Act, 1961, in the hands of the assessee, is justified. This involves examining whether the assessee was a beneficial owner of the property sold, despite being listed as a joint owner, and whether the capital gains should be attributed to the assessee or solely to his brother, who claimed to have full ownership and possession of the property.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The relevant legal framework involves the interpretation of Section 45 of the Income Tax Act, which pertains to capital gains tax on the transfer of a capital asset. The Tribunal also considered precedents regarding the condonation of delay in filing appeals, particularly the principles laid down by the Supreme Court in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji.

Court's Interpretation and Reasoning

The Tribunal acknowledged the principles that procedural rules should not impede substantial justice. It condoned the delay in filing the appeal, emphasizing that the assessee did not benefit from the delay and that substantial justice should prevail over technicalities.

Regarding the capital gains issue, the Tribunal focused on the ownership and beneficial interest in the property. It examined whether the assessee, despite being a joint owner on paper, had any real ownership or beneficial interest in the property, given that his brother allegedly paid the entire purchase consideration and claimed full ownership.

Key Evidence and Findings

The Tribunal considered several pieces of evidence: the original purchase deed showing joint ownership, bank statements indicating the sale proceeds credited to the brother's account, the brother's tax return declaring the sale proceeds, and an affidavit from the brother asserting full ownership and payment of the purchase price.

Application of Law to Facts

The Tribunal applied Section 45 of the Income Tax Act to determine the rightful owner of the capital gains. The evidence suggested that the brother was the actual owner, having paid for the property and declared the sale proceeds in his tax return. The Tribunal concluded that the assessee's name was added to the property out of natural love and affection, not indicating beneficial ownership.

Treatment of Competing Arguments

The Revenue argued that the assessee, being a joint owner, should be taxed for half of the capital gains. The Tribunal, however, found the assessee's argument more compelling, supported by evidence that the brother had full ownership and declared the gains in his tax return. The Tribunal also noted the absence of any legal challenge to the brother's tax return, suggesting acceptance of his ownership claim by the Revenue.

Conclusions

The Tribunal concluded that the assessee was not a beneficial owner of the property. The addition of Rs. 27 Lakh as Long-Term Capital Gains in the assessee's hands was unjustified, as the brother was the sole owner for all practical purposes.

SIGNIFICANT HOLDINGS

The Tribunal held that procedural delays should not impede justice, condoning the delay in filing the appeal. It established the principle that mere inclusion of a name in a property deed does not confer beneficial ownership if evidence suggests otherwise. The Tribunal emphasized the importance of actual ownership and possession in determining tax liability for capital gains.

Final Determinations on Each Issue

The Tribunal allowed the appeal, deleting the addition of Rs. 27 Lakh as Long-Term Capital Gains in the assessee's hands. It concluded that the brother was the actual owner and had rightfully declared the gains in his tax return. The Tribunal's decision underscores the need to look beyond formal ownership to the substance of ownership in tax matters.