Taxation depends upon Actual and not Paper Ownership
Often spouses buy their house jointly – for example, a house is purchased in the joint names of husband and wife even though it is the husband who may be funding the purchase. The wife’s name is added as a precautionary or a safety measure - in order to retain ownership in the case of any eventuality. However, the beneficial owner remains the husband and all tax related rights, liabilities and legal obligations emanating from owning the house should ideally be the husband’s liability. This was precisely the issue that came up before the Delhi High Court in the case of Commissioner of Income Tax . Ravinder Kumar Arora. The brief facts of the case were that the assessee had earned long-term capital gain from the sale of a plot of land and claimed exemption under section 54F by purchasing a new residential house property. Though all the payments were made by the assessee, the house was purchased jointly in the names of the assessee and his wife. Consequently, the Assessing Officer (AO), allowed only 50 per cent of the exemption claimed under section 54F as against total claim made by the assessee.
Aggrieved by the AO’s order, the assessee filed the appeal before the Commissioner (Appeals) CIT(A), who also dismissed the assessee’s claim. However, in further appeal before the Income Tax Appellate Tribunal, the assessee succeeded as the Tribunal held that the assessee is indeed entitled to the full benefit of Section 54F and not only to the extent of 50 per cent.
Now it was the Revenue’s turn to appeal to the High Court against the Tribunal’s order. The honourable High Court observed that though the new residential house was purchased by the assessee in his own name along with the name of his wife, it was the assessee who paid stamp duty and corporation tax at the time of the registration. Similarly, he had also himself paid commission and legal expenses in connection with the purchase of the house. Not even a single penny had been contributed by the wife in the purchase of the house. The property was purchased by the assessee jointly with his wife for 'shagun' purposes and also to avoid any litigation after his death.
All the funds invested in the said house were provided by the assessee himself as was clear and evident from his bank statement. Therefore as a matter of fact, the assessee was the real owner of the residential house in question.
The Court was of the opinion that based on the aforesaid facts, the conditions stipulated in section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife in the ownership of the property, it would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women.
There are various schemes floated by the Government itself permitting joint ownership with wife. If the view of the AO or the contention of the Revenue is accepted, it would be a derogatory step.Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Inclusion of the name of the wife should not stand in the way of the deduction legitimately accruing to the assessee. Conclusion This judgment is significant to all new property buyers – those that buy property to save capital gains tax and even to those who make the purchase per se, without any tax saving purpose per se. The key takeaway is that it doesn’t matter in whose name the property stands, it is only the person who has effectively paid for the property that will be eligible to and can claim the tax deductions on the same. Often, in the case of properties bought on mortgage, just because of joint ownership, both husband and wife claim the interest deduction. Once again, here it needs to be ascertained which spouse has funded the property (either through personal equity or through a loan) and the interest deduction has to be apportioned proportionally. Basically, it is effective ownership that counts and not merely what exists on paper.
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