Tax on income from house property to be levied basis who derived benefit from property: Delhi High Court

The Delhi High Court recently held that tax liability on income from house property should be affixed to a person who actually derives the income and not on a person who was merely a signatory to a conveyance deed [Shivani Madan v. Commissioner of Income Tax, Delhi]..A Division Bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar said, “The Act fails to raise any presumption in law, of income necessarily arising or being liable to be assessed in the hands of an individual merely because it be a signatory to an instrument of conveyance. In our considered opinion, the question of taxability would necessarily have to be answered bearing in mind the individual who had in fact obtained benefits from the property.”.The case revolved around the assessment of income from a residential property located at Saket, New Delhi jointly owned by the appellant and her husband. The property was purchased in 2011 for a total consideration of ₹3.5 crore. During the course of assessment, the appellant was asked why she should not be taxed for ‘income from house property'. The appellant contended that she had contributed only ₹20 lakh towards the purchase of the property in AY 2011-12 and that her name was included in the sale deed solely for this reason. She argued that the property was primarily owned by her husband, and that she should not be taxed on the income generated from it.However, the Assessing Officer (AO) held that the property was jointly owned by the appellant and her husband in equal shares and assessed 50% of the income from the property in her hands.The Commissioner of Income Tax (Appeals) [CIT(A)], and the Income Tax Appellate Tribunal (ITAT) rejected her claim, holding that the absence of a specified share in the sale deed implied equal ownership..The Court, however, reversed the decision of the ITAT. It emphasised that the Income Tax Act, 1961 does not presume equal ownership merely because a person’s name appears on a property deed. The Bench highlighted that the focus of taxation under Section 22 of the Act is on the person who is entitled to receive the income from the property, not merely on the legal ownership.“The Supreme Court, upon a review of the judgments rendered by different High Courts had ultimately come to hold that the focus for the purposes of taxation would be to understand, identify and discern as to who was in receipt of income.”.The Court noted that the Act makes a clear distinction between income derived from house property and an interest in property. Thus, it allowed the appeal, stating,“We find that both the Tribunal as well as the authorities below have proceeded merely on the assumption that since the appellant was a signatory to the instrument, the income would be deemed to arise in her hands to the extent of 50%.”.The appellant was represented by Advocates Hasneeta Matta, Prateek Kumar and Ankita.The Income Tax department was represented by Senior Standing Counsel Sunil Kumar Agarwal, with Advocates Shivansh B Pandya, Viplav Acharya, Priya Sarkar and Utkarsh Tiwari..[Read Judgment]