Capital Gains on Transfer of Jointly Owned Property

Capital Gains on Transfer of Jointly Owned Property

Often an assessee owns one residential property by itself, or be a joint owner along with a close relative, or may own more than one residential property jointly with others. In such a case, the jointly owned property shall be regarded as a property owned by the assessee. In such a scenario, while assessee is entitled to only proportion of the Capital Gains, On what Capital Gains on Transfer of Jointly Owned Property should he pay income Tax?

The income tax laws do differentiate between joint ownership where the name of the owners of the property is just for the sake of beneficial joint ownership and for the convenience, or where each co-owner has participated towards the contribution in the cost of the house. Joint ownership merely for convenience is unquestionably not regarded as an ownership for taxation purpose under the tax laws. However, where the joint owners are the owners of the property with beneficial joint ownership, all the joint owners would be regarded as a beneficial owner in the proportion of their contribution to the cost of the property

Recent Tribunal Judgment- Based on a recent case law which came before ITAT, Bangalore which deals with the similar issue as discussed above.

Whether each joint owner of a property which is jointly owned by the joint owners are obliged to offer capital gains tax on the sale consideration arrived from the sale of such property, in the ratio of their holding in the said property?

The verdict:  Yes, the joint owners are obliged to offer capital gains tax on the sale consideration arrived from the sale of such property, in the ratio of their corresponding holding in the said property.

Facts of the case:

The assessee jointly owned a residential property with his mother, however, the capital gain arrived on such sale of the aforesaid property was offered to tax by the mother of the assessee. Consequently, the assessee had contended as per his corresponding holding in the property the capital gain should not be taxed in his hands.

The Department rejected the contention of the assessee that Capital Gains on Transfer of Jointly Owned Property be taxed on each of the owner on respective share and ruled that sale the consideration of jointly owned property will be liable to capital gain tax in the hands of the assessee and along with his mother in their respective share in the property.

On appeal, ITAT held that,

Where any assessee jointly owned any property and the said property was sold, and then the capital gain should be offered by both the joint owners on the sale of the property. Hence, the capital gain so levied in the hands of the assessee is absolutely correct, but since the mother of the assessee (being a joint owner of the property) has already offered the whole capital gain to tax, the parallel benefit should be given to the mother of the assessee as well.

Consequently, the Assessing Officer is directed to refund the excess tax charged as capital gain in the hands of the assessee’s mother, as the proportionate capital gains on transfer of Jointly owned property has been assessed in the hands of the assessee.

Related Read- How to Save Capital Gains Tax