The court also highlighted the distinction in the Income Tax Act between income derived from house property and an interest in property.
The Delhi High Court has ruled that tax liability on income from house property should be imposed on the person who actually derives the income, rather than someone whose name merely appears on the property’s conveyance deed. This significant judgment was delivered in the case of Shivani Madan v. Commissioner of Income Tax, Delhi, where the court clarified the taxation principles under Section 22 of the Income Tax Act, 1961.
Key Highlights of the Judgment
A Division Bench comprising Justices Yashwant Varma and Harish Vaidyanathan Shankar stated:
“The Act does not presume that income necessarily arises or is liable to be assessed in an individual’s hands merely because they are a signatory to a conveyance deed. The taxability must be determined based on the individual who actually benefits from the property.”
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Case Background
The case revolved around a residential property in Saket, New Delhi, jointly owned by the appellant and her husband. The couple purchased the property in 2011 for ₹3.5 crore. During the assessment, the appellant was questioned about why she should not be taxed for ‘income from house property.’
She argued that she had contributed only ₹20 lakh towards the property’s purchase during the Assessment Year (AY) 2011-12 and that her name was included in the sale deed merely for this reason. The primary ownership, she contended, rested with her husband, and hence, she should not be taxed on the income generated from it.
However, the Assessing Officer (AO) determined that since the property was jointly owned, 50% of the income should be assessed in her name. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) upheld this decision, reasoning that the absence of a specified ownership share in the sale deed implied equal ownership.
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Delhi High Court’s Verdict
The High Court overturned the ITAT’s decision, ruling that the Income Tax Act does not assume equal ownership solely based on a person’s name in the property deed. It emphasized that taxation under Section 22 should be focused on identifying the person entitled to receive income from the property rather than just the legal owner.
The Bench referenced a Supreme Court ruling, stating:
“The focus for taxation purposes is to determine who actually receives the income.”
The court also highlighted the distinction in the Income Tax Act between income derived from house property and an interest in property. Consequently, the appeal was allowed, with the court noting:
“The Tribunal and authorities below proceeded on the incorrect assumption that since the appellant was a signatory to the sale deed, the income should be deemed to arise in her hands to the extent of 50%.”
Legal Representation
- 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, along with Advocates Shivansh B. Pandya, Viplav Acharya, Priya Sarkar, and Utkarsh Tiwari.
Conclusion
This ruling serves as an important precedent for property owners and taxpayers, clarifying that income tax liability on house property must be determined based on actual financial benefit rather than mere legal title. Property co-owners should carefully document ownership contributions and income entitlement to avoid unnecessary tax disputes.
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