Capital gain from jointly owned property sale cannot be attributed to single co-owner

Sureshbhai Ashwinbhai Patel Vs ITO (ITAT Ahmedabad)

The case of Sureshbhai Ashwinbhai Patel Vs ITO, heard by Income Tax Appellate Tribunal (ITAT) in Ahmedabad, provides crucial insights on the taxation of gains from jointly owned property. This case signifies that the entire consideration from such a sale cannot be treated as the long-term capital gain of a single co-owner.

Analysis:

The appeal, initiated by the Assessee against an order from the CIT(A), revolved around the sale of a jointly owned property. The Assessee contended that the property was co-owned with his son, Sureshchandra Ashwinbhai Patel, and thus the total consideration of Rs. 16,00,000/- from the sale should be distributed equally between them.

However, the Assessing Officer had previously considered the entire amount as the Assessee’s undisclosed income for the Assessment Year 2011-12, leading to a tax imposition. The Assessee appealed this decision, but the CIT(A) dismissed it. In his defence, the Assessee highlighted his old age and the unfortunate demise during the litigation, which hindered his response to the issued notices.

Upon hearing both parties and reviewing the relevant materials, ITAT noted the jointly owned nature of the property sold. Hence, they deemed it inappropriate to treat the entire sale consideration as the Assessee’s long-term capital gain. Furthermore, ITAT stated that neither the Assessing Officer nor the CIT(A) had verified other aspects of the case.

Conclusion:

ITAT’s decision in Sureshbhai Ashwinbhai Patel Vs ITO presents a significant precedent for future tax disputes involving jointly owned properties. Their ruling clarified that the complete sale consideration from such a property cannot be attributed as the long-term capital gain of a single co-owner. The case has been remanded back to the CIT(A) for reevaluation, thus emphasizing the importance of fair assessment in tax litigations.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the Assessee against order dated 13.01.2023 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2011-12.

2. The Assessee has raised the following grounds of appeal :-

“1. Being aggrieved by the order of ITO Ward 4(2)(1) passed u/s.142(1), this appeal petition is being submitted on the following grounds, which are prayed and may be considered without prejudice to one another.

2. CIT(A) failed to consider the fact that House sold by Assessee is in Joint Name.The joint owner of the property is Mr. SURESHCHANDRA ASHWINBHAI PATEL.

3. The consideration of immovable property sold will be distributed in 2 parts i.e. sale consideration of property is Rs.16,00,000/-. Amount of Rs.8,00,000/- will be sales consideration of Mr. ASHWINBHAI SOMNATH PATEL i.e. assessee.

4. CIT(A) has considered the same base on which AO has charged full amount of consideration as income and charged tax. But as per Valuation Certificate, the Sold Property was purchased in 2006, the value of the same is Rs.6,83,500/- (as per Valuation Certificate)

5. CIT(A) is failed to reduce Purchase cost of year 2006 of Rs.3,41,750/-(total cost 6,83,500/- due to joint owner the cost of property in the name of Assessee will be of Rs.3,41,750/-) and without considering purchase cost of asset, CIT(A) has calculated tax.

6. The working must be after considering purchase cost of property and benefit of indexation must be given.

7. The assessee was of 95 years old at the time of filing and CIT Appeal. Unfortunately we have loss assessee in Covid Pandemic. During assessment year 2011-2012, assessee was of 87 years. Considering the age and health of assessee, assessee is not being able to response any of income tax notices issued on various dates. Also he has not filed income tax return of AY 2011-2012.

8. Considering death of assessee, I request you to reduce the penalty and interest at the minimum value of zero.

9. Therefore, it has been requested before honorable ITAT(A) to annul the demand raised through assessment made under section 142.

10. We are submitting Death Certificate of assessee, authority letter of legal heir, order u/s.144, order passed by CIT(A), valuation certificate for your consideration”

3. The assessee has not filed any return of income for the year under consideration under Section 139(1) of the Income Tax Act, 1961. As per the information, the Assessing Officer observed that the assessee has sold immovable properties of Rs.16,00,000/-. Notice under Section 148 of the Act was issued after obtaining necessary approval on 26.03.2018 and was duly served to the assessee. However, the assessee did not respond and, therefore, no return was filed. The Assessing Officer passed Assessment Order under Section 144 read with Section 147 of the Act and made addition on Long Term Capital Gain and proposed addition of Rs.16,00,000/- treating the same as undisclosed income for A.Y. 2011-12.

4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. The Ld. AR appeared as party in person before us and submitted that the assessee was 95 years old and sold the property in two parts, one part is to that of assessee and the other part is to that of assessee’s son, as the property belonged in joint name. The assessee in person submitted that notices issued by the CIT(A) was never received and in between the assessee died and, therefore, being legal heir the notices were not duly received by the assessee. The assessee in person stated that the matter may be remanded back to the file of the CIT(A) for proper adjudication of the issues contested therein as the property sold was jointly owned by the assessee and his son and, therefore, the value of Rs.8,00,000/- should have been taken in assessee’s account.

6. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the fact remains that the property sold in question was jointly owned by the assessee and his son. Thus, the entire value of consideration of Rs.16,00,000/- cannot be treated as Long Term Capital Gain of the Assessee. The other aspects also was not verified either by the Assessing Officer or by the CIT(A). As the Assessing Officer also passed ex-parte order, it will be appropriate to remand back the issues contested by the assessee in the appeal filed before the CIT(A) to the file of the CIT(A) for adjudicating the same on merit. The assessee be given opportunity of hearing by following the principles of natural justice and the CIT(A) should take all the cognisance of the evidences filed by the assessee. The CIT(A) is directed to pass order within the reasonable time after giving proper notices to the assessee. The assessee also should co-operate with proceedings before the CIT(A).

8. In the result, appeal filed by the assessee is partly allowed for statistical purpose.

Order pronounced in the open Court on this 10^th day of May, 2023.