Section 27 of the Income Tax Act, 1961, deals with cases where a person, though not the legal owner, is considered the owner of a property.
For the purpose of Section 27, the following persons are deemed to be the owners:
1. Transfer to a spouse [Section 27(i)]
In case of transfer of house property by an individual to his or her spouse otherwise than for adequate consideration, the transferor is deemed to be the owner of the transferred property.
Case Law: Commissioner of Income-Tax vs Mrs. Ayodhyakumari
Exception: If the transfer to a spouse is in connection with an agreement to live apart, the transferor will not be deemed the owner of the property.
2. Transfer to a minor child [Section 27(i)]
In case of transfer of house property by an individual to his or her minor child otherwise than for adequate consideration, the transferor is deemed to be the owner of the house property transferred.
Exception: If the transferee is a minor married daughter, the transferor is not deemed the owner.
Note: Where cash is transferred to a minor child/spouse and the transferee acquires property out of such cash, the transferor shall not be treated as the deemed owner. However, clubbing provisions shall be attracted.
3. Holder of an impartible estate [Section 27(ii)]
The holder of such property shall be deemed to be the individual owner of all properties comprised in the estate.
After the enactment of the Hindu Succession Act, 1956, all the properties comprised in an impartible estate by custom are to be assessed in the status of an HUF. However, Section 27(ii) will continue to be applicable in relation to impartible estates by grant or covenant.
4. Member of a co-operative society [Section 27(iii)]
A member of a co-operative society, company, or other association of persons to whom a building or part thereof is allotted or leased under a House Building Scheme of a society/company/association shall be deemed to be the owner of that building or part thereof, although the co-operative society/company/association is the legal owner of that building.
Case Law: Shri Shetty GD vs Income-Tax Officer
5. Person in possession of a property [Section 27(iiia)]
A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act shall be the deemed owner of the house property. This includes cases where:
- Possession of property has been handed over to the buyer.
- Sale consideration has been paid or promised to be paid to the seller by the buyer.
- Sale deed has not been executed in favor of the buyer, although certain other documents like power of attorney/agreement to sell/will, etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner of the property although it is not registered in his name.
6. Person having right in property for a period not less than 12 years [Section 27(iiib)]
If a person acquires any right in or with respect to any building or part thereof, by virtue of any transaction referred to in Section 269UA(f), i.e., transfer by way of lease for not less than 12 years, they shall be deemed to be the owner of that building or part thereof.
Exception: If the person acquires any right by way of lease from month to month or for a period not exceeding one year, such person will not be deemed the owner.
Conclusion: Section 27 of the Income Tax Act, 1961, plays a vital role in defining property ownership for tax purposes beyond mere legal titles. By considering various relationships and possession scenarios, the section ensures that the tax liabilities reflect the true control and benefit derived from properties, preventing tax avoidance through strategic property transfers. Understanding these provisions helps taxpayers and professionals navigate the complexities of property-related tax implications, ensuring compliance and informed financial planning.
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