In a recent ruling, the Delhi High Court held that income tax on house property should be assessed by the person who actually receives or benefits from the income, rather than merely being named as an owner in the property’s sale deed. Shivani Madan, the appellant, challenged an order passed by the ITAT which upheld the decision of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The dispute revolves around a house property purchased in 2011 in the joint names of Shivani Madan and her husband. The AO held that the property was jointly owned so the rental income should be equitably divided (50% each) and taxed accordingly. The appellant argued that she did not receive any rental income and that her name was included in the sale deed only because of a Rs. 20 lakh contribution toward the property purchase. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The appellant’s counsel relied on the Supreme Court ruling in Commissioner of Income Tax v. Podar Cement Pvt. Ltd. (1997) 5 SCC 482, which held that tax liability should be based on the right to receive income, rather than just legal ownership. The Income Tax Department argued that since no ownership percentage was specified in the sale deed, the property should be presumed to be equally owned. The department also cited Saiyad Abdulla’s case, which supports the principle that in the absence of a clear ownership ratio, equal ownership is assumed. The bench comprising Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar observed that merely being named in a sale deed does not establish ownership for taxation purposes.

The court ruled that taxability should be determined by the actual recipient of the income, not just the registered owner. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here The court found that the tax authorities failed to prove that Shivani Madan received or was entitled to receive rental income. The court set aside the ITAT’s order and ruled that income tax liability cannot be imposed solely based on inclusion in a property title deed. The court also directed that Shivani Madan should receive consequential relief. So, the court set aside the ITAT’s order, and the appeal was allowed.