How spouse's name in property can hurt claims

Many individuals prefer to buy their house properties in joint names, some for the sake of convenience while some for the sake of administrative purposes. Some even cite an easy passage of rights in the property as one of the main reasons to buy a property in joint names. But can the act of adding one's spouse's name as joint owners for the sake of Vaastu be a strong enough defense to claim capital gains exemption for taxpayers? Let's find out.

A taxpayer filed her return of income for the assessment year 2012-13 and declared a total income of Rs 4.02 lakh. Her returns were assessed and the same was accepted without any additions by the tax officer during the course of the assessment. However, when the records of this taxpayer were further examined by the senior tax officers during the course of internal audits of the tax department, the senior tax officer observed that the taxpayer had sold a plot of land during the year and earned capital gains thereon. Against this sale, the taxpayer had claimed deduction u/s 54F of the Income Tax Act ['the Act']. The senior tax officer observed that the taxpayer owned two residential properties and one commercial property on the date of the sale of the plot. Section 54F stipulates that in order to be eligible to claim deduction under this section, the taxpayer should not own more than one residential property on the date of sale of the asset. In view of this, the senior tax officer sought to revise the earlier assessment order, as he was of the opinion that the tax officer at the lower level failed to make the necessary inquiries and verification in relation to the deduction claimed.

The taxpayer submitted to the senior taxman that out of the two residential properties, one actually belonged to her husband and her name was included in the purchase deed in order to meet the requirements of Vaastu and also for the purpose of availing the loan at concessional rates. To this extent, the taxpayer also clarified that her husband had purchased the said property out of the proceeds of the sale of the plot and thus the entire purchase cost was financed by him. The taxpayer thus pleaded that there was no violation of conditions prescribed u/s 54F of the Act as the above-referred property was not her property.

The senior taxman was, however, not convinced with this argument and noticed that although the taxpayer had furnished details of the said property during the assessment, at no point she had mentioned anywhere that she was not the owner of the same. Accordingly, the senior taxman passed an order disallowing the deduction u/s 54F and instructing the original tax officer to reexamine the claim for deduction in a fresh order.

Before the Bangalore tax Tribunal, the taxpayer argued that she cannot be considered to be the owner of the said residential property as she has only lent her name on sentimental reasons while purchasing the same. And the taxman counter-argued that in her own submissions made during the assessment, she has omitted to state that she is not the owner and thus was a clear case of the tax officer failing to examine the claim of deduction.

Based on facts of the case, the Tribunal opined that it is now beyond doubt that the tax officer failed to apply his mind to allow the claim for deduction. At the same time, given the representations made by the taxpayer, the Tribunal directed the tax officer to re-examine the entire issue of deduction without being influenced by the observations made by the senior tax officer. The Tribunal accordingly partly allowed the appeal by the taxpayer in removing the bias created by the senior taxman's order.

The writer is Sebi registered investment advisor