A husband and wife may well be equal partners, sharing the joys and sorrows equally, but they are certainly not equal in claiming tax exemptions. Such exemptions, if any, are only based on relevant documents and not on anything else, according to income tax authorities.
This fact came to the fore recently when a Bengaluru-based couple came knocking at the Income Tax Appellate Tribunal after their joint claim for long-term capital gains (LTCG) exemption on gains arising from the sale of a property was rejected by a tax officer.
While the couple claimed that they jointly invested in the construction of the property and even declared the rent income and sale proceeds equally in their tax returns, the authorities said that since the earlier agreement and the subsequent sale deed were solely in the name of the husband, no such joint claim can be accepted.
The matter dates back to 1986, when the man purchased a land and then constructed a residential property in which he claimed that he and his wife contributed equally.
Thereafter, the property was let out and the rent was again shared equally between the husband and the wife, with both declaring the same in their annual returns as well.
Subsequently, when the property was sold, the gains were shared equally in their filings for tax purposes.
Tax authorities, however, denied the claim of the wife and taxed the entire gains in the hands of the husband. The tax officer’s contention was that the wife’s name was not on the earlier agreement of purchase and also the subsequent sale deed.
According to a note by PwC, which is one of the ‘Big Four’ consultancy firms, the husband stated that the residential property was jointly held, but could not produce any proof to support his claim that his wife contributed towards the purchase.
Further, while the wife was a Malaysian citizen when the property was purchased, she did not have any documents to prove that she sought permission from the Reserve Bank of India (RBI) before purchasing the property.
While hearing the matter, the Bangalore Bench of the Tribunal upheld the tax officer’s stand while noting that the purchase deed and the subsequent sale deed did not mention the wife’s name as either owner or co-owner.
“This ruling of the Tribunal highlights that co-ownership in a property can only be considered from the recitals of the relevant documents and not from any stated intention or claim made, which is legally unsustainable,” tax advisory firm PwC said in the note.