Business   

Income from property held in wife’s name

I am a salaried employee. My wife has no source of income. I have constructed a new house in my wife’s name in the site belonging to my wife inherited by her. The new house was constructed after demolishing the

old tiled house belonging to my wife and obtaining new plan approval from the municipal authorities. I have applied for bank loan in my name and in my wife’s name (applicant and co-applicant). But the bank authorities sanctioned the loan in my name only, while taking the title deed of the property as security to back up my wife’s guarantee. Plan approval has been obtained in my wife’s name. The new construction is self-occupied. I have claimed deduction under Section 24 of the Income-tax Act as the superstructure on the land is constructed out of my bank loan and I am the owner of the house. I have made the claim quoting Sec. 27 and Sec. 64 of the IT Act and Benami Transaction (Prohibition) Act. The assessing officer has denied my claim stating that the property is in my wife’s name and that the present property is my wife’s property remodelled with resources made available by me. They added even as per the loan application as well as the municipal record my wife is the owner of the property and I am only the financier for the construction of the house. I have to be a legal owner of the house for deduction under Sec. 24 of the Act. He says that clubbing provision can have no application as the assessee has not paid for the old property or sites. Since it is a property belonging to her, it cannot also be treated as property held benami in my wife’s name. Kindly enlighten me whether the decision taken by the Income-tax authorities is correct or am I eligible for the deduction under Sec. 24 of the IT Act that I have claimed as Sec. 64 of the IT Act will apply in my case.

The problem faced by the reader is one of his own making. This type of question has been answered quite a few times earlier, where the husband borrows loan for construction over a plot owned by the wife. In such a case, there could be any one of the following inferences:

1. Husband has merely got a loan from his employer or any other lending institution only to re-lend the same to his wife, either interest free or at the same rate of interest paid by him. In such a case, the income from the property is assessable only in wife’s hands with interest deductible, if the understanding is that he has re-lent the same at same interest.

2. It is possible to take the view that the plot is owned by the wife, while the husband owns the superstructure. The documentation in such a case may not be in husband’s name. But a declaration by the wife permitting the husband to put up a superstructure at his cost with no claim on her part over the superstructure may justify the claim for deduction, if the income from the property is offered by the husband. In such a case, a provision for ground rent for the plot would make it credible with wife being assessable on such amount.

3. At the time of advancing the funds for construction, it may be agreed between the husband and wife, that the property will be jointly owned by them.

A declaration to this effect by both of them to the assessing officer should satisfy him. In such a case, the proportionate income (say 50:50) will be assessable in the hands of the husband and wife with deduction for interest paid being allowed in the same proportion, if the repayment with interest is also agreed to be shared by them. The reasoning of the assessing officer for not treating it as benami property or for non-inclusion of income in reader’s hands under Sec. 64 are correct. Where an assessee is not able to specify the relative interest over the property between husband and wife preferably by a joint declaration, he cannot expect the assessing officer to draw an inference favourable to the assessee.

In the absence of any assertion as to the actual ownership as understood between the husband and wife in a manner consistent with the facts, the assessing officer may well be free to draw his own inferences.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

BoP: bright scene with a few dark spots financial scene
Small cars, big challenges
Central budget sidelines Fiscal Responsibility Act
Income from property held in wife’s name
Travails of getting tax credit
Deductions from property income

Copyright © 2007, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu