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Itr in case of deemed owner of property

Shishir Garg (Finance Professional) (42 Points)

26 June 2017

I purchased a shop property in my wife's name by taking a joint loan. Most of the fund was provided by me by direct payment to the builder. My query is, how do I show the rental income from this shop in my return? Should I show it directly in the schedule HP (house property). Or should I first calculate the income in wife's hand and then show in schedule SPI (income from spouse clubbed)? I am connfused between section 27 and clubbing provisions.

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(Guest)

In this case, you are not deemed owner. Her income from the property will be clubbed in your incomes.

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Shishir Garg (Finance Professional) (42 Points)
Replied 26 June 2017

Originally posted by : Manish
	In this case, you are not deemed owner. Her income from the property will be clubbed in your incomes.

Thanks but this doesn't seem to be the case (reference below). Can you detail why this is not "deemed owner" situation?

https://www.incometaxindia.gov.in/tutorials/income-from-house-property-practical.pdf

Deemed Ownership [Sec. 27] As per Sec. 27, though the following persons are not the legal owners of the property, yet deemed to be the owners for the purpose of Sec. 22 to 26:  Transfer to a spouse/child [Sec. 27(i)]: If an individual transfers any house property to his or her spouse/ minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the house property so transferred. This would, however, not cover cases where property is transferred to a spouse (or minor married daughter) in connection with an agreement to live apart. Note:- Where the individual transfers cash to his/her spouse or minor child and the transferee acquires a house property out of such cash, the transferor shall not be treated as deemed owner of the house property. Such transaction will, however, attract clubbing provisions.

(Guest)

Originally posted by : Shishir Garg
	Thanks but this doesn't seem to be the case (reference below). Can you detail why this is not "deemed owner" situation? https://www.incometaxindia.gov.in/tutorials/income-from-house-property-practical.pdf Deemed Ownership [Sec. 27] As per Sec. 27, though the following persons are not the legal owners of the property, yet deemed to be the owners for the purpose of Sec. 22 to 26:  Transfer to a spouse/child [Sec. 27(i)]: If an individual transfers any house property to his or her spouse/ minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the house property so transferred. This would, however, not cover cases where property is transferred to a spouse (or minor married daughter) in connection with an agreement to live apart. Note:- Where the individual transfers cash to his/her spouse or minor child and the transferee acquires a house property out of such cash, the transferor shall not be treated as deemed owner of the house property. Such transaction will, however, attract clubbing provisions.

Your comment includes your answer.

You become deemed owner, if you were owner of the property and then transfers it to your wife without enough price.

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Shishir Garg (Finance Professional) (42 Points)
Replied 26 June 2017

Thanks a lot Manish. Till now, I was assuming that it is indirect "transfer of property" and hence Section 27 will apply. You have given an enlightening input, according to which this case falls under "transfer of cash" and not "transfer of property", right?

For a moment, please have a look at another reference which mentions indirect "transfer of property" under section 27.

https://www.incometaxindia.gov.in/_layouts/15/dit/mobile/faqs/faq-questions.aspx?key=FAQs+on+Clubbing+of+Income&k=

As per section 64(1)(iv), if an individual transfers (directly or indirectly) his/her asset (other than house property) to his or her spouse otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor). Income from transfer of house property without adequate consideration will also attract clubbing provisions, however, in such a case clubbing will be done as per section 27 and not under section 64(1)(iv). The clubbing provisions of section 64(1)(iv) will apply even if the form of asset is changed by the transferee-spouse. There are certain situations in which the clubbing provisions of section 64(1)(iv) are not applicable

I wish to re-confirm on this with you, because "transfer of cash" is not direct but it is indirect in this case. Kindly, provide a final response in this case that it falls under section 64(1)(iv), and not under section 27 even though the "transfer of cash" is indirect.

(Guest)

Yes, section 64 will apply in your case not 27.

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Shishir Garg (Finance Professional) (42 Points)
Replied 27 June 2017

Thanks Manish. A related query. Who gets taxed on the income earned by wife by further investing the rental income? And who gets taxed on the income earned by the wife by further investing sale proceeding of this shop?