House constructed on land owned by husband with joint funds be treated as Joint Property

 

If any land belonging to husband and building constructed thereon with the joint funds of husband and wife then, income derived from letting out of such property, would be taxed in hand of assessee as income from house property and not as ‘income from other sources’. Therefore, House constructed on land owned by husband with joint funds be treated as Joint Property.

Case: Commissioner of Income Tax vs. Smt. Mina Deogun

 

Facts:

The husband of the assessee owned a land. A building was constructed on the said land belonging to the husband of the assessee. The building was constructed jointly by the wife and the husband. The cost of construction was shared in the ratio of 1/3rd and 2/3rd and the income was proportionately distributed.

 

The rental income from the property was proportionately distributed among the husband and wife and was shown under ‘Income from House Property’. The revenue contented that the rental income from joint property shall be taxed under ‘Income from Other Source’.

 

On appeal to the High Court.

 

Held:

Section 27 provides an inclusive definition of the expression ‘owner’. An inclusive definition is not an exhaustive definition in law. The Court mentioned that there can be a situation where a person can be the owner of the land and another can be the owner of the building constructed on the same land. This was permissible in law because in joint ownership unity of title is not required.

In the case in hand, Court noted that the land belonged to the husband and the building was constructed with the joint funds belonging to himself and his wife. Thus, it was concluded that the land belonging to the husband has been thrown into the common stock of joint property between the husband and the wife. Both of them thus became the joint owners by operation of the doctrine of blending.

Therefore, the cost of construction of building was borne in the ratio of 1/3rd and 2/3rd. Hence, the income arising out of the property was an income arising out of house property which has to be taxed under section 22 rather than as an income arising out of other sources under section 56.

 

Hence, House constructed on land owned by husband with joint funds be treated as Joint Property.

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