Income from transfer of Property in favour of Wife

[Sathish Kamath]

Mr.M wants to Gift / Settle Landed Property valued Rs.15 lakhs in favour of his wife Mrs.L. The said property was purchased in the FY 2005-06 for Rs.3.50 lakhs. Later, Mrs.L wants to develop that property with the help of a Builder. Builder will construct 8 flats on that Laded property and hand over 4 flats to Mrs.L. She will not pay any amount to the Builder and Builder will not pay any amount to her for the above deal. Mrs.L wants to let out those flats and derive Rental Income from such flats. She does not want to sell those flats. In the light of the above, please clarify the following:

1. Whether any Capital gain arises on relinquishment of right in Landed Property in favour of Builder. If so, in whose hands Capital Gains is taxed i.e. in the hands of Mr.M or Mrs.L?

2. In whose hands, Rental Income received by Mrs.L will be taxed i.e. in the hands of Mr.M or Mrs.L, in view of the fact that Mr.M has only transferred the Land to his wife and super structure was jointly developed by Ms.L and the Builder.

I request the enlightened members to give their learned opinion on the above query.

AI Summary

Mr. M liable for tax as 'deemed owner' under Section 27; capital gains and rental income tax clarified. Mr. M intends to gift land valued at Rs. 15 lakhs to his wife, Mrs. L, which was originally purchased for Rs. 3.50 lakhs. Mrs. L plans to develop the land with a builder, receiving four flats in exchange for the land without any monetary transaction. She aims to earn rental income from these flats. The query seeks clarification on whether capital gains tax applies to the relinquishment of land rights and who is liable for the rental income tax. The response indicates that Mr. M would be considered the 'deemed owner' under section 27 of the Act, making him liable for taxation.