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.

[CAGOPALJI AGRAWAL]

Mr. M would be "deemed owner" as per section 27 of the  Act and would be taxable as he would not have gifted the land to Mrs. M

AI Summary

Deemed ownership under section 27 results in husband's tax liability for income from property transferred to wife. Husband's transfer of landed property to wife followed by a development deal where wife receives flats without payment is treated by operation of the deemed owner rule; the husband remains the deemed owner and transactions and income from the property, including rental receipts, are attributable to and taxable in the husband's hands.