ITAT rules tax officer cannot pin entire stamp-value gap on one co-owner

Mumbai: Buying a property jointly with a spouse or another member of the family does not mean one co-owner can automatically be made liable for the entire tax arising from a difference between the purchase price and the property’s stamp-duty value, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held.

Its recent order came in the case of a Mumbai taxpayer who, along with his wife, purchased a flat in Chembur in 2017 for Rs 60 lakh. While the couple’s actual purchase consideration was Rs 60 lakh, the stamp-duty value of the property was Rs 94.8 lakh, leading to a difference of Rs 34.8 lakh.

The property was jointly owned, with the husband holding only 41.08% share, but the I-T officer added the entire Rs 34.8 lakh difference to the husband’s income. The reasoning was that the wife’s case had not been scrutinised. The appellate commissioner said that taxing only the husband’s proportionate share, about Rs 14.3 lakh would leave the balance untaxed.

The Mumbai ITAT did not accept this approach. It noted that the ownership shares in the property were specifically recorded. Merely because no action was taken by the I-T department in the case of his wife could not justify adding the entire difference in the husband’s hands, the tax tribunal said.

The ITAT order also brings out an important issue for property buyers, where their purchase price is held to be below the stamp-duty valuation. The taxpayer argued that the flat’s actual market value was lower because it did not have an occupation certificate and certain basic amenities were unavailable. He had also specifically requested that the valuation be referred to a departmental valuation officer (DVO).

The tribunal found merit in this argument. It said that once the stamp-duty valuation was specifically disputed and a valuation report had been furnished, the I-T officer ought to have referred the matter to the DVO before determining the taxable difference. It, therefore, set aside the appellate order and sent the matter back to the I-T officer for reconsideration.

For property buyers, the ruling offers two useful takeaways. First, a tax dispute arising from the difference between the purchase price and stamp-duty value cannot simply be loaded in full on one co-owner because another co-owner was not assessed. Second, where the taxpayer genuinely disputes the stamp-duty valuation and provides supporting valuation evidence, the valuation issue has to be properly examined.