Recently, in ShriIsola Srinivas v. ACIT, the Hyderabad bench of the ITAT held that a Co-owner, who invests major share in a property and if there are evidence that the income from that property accrues to him only, then he shall be deemed as the real owner of the property for the purpose of income tax and must be eligible for claiming deduction under the Income Tax Act.
Assessee is a co-owner of a house property along with his wife and son. The assessee earns rental income from the above property. All the 3 persons have availed the home loan of Rs. 4.40 crores from the SBI. For the year under consideration, the assessee claimed deduction in respect of interest on the house loan and has arrived at the loss of Rs.20,58,179 from house property. The AO disallowed the claim of interest by observing that the assessee, being a co-owner of the house, is entitled to only 1/3rd of the rental income and is also eligible for set off interest proportionately.
The assessee questioned the order claiming that he is the sole owner of the property, and has included his wife and son as co-owners in the sale deed only to avoid succession problems in future and that they were also included as co-obligants in the loan agreement on insistence by the SBI to avoid legal litigation in future. He also submitted that in his return of income, he alone has offered the rental income.
Accepting the above submissions, the bench said that the assessee’s income is the major chunk which has been taken into consideration by the Bank for grant of such a huge loan.
“The fact that the wife and the son of the assessee are also party to the loan agreement as co-obligants and co-owners of the property is the only consideration for treating them as the equal owners of the property. However, we find that the assessee and the other co-owners have entered into an agreement which is placed at pages 34 and 35 of the paper book, wherein the other two parties have agreed that the assessee is a sole owner of the property and that the income from the house property shall accrue to him only and he alone shall be eligible for claiming deduction under the Income Tax Act. It is also seen from the computation of income of the assessee that he has offered the entire income in his hands and has accordingly claimed the deduction of interest on the housing loan. Further, it is also seen from the bank a/c of the assessee that the advance payment for the house property has been made by the assessee alone. Thus, it is clear that it is the assessee who has paid the advance payment and is also paying EMI’s from his bank a/c. Therefore, we have no doubt in holding that the assessee is the real owner of the property even though his wife and son are also shown as co-owners of the property in the sale deed.” Allowing the appeal, the bech relied upon the decisions of the Delhi High Court in CIT vs. Ravinder Kumar Arora and the Mumbai ITAT in ITO vs. Dr. Vandana Bhulchandani