The Chennai Bench of Income Tax Appellate Tribunal (ITAT), Chennai Bench has held that the share of a minor daughter in a property sold with the permission of the City Civil Court cannot be clubbed with the income of her father for the purpose of computing long-term capital gains.
The bench of S.S. Viswanethra Ravi (Judicial Member) has observed that since the minor daughter’s share was deposited with restrictions in a bank account as mandated by the Court, the father could not be said to have received or enjoyed that income. Therefore, the addition made in respect of the minor’s share was unjustified and was deleted.
The case arose from the sale of a residential property in Tiruvallur, originally owned by the late wife of the assessee, Pradeep Jeyavelu. Upon her demise, the property devolved equally upon her husband (the assessee) and their minor daughter, making each of them entitled to 50% ownership.
Since the daughter was a minor, the father could not unilaterally deal with her share in the property. He approached the City Civil Court, Chennai, seeking permission to sell the property to ensure funds for his daughter’s education and welfare. On March 27, 2015, the Court permitted the sale, subject to the condition that the minor’s share of the sale proceeds be deposited in a nationalized bank in the name of the Court’s Registrar under Section 8(2) of the Hindu Minority and Guardianship Act, 1956.
Acting on the Court’s directive, the assessee deposited 50% of the sale proceeds (representing the daughter’s share) in the bank and declared only his own 50% share in his income-tax return for Assessment Year 2016–17. He also claimed deduction under Section 54 of the Income Tax Act, 1961, on reinvestment of his portion of capital gains.
The Assessing Officer (AO), however, disagreed with this treatment. According to the AO, the entire sale consideration — including the daughter’s share — had accrued in the hands of the father since he executed the sale. Relying on the provisions of the Income Tax Act relating to clubbing of a minor’s income, the AO added the daughter’s 50% share to the father’s taxable capital gains, allowing exemption under Section 54 only on his portion.
On appeal, the Commissioner of Income Tax (Appeals), NFAC, Delhi, upheld the AO’s view, observing that since the transfer of the property had taken place, the capital gains arising therefrom had to be taxed in the same year, irrespective of whether the minor’s share was available for use or not.
Challenging this finding, the assessee’s argued that the authorities overlooked the binding nature of the Civil Court’s order. The minor’s share was ring-fenced by judicial order and placed under the custody of the Court. The father had no control or discretion to use, invest, or enjoy that portion of funds until the daughter attained majority. Taxing the father on income that he neither received nor had access to would amount to taxing a notional income.
The department contended that once the property was sold, the entire sale consideration — including the minor’s portion — formed part of the transfer, and capital gains had arisen in full. She argued that the mere fact that the money was kept in a restricted account did not change its taxability under the Income Tax Act.
The tribunal held that the decisive factor was the legal restriction imposed on the minor’s share. Since the City Civil Court had mandated that the proceeds be deposited with the Court Registrar, the father had no authority to utilize those funds.
The Tribunal held that such constrained amounts cannot be clubbed with the father’s income for capital gains computation. Accordingly, it directed deletion of the addition made by the AO and confirmed by the CIT(A). The Tribunal also allowed the deduction of brokerage charges (1% of sale value), recognizing it as standard practice in real estate transactions.
Case Details
Case Title: Pradeep Jeyavelu Versus ITO
Case No.: I.T.A. No.1626/Chny/2025
Date: 03.09.2025
Counsel For Appellant: R.S. Hithesh, Advocate
Counsel For Respondent: V. Aswathy, JCIT
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