QUESTION: My father-in-law and mother-in -law had a property in their joint names. My father-in-law died intestate in 1998 leaving as legal heirs my mother-in-law, one son's legal heirs, another son and a daughter.
The property was sold in 2008. I am the widow of the pre-deceased eldest son with a minor son. The sale deed was made with my mother-in-law with 62.5 per cent share and the son, daughter and myself (including my son's share) at 12.5 per cent each. We are advised that each of us could account for capital gains in respect of his or her own share as per the sale deed.
My mother-in-law is a housewife, non-assessee and a senior citizen always dependant on her husband during his life time and now living with the second son. I have a feeling that the ratio of ownership as per the sale deed is not correct in that we should have equal share and that the assessment should be a joint one. Am I right in my inference? I would also like to be advised that in case individual assessment is permitted, whether the surplus in my hands would be long-term or short-term capital gains and whether we can avail the benefit of reinvestment as in 54EC bonds. What will be the rate of tax on the same and whether my son's share, which should be equal to 6.25 per cent same as mine can be either exempt or assessed separately?
ANSWER: The fact that mother-in-law was a dependant makes no difference to the inference that she was half owner of the property during the life time of the husband and after his death.
Mere co-ownership of property without reference to any specified extent would be understood that the co-owners, husband and wife, had equal interest in the property. It would be so even if the finance for the property was provided by her husband.
On the demise of her husband, there are four legal heirs of two sons, one daughter besides herself, so that 50 per cent share of her husband would devolve upon these four heirs equally. The proportion in the sale deed, therefore, accords with this law and is, therefore, correct.
For purposes of capital gains, each co-owner is separately assessed on his or her share of capital gains. Such capital gains will be computed with reference to the original cost of the proportionate share in the property or if it was acquired earlier to April 1, 1981, at the market rate as on that date at the option of the assessee.
The benefit of indexation of cost is available. Each co-owner can avail independently the benefit of Sec. 54, if invested in residential property and/ or Sec. 54EC, if invested in specified bonds, subject to the conditions prescribed in these provisions.
Capital gains in the manner reckoned after the relief, if any, are taxable at a flat rate of 20 per cent after availing the general exemption limit. Deductions under Chapter VI-A as under Sec. 80C cannot go to reduce liability for capital gains.
Since the share of the minor son would require to be clubbed with either parent with larger income, it is bound to be clubbed in reader's hands. His share of capital gains is not exempt. Since it is stated that he is studying engineering, if he were a major at the time of sale, he would be entitled to independent assessment on his share of capital gains.
It is better if the reader gets proper advice and also acts in concert with other co-owners so that reckoning of capital gains is uniform and there is no mistake in the return to be filed by the reader.
