Pranav B Prem

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), comprising S.S. Viswanethra Ravi (Judicial Member), has ruled that sale proceeds representing a minor daughter’s share in immovable property, when deposited in a nationalised bank pursuant to a City Civil Court’s order, cannot be treated as the taxable income of the father under clubbing provisions.

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Background

The assessee, Pradeep Jeyavelu, along with his minor daughter, inherited a property after the death of his wife. With the permission of the City Civil Court, Chennai, the assessee sold the property in 2015, accounting for his 50% share and claiming exemption under Section 54 of the Income Tax Act, 1961, supported by a valuation report. In line with the Court’s order under Section 8(2) of the Hindu Minority and Guardianship Act, 1956, the minor daughter’s 50% share of the sale proceeds was deposited in a nationalised bank in the name of the Registrar, City Civil Court, Chennai to ensure it could not be utilised until she attained majority.

The Assessing Officer, however, treated the daughter’s share as part of the father’s income, reasoning that since a “transfer” had occurred, capital gains should be computed in his hands. The AO thus added 50% of the gains, granting exemption under Section 54 only for the assessee’s share. This view was later upheld by the CIT(A), NFAC.

Arguments

• Assessee’s Contentions:

  • The share of the minor daughter was not available for use by the assessee and remained under legal restraint by the Civil Court.

  • Since the proceeds were locked in a deposit and not “free of constraints,” they could not be considered taxable income of the assessee.

  • He stressed that the inability to utilise the funds made it impossible to club them in his hands for capital gains computation.

• Revenue’s Stand (represented by JCIT V. Aswathy):

  • The sale constituted a “transfer” under the Act, and hence, the daughter’s share automatically attracted capital gains tax.

  • The ability or inability to use the money was irrelevant; what mattered was that the transfer had taken place.

  • Therefore, the income had to be clubbed with the father’s income under the law.

Tribunal’s Findings

The ITAT disagreed with the AO and CIT(A), holding that:

1. There was no dispute about the father offering his 50% share and claiming Section 54 exemption, which had been accepted by the AO.

2. The minor daughter’s share was deposited strictly as per the Court’s order and could not be treated as income in the father’s hands.

3. The deposit with the Registrar, City Civil Court under Section 8(2) of the Hindu Minority and Guardianship Act placed the funds beyond the assessee’s control, making clubbing legally untenable.

4. Accordingly, the addition made by the AO with reference to the daughter’s share was deleted.

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Additionally, the Tribunal also directed deletion of a disallowance relating to brokerage charges (1% of sale consideration), which the AO had disallowed for lack of evidence. The ITAT accepted the assessee’s explanation that brokerage was a standard practice in real estate transactions.The ITAT allowed the appeal, ruling that sale proceeds of a minor child’s property share deposited under judicial directions cannot be clubbed in the father’s hands.

Appearance 

Counsel for Appellant/ Assessee: R.S. Hithesh

Counsel for Respondent/ Department: V. Aswathy

Cause Title: Pradeep Jeyavelu v. The Income Tax Officer

Case No: I.T.A. No.1626/Chny/2025

Coram: S.S. Viswanethra Ravi (Judicial Member)