Section 27 — Deemed Owner of Property

Section 27 of the Income-tax Act, 1961, addresses situations where a person is considered the 'deemed owner' of a property for tax purposes, even if they are not the legal owner. This section applies in cases such as when a property is transferred to a spouse or minor child without adequate consideration, or when a member of a cooperative society, company, or association of persons is allotted a building under a house building scheme. The significance of this section lies in its ability to attribute income from the property to the deemed owner, thereby preventing tax avoidance through nominal ownership transfers. The statutory test involves examining the nature of the transfer and the relationship between the parties involved. The burden of proof typically lies with the taxpayer to demonstrate that they are not the deemed owner. In practice, this section ensures that income from property is taxed in the hands of the person who effectively controls or benefits from it.

Common Litigation Flashpoints

1. Disputes over the definition of 'adequate consideration'
2. Challenges in proving beneficial ownership
3. Disagreements on the applicability to cooperative societies
4. Interpretation of 'house building scheme' provisions

Judgments on Section 27 — Deemed Owner of Property

• Dy. Commissioner of Income Tax vs Sahil Vachani — ITAT, 2025
  Merely because the assessee had claimed a deduction which was not accepted by the Revenue, it does not attract penalty under Section 271(1)(c) if all facts were disclosed.
• Olympia Builders Pvt.Ltd. vs CIT(A) NFAC, Delhi — ITAT, 2025
  Disallowance of expenditure on an estimated basis does not automatically equate to under-reporting of income for penalty under Section 270A.
• Commissioner of Income Tax vs M/s. Manjunatha Cotton and Ginning Factory — HC, 2012
  The imposition of penalty under Section 271(1)(c) requires clear evidence of concealment or inaccurate particulars, which was not established in this case.
• Principal Commissioner of Income Tax 2 vs Gruh Finance Ltd. — HC, 2018
  The absence of evidence of non-disclosure of income negates the basis for imposing a penalty under Section 271(1)(c).
• M/s Dilsa Distributers Combines vs ITO-11(1)(1) — ITAT, 2013
  The statement of a third party cannot be used against the assessee without providing an opportunity for cross-examination.
• M/s ISGEC Heavy Engineering Limited vs The ITO — ITAT, 2023
  The imposition of penalty under Section 271(1)(c) requires a clear finding of concealment or furnishing of inaccurate particulars, which was absent in this case.
• K.C. Builders & Anr. vs The Assistant Commissioner of Income Tax — SC, 2004
  Once the Income Tax Appellate Tribunal finds no concealment of income, the basis for criminal prosecution under the Income Tax Act ceases to exist.
• NAYAN C SHAH vs INCOME TAX OFFICER — HC, 2016
  A mere technical breach does not warrant the imposition of penalty under section 271(1)(c) of the Income Tax Act.
• C.I.T., Ahmedabad vs Reliance Petroproducts Pvt. Ltd. — SC, 2010
  A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.
• Skil Infrastructure Ltd vs ACIT — ITAT, 2012
  A bonafide belief regarding the tax exemption negates the imposition of penalty under section 271(1)(c).
• GM Modular Private Limited vs Principal Commissioner of Income Tax – 1 and Ors — HC,
  A bona fide claim based on a binding judicial precedent cannot attract penal consequences even if the precedent is later reversed.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Kavita Jasjit Singh vs Commissioner of Income Tax (Appeals) — ITAT, 2023
  The non-declaration of interest on income tax refund cannot be considered as underreporting of income if the taxpayer had a bona fide reason for not declaring it.
• Sri T. Ashok Pai vs Commissioner of Income Tax, Bangalore — SC,
  The penalty under Section 271(1)(C) requires a deliberate act of concealment or furnishing inaccurate particulars, which was not established in this case.
• Dilip N. Shroff vs Joint Commissioner of Income Tax, Mumbai & Anr — SC,
  Penalty under Section 271(1)(c) requires a deliberate act of furnishing inaccurate particulars or concealment of income.
• Price Waterhouse Coopers Pvt. Ltd. vs Commissioner of Income Tax, Kolkata-I — SC, 2012
  A bona fide and inadvertent error does not amount to furnishing inaccurate particulars or concealment of income.
• SCHNEIDER ELECTRIC SOUTH EAST ASIA (HQ) PTE LTD vs ASST COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 3 (1)(2), NEW DELHI AND ORS. — HC, 2022
  The denial of immunity under Section 270AA is arbitrary if the Revenue does not specify the grounds for misreporting.
• Union of India and Ors vs M/s Dharamendra Textile Processors and Ors — SC,
  Section 11AC of the Central Excise Act imposes a mandatory penalty without the requirement of mens rea.