Father Wins LTCG Battle: ITAT Holds Capital Gains Tax on Daughter’s Share in Property Sale Cannot Be Clubbed

Moneylife Digital Team 08 September 2025

Economy & Nation

In a significant ruling, the income-tax appellate tribunal (ITAT), Chennai, has held that the share of a minor child in property inherited from her deceased mother cannot be clubbed with the father’s income for the purpose of long-term capital gains (LTCG) tax when such proceeds are deposited in compliance with a court’s directions.

In an order last week, the bench of SS Viswanethra Ravi (judicial member), says, "(Since) the assessee cannot decide the utilisation of his minor daughter’s share as it is deposited as per court’s order and it is impossible to club the same in assessee’s hand...the addition made in the hands of the assessee with reference to assessee’s minor daughter’s share is not justified and it is deleted. Consequently, the brokerage charges, which is of 1% of the sale consideration, as it is usual practice across real estate sector, it is disallowed for want of evidence is also deleted by accepting the assessee’s submissions."

The case pertains to Tiruvallur-based Pradeep Jeyavelu, who, along with his minor daughter, inherited property after the death of his wife. With the permission of the city civil court in Chennai, the property was sold and the court directed that the daughter’s 50% share be deposited in a nationalised bank in the name of the registrar under the provisions of the Hindu Minority and Guardianship Act, 1956.

During assessment for the year 2016–17, the assessing officer (AO) included the daughter’s 50% share of the sale proceeds in Mr Jeyavelu’s hands, computing LTCG accordingly. While Mr Jeyavelu had disclosed and paid tax on his own 50% share, also claiming a deduction under Section 54 of the Income-tax (I-T) Act, the AO insisted that the minor’s portion must also be taxed in his hands.

The commissioner of income tax (appeals) and the national faceless appeal centre (NFAC), Delhi, upheld the AO’s view, leading to Mr Jeyavelu filing an appeal before ITAT.

Hearing the matter, the bench observed that since the minor’s share was deposited in a bank account under the custody of the registrar of the city civil court, the father had no right to utilise it.

The tribunal noted that the civil court, by its order dated 27 March 2015, permitted the sale specifically for the welfare and education of the minor child and directed that her share be preserved until she attained majority.

“Mr Jeyavelu cannot decide the utilisation of his minor daughter’s share as it is deposited as per court’s order and it is impossible to club the same in his hand,” the tribunal held, deleting the addition.

The tribunal also dealt with another issue regarding brokerage expenses. The AO had disallowed brokerage amounting to 1% of the sale consideration, citing a lack of evidence. However, the ITAT accepted Mr Jeyavelu’s contention that brokerage is a standard practice in real estate transactions and allowed the claim.

The ruling underscores the principle that notional or constrained receipts, particularly those belonging to minors and locked under court directions, cannot be treated as taxable income in the guardian’s hands. Tax professionals say the judgement will offer clarity in similar inheritance and guardianship-related property sale cases, where minors’ shares are ring-fenced under judicial orders.

With the appeal allowed in entirety, the LTCG addition and brokerage disallowance stand deleted, bringing relief to the assessee.

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