Deemed Ownership - Section 27 - Income Tax

In certain scenarios, a property may not rightfully belong to a person, but the person is nevertheless considered to be the owner of the premises. Such scenarios are referred to as deemed ownership. This article provides a description of the circumstances prescribed under Section 27 of the Income Tax Act, 1961, which deals with the concept of deemed ownership.

Transfer of House Property to Spouse

In case an individual transfers any property to a spouse for reasons other than for adequate consideration and is not connected with an agreement to live apart, the transferor is deemed to be the owner of the transferred property.

Transfer of Property to Minor Child

In case an individual transfers property to a minor child for reasons other than adequate consideration, the transferor will be deemed to be the owner of the house property transferred. This is however not applicable when a property is transferred to a minor daughter who is married.

Special Clause on Transfer to Spouse/Child

If an individual transfers any cash or asset to his/her spouse or minor child, and the transferee acquires a house property using that money or asset, the transferor wouldn’t be the deemed owner of the house property. However, as per the provisions of the Income Tax Act, such a transaction will attract clubbing provisions.

Holder of an Impartible Estate

Impartible property is a property which cannot be partitioned, or in other words, it cannot be legally divided. The owner of such an estate would be deemed to be the individual owner of all the properties comprised in the estate.

Member of a Co-operative Society

A member of a co-operative society, company or other AOP to whom a building or property is allotted or leased under a house property scheme of such society/AOP, would be deemed to be the owner or part thereof allotted to him. This is in spite of the fact that such a person is the legal owner of that building.

Person in Possession of Property

A person who is permitted to take or retain the possession of any building or its part, in part performance of a contract referred to in Section 53A of the Transfer of Property Act, would be the deemed owner of the building or its part. This is inclusive of the following scenarios:

Possession of property has been surrendered to the buyer.
Sales consideration has been met or promised to be met by the buyer.
Sale deed has not been executed in favour of the buyer.

As per Section 53A, in a scenario where, under a contract for the transfer of immovable property, the buyer has made the required payments, and has taken possession of the property, even though the transfer deed or conveyance has not been registered, the buyer shall be considered as the possessor.

Person who Holds Property for Twelve Years

A person who acquires the right in or with respect to any building or its part by virtue of any specified transaction, for a period of 12 years or more would be deemed to be the owner of that building or its part, except in cases where any right by way of lease is acquired on a monthly basis or for a period not exceeding one year.