‘Always keep accurate and transparent records of the source of the investment or property’s funding: Loan agreements, transfer records of the property, and bank statements of co-owners if available.’
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A recent ruling in the case of Smt Mita Chatterjee vs Income Tax Officer highlights how joint ownership of property can trigger unintended tax disputes.
Her husband sold a flat in Gurugram, bought another in Kolkata, claimed tax exemption, and made her the co-owner of the new flat.
An assessing officer made a tax demand of Rs 70.46 lakh on her.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, quashed this addition, observing she was only a co-owner in name while her husband had funded the entire purchase.
Cases like this underscore the need to proceed with caution when dealing with jointly owned assets.
Beyond property transactions
The issue is not limited to immovable property like a flat or land.
“It can extend to financial assets such as mutual funds, fixed deposits, demat accounts, and bank deposits where joint holders are often added for convenience or succession planning,” says Aditya Bhattacharya, partner, King Stubb & Kasiva, Advocates and Attorneys.
Banks, mutual funds, sub-registrars, and other entities are required to report large transactions through the Statement of Financial Transactions (SFT).
“These entries are automatically reflected in the Annual Information Statement (AIS) linked to each joint holder’s PAN,” says Itesh Dodhi, director, Nangia & Co LLP.
“For jointly held assets, the same investment can appear in multiple tax profiles, even if only one person actually paid for it,” explains Dodhi.
Estate planning tool
Families often add a spouse or child as a joint holder for succession and convenience.
“Joint ownership ensures that assets or investments can be accessed smoothly.
“In fact, for pensioners, the government encourages maintaining joint accounts with their spouse so that family pensions can be received smoothly and without much hassle,” says Dodhi.
Joint ownership serves as an estate planning tool.
“On the death of one holder, the other can usually step into ownership without lengthy succession procedures,” says Dodhi.
Automated triggers for notices
Non-contributing joint holders –often spouses or children without income — are frequently issued notices.
“There have been several similar disputes in recent years, especially when large-value transactions or high-value assets are involved,” says Bhattacharya.
Automation plays a central role.
“Using AIS data from banks, registrars, and others, the system only checks whose PAN appears — not who actually paid,” says Dodhi.
Bhattacharya adds that such red flags are usually triggered when a PAN-linked investment or property appears in the tax records of a person with no commensurate income,prompting automated reassessment notices.
What should joint owners do?
Experts recommend meticulous record-keeping to tackle possible tax disputes.
“Always keep accurate and transparent records of the source of the investment or property’s funding: Loan agreements, transfer records of the property, and bank statements of co-owners if available,” says Santhosh Sivaraj, partner, global employer services, tax and regulatory services, BDO India.
“Money should ideally be transferred through banking channels — RTGS, NEFT, account transfer, or cheque — and the trail must be preserved,” says Rajarshi Dasgupta, executive director – tax, Aquilaw.
Joint ownership should be formalised.
“There should be a formal declaration or agreement specifying each co-owner’s beneficial interest and financial contribution,” says Tarun Garg, director, Deloitte India.
Dasgupta adds that this can be done in the sale deed itself or as a separate notarised declaration, stating who paid and who is the real owner.
Such documentation, according to him, can offer protection against allegations of benami holding, which can result in attachment and confiscation under Section 24 and Section 27 of the Benami Transactions Act.
Another option is to execute a registered gift deed under the Transfer of Property Act, clearly stating the nature and quantum of the gift, and the relationship with the donee (spouse or child).
One point regarding income from such assets needs to be noted.
“Under Section 64(1) of the Income Tax Act, if you invest in the name of your spouse or minor child, any income — rent, interest, or capital gain — arising from that asset is clubbed with your income,” says Dasgupta.
How to respond to a notice
When you receive a notice, understand whether it highlights a discrepancy or seeks clarification.
“Identify the section under which it has been issued: 143(1), 143(2), 148 or 139(9).
“Thereafter, collect supporting documents, such as the registered sale deed, ownership agreements, loan documents, etc.” says Garg.
“Prepare a detailed written submission addressing each of the discrepancies or clarifications requested by the tax authorities and adding the appropriate provisions of the IncomeTax Act.
“Include all pertinent documentation,” says Sivaraj.
File the reply online through the Income-Tax portal under the ‘e-Proceedings’ tab.
Respond before the deadline to avoid fines or complications.
Consult a legal expert to prevent misdeclaration or an incorrect response.
After filing your submission, track the matter regularly to check for further notices.
Risks of ignoring, mishandling tax notice
- Notice ignored: Best judgment or ex-parte assessment under Section 144
- Unsatisfactory explanation: Officer may classify the asset as ‘unexplained investment’ under Section 69, tax it at 60 per cent plus surcharge and cess
- Concealment or inaccurate particulars: Tax demand and penalty up to 200% of tax, plus interest
- Wilful non-compliance: Legal proceedings and prosecution
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Feature Presentation: Ashish Narsale/Rediff