Tax notice? Joint owners must save documents showing who funded asset buy

At the time of purchase, both sides ought to make a formal declaration of beneficial interest and financial contribution

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 bought a flat in Kolkata, claimed tax exemption on it (he had sold another flat in Gurgaon to make this purchase) and made her its co-owner. An assessment officer made a tax demand of Rs 70.46 lakh on her. The Income Tax Appellate Tribunal (ITAT) Delhi Bench quashed this addition made in the wife’s hands, observing she was only a co-owner in name while her husband had funded the entire purchase. Cases like this underline the need to proceed with caution in the case of jointly-owned assets.  

 

Beyond property transactions

 

The issue is not limited to immovable property like flats 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 must report large transactions through the Statement of Financial Transactions (SFT). “Once reported, these entries are automatically reflected in the Annual Information Statement (AIS) linked to each joint holder’s PAN. For jointly held assets, the same investment can appear in multiple tax profiles, even if only one person made the payment,” says Itesh Dodhi, director, Nangia & Co LLP.

 

Why joint ownership is common

 

Families often add a spouse or child as joint holder for succession and convenience. “Joint ownership ensures that assets or investments can be accessed without difficulty. In fact, for pensioners, the government encourages maintaining joint accounts with their spouse so that family pensions can be received smoothly and without unnecessary hassles,” says Dodhi.

 

Joint ownership also serves as an estate planning tool. “On the death of one holder, the other can usually step into ownership without lengthy succession procedures. This makes it a simple estate-planning tool in a country where wills are not that popular,” says Dodhi.

 

Automated triggers for notices

 

Non-contributing joint holders — often spouses or children without income — are frequently issued notices. “Cases like Mita Chatterjee highlight that the Income Tax Department often questions unexplained ownership entries. There have been several similar disputes in recent years, especially when large-value transactions or high-value assets are involved,” says Bhattacharya.

 

“If a joint holder hasn’t filed a return or their income doesn’t match the reported transaction, the tax department may issue a notice. The Mita Chatterjee case illustrates that the system initially queries all names appearing on the AIS,” adds Dodhi.

 

Automation plays a central role. “Using AIS data from banks, registrars, and others, the system only checks whose PAN appears—not who actually paid. If the return doesn’t ‘match’ the transaction, a notice is triggered. It’s a classic case of technology outpacing human judgment,” says Dodhi.

 

In such cases, proving that one is only a joint holder “on paper” becomes essential.

 

Precautions to avoid disputes

 

Experts recommend meticulous record-keeping to tackle possible tax disputes.

 

Santhosh Sivaraj, partner, global employer services, tax and regulatory services, BDO India, suggests keeping loan agreements, property transfer records, bank statements, payment trails such as cheque or bank transfers, and sale deeds with payer’s PAN details. He also stresses reporting of all tax deducted at source (TDS).

 

“Transfer of money should ideally be 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. “It should ideally be accompanied by a formal declaration or agreement specifying each co-owner’s beneficial interest and financial contribution,” says Tarun Garg, director, Deloitte India.

 

Dasgupta suggests executing a registered gift deed under the Transfer of Property Act, clearly stating the nature and quantum of the gift, and relationship with the donee (spouse or child).

 

Experts also recommend a declaration of beneficial ownership. “This can be done in the sale deed itself or as a separate notarised declaration, stating who paid and who is the real owner,” says Dasgupta. Such documentation, he adds, can protect against allegations of benami holding, which can result in attachment and confiscation under Section 24 and Section 27 of the Benami Act.

 

A significant point needs to be remembered about the income from such assets. “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, capital gain—arising from that asset is clubbed with your income,” says Dasgupta.

 

How to respond to a notice

 

Check notice and identify section under which it was issued (e.g., 143(1), 143(2), 148, 139(9))

Collect supporting documents – sale deed, ownership agreements, bank statements, loan documents, other proof of funds

Prepare detailed written submission citing provisions of Income Tax Act

File reply online through Income Tax portal under "e-Proceedings"

Failure to respond may lead to best judgement or ex-parte assessment under Section 144

Unsatisfactory explanation may result in the asset being declared an ‘unexplained investment’ under Section 69, and being taxed at 60 per cent plus surcharge and cess

Risk of penalty proceedings under Section 271 for concealment or inaccurate particulars exists

Respond before deadline to avoid fines or complications

Seek expert legal advice to avoid mis-declaration or incorrect response

Track matter after submission for further notices