ITAT Rules: Joint Property Funded by Husband Not Taxable in Wife’s Hands

In a recent and notable ruling, the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) provided significant relief to a taxpayer by deleting an addition of over ₹2.18 crore. The tribunal ruled that an investment in a jointly owned property, which was funded entirely by the husband, cannot be taxed in the hands of the wife under Section 69A of the Income Tax Act, 1961.

This judgment offers important clarity on how ownership and source of funds are treated for taxation purposes, especially in cases involving spousal joint ownership of assets.

Case Background

The appellant, Naliniben Dipakbhai Patel, had filed her income tax return electronically, declaring her total income as per applicable provisions. During the assessment proceedings, the Assessing Officer (AO) noticed an investment of ₹2,18,19,600 in a property that was jointly held by the appellant and her husband.

Since the AO could not trace the source of funds used for this investment in the appellant’s bank accounts or returns, he presumed that it was undisclosed income and made an addition under Section 69A — which deals with unexplained money or investments.

Key Legal Issue

The main question before the Tribunal was:
🔍 Should the entire investment in a jointly held property be treated as unexplained income in the hands of the wife, when the funds were actually contributed by the husband?

Tribunal’s Observations

After reviewing the submissions and evidence, the ITAT made the following key observations:

• ✅ The source of the investment was traced to the husband’s income, and not the wife’s.
• ✅ Although the property was jointly held, actual ownership based on funding matters more than just names on paper.
• ✅ There was no evidence to show that the wife had independently contributed to the investment.
• ✅ Under such circumstances, taxing the wife under Section 69A would be unjustified.

Final Decision

The ITAT ruled in favour of the appellant and deleted the addition of ₹2.18 crore, holding that:

“Just because the property is jointly registered does not mean the investment was made from undisclosed income of both owners. The source of funds must be established for each party.”

This verdict reaffirms the principle that registration and actual contribution are separate matters, and only the person who made the investment can be held accountable for its taxability.

Why This Ruling Matters

This decision provides useful guidance for:

• Married couples owning assets jointly
• Taxpayers facing scrutiny under Section 69A
• Assessing Officers determining source-based tax liabilities

It clearly establishes that:
✔️ Ownership alone does not decide taxability
✔️ Source of funds is key
✔️ Spouses should maintain clear financial records, especially when making large investments jointly

Conclusion

The ITAT’s ruling in Naliniben Dipakbhai Patel v. Income Tax Department is a welcome judgment that aligns with both common sense and fairness. When the husband makes the investment and the wife has no independent contribution, taxing her for the entire amount is not legally sustainable.

As always, proper documentation and clarity of funding sources remain crucial in property transactions to avoid unnecessary tax complications.

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📅 Published on: 14 July 2025
✍️ Author: CS Chhavi Goyal