Monday, 27 May 2013

Whether when assessee receives a gift from a relative in HUF capacity, exemption u/s 56(2)(v) cannot be denied as term 'relative' is very much covered by provisions of Sec 56 - YES: ITAT

THE issue before the Bench is - Whether when assessee receives a gift from a relative in HUF capacity, exemption u/s 56(2)(v) cannot be denied as the term 'relative' is very much covered by the provisions of Sec 56. And the answer goes in favour of the assessee.
Facts of the case
The assessee is an HUF of Harshadbhai Dahyalal Vaidhya, who had received a gift from his uncle Shri Ishwarlal Ambalal Vaidhya. This fact was clarified by the donor when his statement was recorded on oath during the proceedings. In his statement, he had stated that Shri Harshadbhai Dahyalal Vaidhya was the son of his elder brother and an amount of Rs.7 lacs was given to Harsahdbhai Dahyalal Vaidhya(Individual). He had also stated that the contents of the
gift were duly recorded in the title gift-deed. Copy of the said gift-deed was made available to the Revenue Department. Later on, it was informed that the said gift-deed was revised. However, the main fact remained that Harshadbhai accepted the gift as Karta of HUF. The AO was of the opinion that as per the exemption given in section 56(2) sub-section (v) the term “Relative” covered only a relative of an individual and has not been used to include a HUF. The AO observed that, since the gift was not received from the relative of an individual, but that of a HUF, the exemption was not applicable. The assessee failed to provide any reply to the show cause notice that why this amount was not to be taxed under the head of ‘income from other sources’. Therefore, the entire amount was taxed in the hands of the assessee and the AO initiated the penalty proceedings.
On appeal, the CIT(A) agreed with the reasoning given by the AO and confirmed the order.
The counsel for the assessee relied on the case of Vineet kumar Raghavjibhai Bhalodia vs. ITO, wherein it was held that the term “relative” explained in Explanation to section 56(2)(vi) includes “relatives” and as the assessee received gift from his “HUF”, which was “a group of relatives”, the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the “relatives” therefore the same was not taxable u/s 56(2)(vi).
In the counter argument, the DR supported the reasoning of the lower authorities.
Having heard the parties, the Tribunal held that,
++ for the year under consideration, i.e. AY 2005-06 the definition of “relative” was in respect of the relationship by an individual donee with close-relatives as defined therein. However, it is very pertinent to note that the operative section i.e. section 56(2)(v) was in respect of (i) individual, and (ii) Hindu Undivided Family (HUF). Meaning thereby the legislature has clear intention to include both the statuses i.e. Individual as well as HUF within its scope; as well as; within its operation. Thus, the Section is applicable in respect of money exceeding Rs.25,000/- received without consideration either by an “individual” or by a “HUF”. Now we read the proviso annexed to sub-section (v) that the charging clause shall not apply to any sum of money received from any relative. Meaning thereby the proviso is applicable to both of them i.e. “individual” as well as “HUF”. The donor–relative can be either relative of “Individual” or “HUF”; as the case may be. In other words, if an amount exceeding Rs.25,000/- is received as a gift either by “individual” or by “HUF”, then such an amount is chargeable to income under the head “Income from other sources” but an exception is provided in the first proviso that the said clause of charging the amount to tax should not apply to an amount received from any relative. We hereby thus interpret that the proviso prescribes that the charging of the gifted amount shall not apply to any sum of money received as a gift from a “relative” either by an “individual” or by “HUF”. Naturally, the proviso annexed to clause(v) of section 56(2) do not restrict to an “individual” but it governs “individual” as well as a “HUF”. With this understanding/interpretation of the main provisions, we have to examine the definition of “relative” given in Explanation annexed to this section. The position shall be absolutely clear that even in case of HUF if a sum of money is received from any relative and that relative is as defined in Explanation, then also fall within the exception as prescribed in this section;
++ our above view gets support from an order of Respected Rajkot Bench pronounced in the case of Vineetkumar Raghavjibhai Bhalodia vs. ITO;
++ we have also noted that at some later stage, the legislature became conscious of the problem, therefore while drafting the analogous provisions of section 56(2)(vii), it was added in the definition of “relative” (ii) in case of a Hindu Undivided Family, any member thereof. This section is inserted by Finance (No.2) Act of 2009 w.e.f. 1./10/2009 which prescribes that where an individual or HUF receives in any previous year on or after 1st day of October-2009 any sum of money without consideration exceeding Rs.50,000/- the whole of the aggregate value of such sum shall be chargeable to income-tax. Provided that the charging clause shall not to apply to any sum of money received from any relative. As per this newly inserted clauses, (a) “relative” means in case of HUF any “member thereof”. Although this subsequent change in the Act do not apply for the year under consideration being incorporated by Finance Act, 2009 but it appears that by insertion of these words Legislatures have visualized the difficulty, hence streamlined the provisions by removing the doubt. We therefore hold that since the assessee-HUF has undisputedly received a gift of Rs.7 lacs from a relative who is an uncle of the Karta of this HUF, i.e.; as per Explanation to sub-clause(iv); “brother or sister of either of the parents of the individual”, hence fall within the category of the “Relative” prescribed in the Act, therefore not chargeable to tax in the hands of the assessee. Thus the Grounds raised are hereby allowed.

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