Monday, 3 August 2015

Whether HUF can be treated as a 'relative' under provisions of sec 56(2) for purpose of receiving gift and assessee-individual can claim exemption for such gift - YES: ITAT

THE issue before the Bench is - Whether HUF can be treated as a 'relative' under the provisions of section 56(2) for the purpose of receiving gift and the assessee-individual can claim exemption for such gift. YES is the answer.
Facts of the case
The assessee being an individual offered income from house property, interest and share incomes from firms and other sources. During assessment, the AO noticed that assessee had received an amount of Rs.2,50,000/- as gift from HUF. He also noticed that amount of Rs.90,000/- was found credited to his loan account which was not reflected in the firms accounts. Holding that HUF was not a ‘relative’ u/s 56(2), the AO treated the amount of Rs.2,50,000/- as income of the assessee. Likewise, an amount of Rs.90,000/- was also treated as income on the reason that the same was not reflected in the ledger account copy of the firm M/s. Mahalaxmi Modern Rice Mill. On appeal, the CIT(A) without considering assessee's submissions, dismissed the appeal stating that he did not find any reason to interfere with the order of the AO.
Having heard the parties, the Tribunal held that,
++ the counsel for assessee submitted that the issue of HUF being treated as ‘Relative’ so as to get exemption as per the provisions of section 50(2)(vi) has been considered by the Coordinate Bench of Rajkot Bench in the case of Vineetkumar Raghavjibhai Bhalodia vs. ITO, wherein similar issue was considered and it was held that:
["....An HUF is a person within the meaning of section 2(31) and is a distinctively assessable unit under the Act. Actually an "HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of "relative" as provided in Explanation to clause (vi) of section 56(2). The observation of the CIT(A) that HUF is as good as ‘a BOI’ and cannot be termed as "relative" is not acceptable. Rather, an HUF is ‘a group of relatives’. Now having found that an HUF is ‘a group of relatives’, the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the ‘group of relatives’ from the HUF not exempt from taxation....Further, from a plain reading of section 56(2)(vi) along with the Explanation to that section and on understanding the intention of the legislature from the section, we find that a gift received from "relative", irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) as a group of relatives also falls within the Explanation to section 56(2)(vi)....Therefore, in our considered view, the "relative" explained in Explanation to section 56(2)(vi) includes "relatives" and as the assessee received gift from his "HUF", which is "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 is not taxable u/s 56(2)(vi)...."]
++ therefore, respectfully following the same, we hold that HUF can be treated as a ‘relative’ under the provisions of section 56(2) so as to exclude the amount received from HUF by the assessee-individual. Accordingly, the AO is directed to treat the amount of Rs.2,25,000 received from HUF as an amount exempted u/s 56(2). The addition is accordingly deleted

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