In a recent decision, the Kolkata Tribunal held that where an individual receives cash from his brother-in-law (a specified relative under the tax laws) through banking channels, a gift deed is not required to establish its tax-exempt nature.
The assessee, an individual, received a cash gift from his brother-in-law, who is based in the USA, through the latter’s NRE bank account in India. The Assessing Officer made an addition in the assessee’s hands for the cash received on the ground that no proper gift deed had been executed. Aggrieved, the assessee filed an appeal before the CIT(Appeals), which noted that the gift deed had been prepared in the USA nine years after the transaction and that the donor’s source of funds remained unexplained. The CIT(Appeals) upheld the addition, holding that merely receiving a gift from a relative is not sufficient and that the recipient must also satisfactorily explain the source of the funds.
The assessee then approached the Tribunal. The Tribunal observed that the assessee had furnished both the gift deed and the donor’s bank statement before the CIT(Appeals). It quashed the addition, holding that the law does not mandate the execution of a gift deed and that receipt from a relative is sufficient for exemption. The Tribunal further held that if the source of funds is questionable, any addition must be made in the hands of the brother-in-law, not the assessee.
The decision confirms that an executed gift deed is not necessary to claim exemption on gifts received from relatives. It also clarifies that where the source of funds is in question, the tax addition should be made in the donor’s hands rather than the donee’s.
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