The ITAT Kolkata SMC Bench, has given a strict reading of the deemed tax provisions defining “relatives” for tax purposes and ruled that gift received by an individual member from HUF does not qualify as being from a “relative” for Gift tax provisions, making it taxable in the recipient’s hands. However, the matter was remanded back to the tax officer to examine whether the same was an exempt income in the hands of recipient member u/s 10(2) of the Income Tax Act.
The assessee received certain sum as a gift from her husband’s HUF (of which the husband was Karta) and claimed exemption under section 56(2) considering the same as received from 'relative' . The AO and CIT(A) treated it as taxable under section 56(2), relying on ITAT Ahmedabad’s decision, which clarified that post-Finance Act 2012 amendment (retrospective from 01.10.2009), HUF is recognized only as a Donee (not donor) in the relative definition for individual recipients. The ITAT Kolkata upheld this view, emphasizing HUF’s distinct legal entity status from its members, rejecting arguments that HUF equates to a “conglomeration of relatives”.
Despite contrary precedents like ITAT Rajkot and ITAT Chandigarh (favouring assessee by viewing HUF distributions as capital receipts reflecting pre-existing member rights), the Bench favoured ITAT Ahmedabad’s interpretation of the statute. The Assessee also came up with an alternate argument that the gift would be exempt from tax u/s 10(2). However, the matter was remanded to the AO to verify exemption under section 10(2) (receipts from HUF out of family income by members), requiring the assessee to prove membership, HUF constitution etc.
This decision underscores strict statutory construction for HUF gifts to members, prioritizing legislative intent over equitable HUF interpretations. Members having received such gifts should anticipate scrutiny under section 56(2)(x) while others should remain cautious while planning any receipts from HUF.
Despite contrary precedents like ITAT Rajkot and ITAT Chandigarh (favouring assessee by viewing HUF distributions as capital receipts reflecting pre-existing member rights), the Bench favoured ITAT Ahmedabad’s interpretation of the statute. The Assessee also came up with an alternate argument that the gift would be exempt from tax u/s 10(2). However, the matter was remanded to the AO to verify exemption under section 10(2) (receipts from HUF out of family income by members), requiring the assessee to prove membership, HUF constitution etc.
This decision underscores strict statutory construction for HUF gifts to members, prioritizing legislative intent over equitable HUF interpretations. Members having received such gifts should anticipate scrutiny under section 56(2)(x) while others should remain cautious while planning any receipts from HUF.
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