A gift was made to my client's HUF by the karta's paternal uncle. The Explanation defines 'relative' only for an individual. Can the department tax it in the HUF's hands?
The Ahmedabad Bench held not. The charging clause operates on an individual and on an HUF alike, so the proviso exempting a sum received from a relative must govern both; the definition in the Explanation is then applied to test the donor's relationship, and a gift to an HUF from the brother of a parent of its member falls within item (iv) of that definition. The appeal was allowed.
Decided by the ITAT (Shri Mukul Kr. Shrawat, Judicial Member and Shri Anil Chaturvedi, Accountant Member) on 2013-04-26, reported as I.T.A. No. 1527/Ahd/2010 (ITAT Ahmedabad, 'C' Bench). It bears on section 56(2)(v), section 56(2)(vii), section 271(1)(c) of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, How Tax Law Is Read and Evidence & Burden of Proof matters.
The obvious answer is that the Finance Act amendments fixed this by adding a limb for an HUF, so the case is spent. Read the limb before accepting that. The Explanation to section 56(2)(x) has no definition of 'relative' of its own — clause (a) of it adopts the meaning assigned in the Explanation to clause (vii), whose limb (ii) provides that 'in case of a Hindu undivided family' a relative means 'any member thereof'. That covers a gift from a member of the family to the family. It does not on its words cover a gift to the family from someone who is a relative of the karta but is not a member of that HUF — an uncle, a father-in-law, a brother-in-law. On those facts the department will say the HUF has no relative other than its own members, and Harshadbhai is the authority for the wider construction: the proviso governs HUF donees and the Explanation's list is applied through the member. The order is also useful for its candour about the drafting gap, which it sets out at length from Sampath Iyengar, and for its observation at para 7.5 that the legislature 'visualized the difficulty' and streamlined the provision by adding the HUF limb from 1 October 2009.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is assessed as an HUF consisting of three coparceners. For AY 2005-06 an amount of Rs 7,00,000 was introduced into its capital account, supported by a gift deed dated 1 October 2004 under which Shri Ishwarlal Ambalal Vaidhya, the brother of the karta's father, made the gift. The Assessing Officer added the sum under section 56(2), reasoning that the Explanation defines 'relative' only for an individual and not for an HUF, so a gift accepted for and on behalf of an HUF is not covered by the exclusion. The first appellate order was ex parte and was set aside by the Tribunal on 22 August 2008 in ITA No. 1341/Ahd/2008; on remand the CIT(A) called for a remand report, recorded the donor's statement on oath, and confirmed the addition, holding that the definition of relative in section 56(2) is entirely in the context of an individual and that once the money had become the exclusive property of the karta in his individual capacity, any further transfer to his HUF was a transaction between separate entities and was hit by section 56(2). There were competing accounts of the transaction — a cheque to the karta's individual account followed by a transfer to the HUF, and gift deeds dated 1 October 2004, revised on 25 October 2004 and again on 28 March 2007.
The appeal was allowed (para 8). The proviso to clause (v) of section 56(2) is not confined to an individual but governs an individual and an HUF alike, so that a sum received by an HUF from a relative as defined in the Explanation falls within the exception; the donor being the uncle of the karta of the assessee-HUF, that is the brother of a parent of the karta and so within item (iv) of the Explanation's list, the gift of Rs 7 lakh was not chargeable in the assessee-HUF's hands (para 7.5).
The Bench began from the words of the charging clause: it operates where money exceeding the threshold is received without consideration 'by an individual or a Hindu undivided family', which shows the legislature intended both statuses to be within its scope and operation. The proviso attaches to that clause and must therefore be applicable to both; the donor-relative can be a relative of the individual or of the HUF as the case may be (para 7.1). Only then is the Explanation's definition applied, to test the relationship. The Bench acknowledged the drafting gap by setting out a commentary passage observing that the definition covers only relatives of individuals and appears to have overlooked the HUF (para 7.2), and drew support from the Rajkot Bench in Bhalodia, whose reasoning it reproduced at paras 7.3 and 7.4. It then noted that when the legislature came to draft section 56(2)(vii) it added the limb for an HUF from 1 October 2009, which it read as the legislature having visualised the difficulty and removed the doubt, and as confirming rather than contradicting its own construction (para 7.5). On the facts, the Bench declined to be drawn into the successive gift deeds and rested on the undisputed basic fact that the karta accepted the gift as karta of his HUF (paras 6.1 and 7.5).
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".
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Handle my notice → Ask a CA on WhatsAppThe Ahmedabad Bench held not. The charging clause operates on an individual and on an HUF alike, so the proviso exempting a sum received from a relative must govern both; the definition in the Explanation is then applied to test the donor's relationship, and a gift to an HUF from the brother of a parent of its member falls within item (iv) of that definition. The appeal was allowed. This was decided by the ITAT (Shri Mukul Kr. Shrawat, Judicial Member and Shri Anil Chaturvedi, Accountant Member) and bears on section 56(2)(v), section 56(2)(vii), section 271(1)(c) of the Income Tax Act 1961. It is reported as I.T.A. No. 1527/Ahd/2010 (ITAT Ahmedabad, 'C' Bench). The obvious answer is that the Finance Act amendments fixed this by adding a limb for an HUF, so the case is spent. Read the limb before accepting that. The Explanation to section 56(2)(x) has no definition of 'relative' of its own — clause (a) of it adopts the meaning assigned in the Explanation to clause (vii), whose limb (ii) provides that 'in case of a Hindu undivided family' a relative means 'any member thereof'. That covers a gift from a member of the family to the family. It does not on its words cover a gift to the family from someone who is a relative of the karta but is not a member of that HUF — an uncle, a father-in-law, a brother-in-law. On those facts the department will say the HUF has no relative other than its own members, and Harshadbhai is the authority for the wider construction: the proviso governs HUF donees and the Explanation's list is applied through the member. The order is also useful for its candour about the drafting gap, which it sets out at length from Sampath Iyengar, and for its observation at para 7.5 that the legislature 'visualized the difficulty' and streamlined the provision by adding the HUF limb from 1 October 2009. If it applies to you, the first step is this: Where an HUF receives a gift from a person who is not its member, check first whether the current Explanation's HUF limb reaches him — usually it will not — and then run the Harshadbhai construction expressly: the proviso governs HUF donees and the relationship is tested through the member.
The assessee is assessed as an HUF consisting of three coparceners. For AY 2005-06 an amount of Rs 7,00,000 was introduced into its capital account, supported by a gift deed dated 1 October 2004 under which Shri Ishwarlal Ambalal Vaidhya, the brother of the karta's father, made the gift. The Assessing Officer added the sum under section 56(2), reasoning that the Explanation defines 'relative' only for an individual and not for an HUF, so a gift accepted for and on behalf of an HUF is not covered by the exclusion. The first appellate order was ex parte and was set aside by the Tribunal on 22 August 2008 in ITA No. 1341/Ahd/2008; on remand the CIT(A) called for a remand report, recorded the donor's statement on oath, and confirmed the addition, holding that the definition of relative in section 56(2) is entirely in the context of an individual and that once the money had become the exclusive property of the karta in his individual capacity, any further transfer to his HUF was a transaction between separate entities and was hit by section 56(2). There were competing accounts of the transaction — a cheque to the karta's individual account followed by a transfer to the HUF, and gift deeds dated 1 October 2004, revised on 25 October 2004 and again on 28 March 2007. The matter was decided on 2013-04-26 by the ITAT (Shri Mukul Kr. Shrawat, Judicial Member and Shri Anil Chaturvedi, Accountant Member). On those facts the ITAT held as follows. The appeal was allowed (para 8). The proviso to clause (v) of section 56(2) is not confined to an individual but governs an individual and an HUF alike, so that a sum received by an HUF from a relative as defined in the Explanation falls within the exception; the donor being the uncle of the karta of the assessee-HUF, that is the brother of a parent of the karta and so within item (iv) of the Explanation's list, the gift of Rs 7 lakh was not chargeable in the assessee-HUF's hands (para 7.5).
The Bench began from the words of the charging clause: it operates where money exceeding the threshold is received without consideration 'by an individual or a Hindu undivided family', which shows the legislature intended both statuses to be within its scope and operation. The proviso attaches to that clause and must therefore be applicable to both; the donor-relative can be a relative of the individual or of the HUF as the case may be (para 7.1). Only then is the Explanation's definition applied, to test the relationship. The Bench acknowledged the drafting gap by setting out a commentary passage observing that the definition covers only relatives of individuals and appears to have overlooked the HUF (para 7.2), and drew support from the Rajkot Bench in Bhalodia, whose reasoning it reproduced at paras 7.3 and 7.4. It then noted that when the legislature came to draft section 56(2)(vii) it added the limb for an HUF from 1 October 2009, which it read as the legislature having visualised the difficulty and removed the doubt, and as confirming rather than contradicting its own construction (para 7.5). On the facts, the Bench declined to be drawn into the successive gift deeds and rested on the undisputed basic fact that the karta accepted the gift as karta of his HUF (paras 6.1 and 7.5). In the words reproduced by the source cited on this page: "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"." The decision followed or applied Vineetkumar Raghavjibhai Bhalodia v. ITO (2011) 140 TTJ (Rajkot) 58 — reasoning reproduced and relied on as support.
It was decided by the ITAT on 2013-04-26 and is reported as I.T.A. No. 1527/Ahd/2010 (ITAT Ahmedabad, 'C' Bench). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 56(2)(v), section 56(2)(vii), section 271(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed (para 8). The proviso to clause (v) of section 56(2) is not confined to an individual but governs an individual and an HUF alike, so that a sum received by an HUF from a relative as defined in the Explanation falls within the exception; the donor being the uncle of the karta of the assessee-HUF, that is the brother of a parent of the karta and so within item (iv) of the Explanation's list, the gift of Rs 7 lakh was not chargeable in the assessee-HUF's hands (para 7.5). It arises in Gifts, Shares & Angel Tax, How Tax Law Is Read and Evidence & Burden of Proof matters, on section 56(2)(v), section 56(2)(vii), section 271(1)(c) of the Income Tax Act 1961, and was decided by Shri Mukul Kr. Shrawat, Judicial Member and Shri Anil Chaturvedi, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the relationship on record with evidence: here the donor's statement on oath, the gift deed, the cheque and the pay-in slips were all before the authorities, and the Bench decided on 'the basic fact' after declining to be diverted by three successive versions of the gift deed. Where the donor is a member of the recipient HUF, rely on the Explanation's own HUF limb and do not need this case at all. Do not let the gift take a detour through an individual account: the CIT(A) here held that once the money had become the individual's exclusive property, any onward transfer to his HUF was a fresh transaction between two separate entities and separately chargeable. The Tribunal decided the appeal on other ground, so that reasoning stands unaddressed.
Validity check could not be completed. Validity check could not be completed. The clause construed, section 56(2)(v), no longer exists; the successor charge is section 56(2)(x) and its Explanation now contains a limb for an HUF from 1 October 2009. For a gift to an HUF FROM ITS OWN MEMBER the case is spent — the limb supplies the answer directly. For a gift to an HUF from a non-member who is a relative of the karta or of another member, the limb on its words does not apply and the construction adopted here remains the live argument; this entry should not be relabelled 'superseded by amendment' without deciding which fact pattern is in issue. I did not search for any appeal against this order or for later decisions considering it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Date conflict: the retrieval index lists this order as 26 March 2013 while the order header transcribed on this build reads 'Date of Pronouncement: 26/4/2013'. The header date is used here. The order runs to eight numbered paragraphs and the disposal is at para 8. At para 7.5 the Bench attributes the insertion of the HUF limb — '(ii) in case of a Hindu Undivided Family, any member thereof' — to the Finance (No.2) Act of 2009 with effect from 1 October 2009; the working brief for this batch attributes that limb to the Finance Act 2012 with retrospective effect from 1 October 2009. I could not resolve which is right: the departmental section pages stamped Year 2018, Year 2022 and Year 2025 all print the limb but carry NO footnote marker on it, so no amending Act can be sourced from them. Both accounts agree the limb operates from 1 October 2009, and this entry states only that date. Paragraph 7.2 quotes a commentary (Sampath Iyengar) at length; nothing from it is treated here as the Tribunal's own words. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed (para 8). The proviso to clause (v) of section 56(2) is not confined to an individual but governs an individual and an HUF alike, so that a sum received by an HUF from a relative as defined in the Explanation falls within the exception; the donor being the uncle of the karta of the assessee-HUF, that is the brother of a parent of the karta and so within item (iv) of the Explanation's list, the gift of Rs 7 lakh was not chargeable in the assessee-HUF's hands (para 7.5).
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