My client received Rs 60 lakh from his own HUF. The Assessing Officer says an HUF is not a 'relative' in the Explanation, so it is taxable. What is the answer?
There are two answers and the Rajkot Bench gave both. First, an HUF is not a body of individuals but 'a group of relatives' — every person who composes it falls within the Explanation's list — so a gift from the HUF to a member is a gift from relatives and is outside the charge. Second and independently, a sum received by a member out of the income of the family is exempt under section 10(2), which requires only that he is a member and that the sum came out of the income of the family.
Decided by the ITAT (Shri N.R.S. Ganesan, Judicial Member and Shri A.L. Gehlot, Accountant Member) on 2011-05-17, reported as I.T.A. No. 583/Rjt/2007 and I.T.A. No. 601/Rjt/2008 (ITAT Rajkot); (2011) 140 TTJ (Rajkot) 58. It bears on section 56(2)(vi), section 56(2)(v), section 10(2), section 2(31), section 2(41), section 64(2), section 271(1)(c), section 234B, section 234C of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, Capital Gains Exemptions and How Tax Law Is Read matters.
This is the foundation of the whole HUF-to-member line, and it matters because the Explanation, then and now, does not name the HUF as a relative of an individual. The Explanation to section 56(2)(x) contains no definition of 'relative' of its own: clause (a) of that Explanation provides that the expression has the same meaning as is assigned to it in the Explanation to clause (vii), and it is there that the two-limb definition sits. Limb (i), for an individual, runs (A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; and (G) spouse of the person referred to in items (B) to (F). Limb (ii) says that in the case of a Hindu undivided family, 'relative' means any member thereof. Limb (ii) solves the case where the HUF is the recipient and the donor is its member. It does nothing for the reverse case, where the individual member is the recipient and the HUF is the donor — which is exactly the case Bhalodia decides, and why the reasoning survives the renumbering of the clause. The section 10(2) route in paras 12 to 13 is the stronger of the two, because it does not depend on construing 'relative' at all; but it is conditional — the sum must come out of the income of the family, and the Bench recorded that there was no material to show the amount was part of any asset of the HUF. Practitioners should also read the later ITAT Chandigarh line (Pankil Garg) which reaches the same result by a different route — that a member has a pre-existing right, so nothing is received 'without consideration' at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2005-06 the assessee, an individual, received a gift of Rs 60 lakh from his Hindu undivided family. The Assessing Officer brought the amount to tax under section 56(2) on the footing that an HUF is not within the definition of 'relative' in the Explanation, and imposed a penalty of Rs 20,31,720 under section 271(1)(c). The CIT(A) confirmed the addition, holding that an HUF is as good as a body of individuals and cannot be termed a relative, and rejecting the alternative claim under section 10(2) on the views that only an amount received on partition is exempt and that any exemption would be limited to the member's share of the assessed income of the HUF for the year. The CIT(A) deleted the penalty, and the Revenue appealed against that deletion. The Departmental Representative argued that 'relative' is defined in section 2(41) without including an HUF, that the object of section 10(2) concerns partition and not gift, and that a person cannot gift to himself.
The assessee's appeal was allowed and the Revenue's penalty appeal dismissed (paras 15 and 16). On the first issue, 'relative' in the Explanation includes 'relatives', and since the assessee received the gift from his HUF, which is a group of relatives, the gift is to be interpreted as received from relatives and is not taxable (para 11.2). On the alternative, the assessee having satisfied both conditions of section 10(2) — that he is a member of the HUF and that he received the amount out of the income of the family, there being no material to hold that the amount was part of any assets of the HUF — the receipt is exempt under section 10(2) (para 13). The penalty could not survive the deletion of the quantum addition (para 15).
An HUF is a person under section 2(31) and a distinct unit of assessment, and since the Act does not define the expression it must be construed as under Hindu law, following Surjit Lal Chhabda (para 11.1). So construed, an HUF constitutes all persons lineally descended from a common ancestor together with their mothers, wives or widows and unmarried daughters — all of whom fall within the Explanation's list — so the CIT(A)'s view that an HUF is a body of individuals and cannot be a relative is not acceptable; an HUF is a group of relatives (para 11.1). The Bench then reasoned from the intention of the legislature and from the ordinary use of language that the Explanation does not confine 'relative' to a single person, illustrating the point with a staff club's collective gift on a retirement and invoking K.G. Govindan & Sons for the proposition that a construction leading to absurdity is not to be adopted (paras 11.1 and 11.2). On section 10(2), the Bench held that the object of the provision is to avoid the same income being taxed once in the hands of the HUF that earns it and again in the hands of the member to whom it is paid; that a member has an antecedent title and a claim to maintenance in the family property, so that what he receives in recognition of a pre-existing right is not an alienation (relying on N.S. Getti Chettiar); that transactions the other way, from member to family, are separately provided for by section 64(2), which shows the legislature dealt with the two directions differently; and that the CIT(A)'s limitations on section 10(2) — partition only, and only to the extent of the year's assessed income — have no basis in the Act (paras 12 to 12.3, with Vedanthanni v. CIT on the object of preventing double taxation).
The observation of the CIT(A) that HUF is as good as 'a body of individuals' and cannot be termed as "relative" is not acceptable. Rather, an HUF is 'a group of relatives'.
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Handle my notice → Ask a CA on WhatsAppThere are two answers and the Rajkot Bench gave both. First, an HUF is not a body of individuals but 'a group of relatives' — every person who composes it falls within the Explanation's list — so a gift from the HUF to a member is a gift from relatives and is outside the charge. Second and independently, a sum received by a member out of the income of the family is exempt under section 10(2), which requires only that he is a member and that the sum came out of the income of the family. This was decided by the ITAT (Shri N.R.S. Ganesan, Judicial Member and Shri A.L. Gehlot, Accountant Member) and bears on section 56(2)(vi), section 56(2)(v), section 10(2), section 2(31), section 2(41), section 64(2), section 271(1)(c), section 234B, section 234C of the Income Tax Act 1961. It is reported as I.T.A. No. 583/Rjt/2007 and I.T.A. No. 601/Rjt/2008 (ITAT Rajkot); (2011) 140 TTJ (Rajkot) 58. This is the foundation of the whole HUF-to-member line, and it matters because the Explanation, then and now, does not name the HUF as a relative of an individual. The Explanation to section 56(2)(x) contains no definition of 'relative' of its own: clause (a) of that Explanation provides that the expression has the same meaning as is assigned to it in the Explanation to clause (vii), and it is there that the two-limb definition sits. Limb (i), for an individual, runs (A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; and (G) spouse of the person referred to in items (B) to (F). Limb (ii) says that in the case of a Hindu undivided family, 'relative' means any member thereof. Limb (ii) solves the case where the HUF is the recipient and the donor is its member. It does nothing for the reverse case, where the individual member is the recipient and the HUF is the donor — which is exactly the case Bhalodia decides, and why the reasoning survives the renumbering of the clause. The section 10(2) route in paras 12 to 13 is the stronger of the two, because it does not depend on construing 'relative' at all; but it is conditional — the sum must come out of the income of the family, and the Bench recorded that there was no material to show the amount was part of any asset of the HUF. Practitioners should also read the later ITAT Chandigarh line (Pankil Garg) which reaches the same result by a different route — that a member has a pre-existing right, so nothing is received 'without consideration' at all. If it applies to you, the first step is this: Where a member receives money from his HUF, plead both routes — the 'group of relatives' construction of the Explanation and the section 10(2) exemption — because they fail and succeed on different facts.
For AY 2005-06 the assessee, an individual, received a gift of Rs 60 lakh from his Hindu undivided family. The Assessing Officer brought the amount to tax under section 56(2) on the footing that an HUF is not within the definition of 'relative' in the Explanation, and imposed a penalty of Rs 20,31,720 under section 271(1)(c). The CIT(A) confirmed the addition, holding that an HUF is as good as a body of individuals and cannot be termed a relative, and rejecting the alternative claim under section 10(2) on the views that only an amount received on partition is exempt and that any exemption would be limited to the member's share of the assessed income of the HUF for the year. The CIT(A) deleted the penalty, and the Revenue appealed against that deletion. The Departmental Representative argued that 'relative' is defined in section 2(41) without including an HUF, that the object of section 10(2) concerns partition and not gift, and that a person cannot gift to himself. The matter was decided on 2011-05-17 by the ITAT (Shri N.R.S. Ganesan, Judicial Member and Shri A.L. Gehlot, Accountant Member). On those facts the ITAT held as follows. The assessee's appeal was allowed and the Revenue's penalty appeal dismissed (paras 15 and 16). On the first issue, 'relative' in the Explanation includes 'relatives', and since the assessee received the gift from his HUF, which is a group of relatives, the gift is to be interpreted as received from relatives and is not taxable (para 11.2). On the alternative, the assessee having satisfied both conditions of section 10(2) — that he is a member of the HUF and that he received the amount out of the income of the family, there being no material to hold that the amount was part of any assets of the HUF — the receipt is exempt under section 10(2) (para 13). The penalty could not survive the deletion of the quantum addition (para 15).
An HUF is a person under section 2(31) and a distinct unit of assessment, and since the Act does not define the expression it must be construed as under Hindu law, following Surjit Lal Chhabda (para 11.1). So construed, an HUF constitutes all persons lineally descended from a common ancestor together with their mothers, wives or widows and unmarried daughters — all of whom fall within the Explanation's list — so the CIT(A)'s view that an HUF is a body of individuals and cannot be a relative is not acceptable; an HUF is a group of relatives (para 11.1). The Bench then reasoned from the intention of the legislature and from the ordinary use of language that the Explanation does not confine 'relative' to a single person, illustrating the point with a staff club's collective gift on a retirement and invoking K.G. Govindan & Sons for the proposition that a construction leading to absurdity is not to be adopted (paras 11.1 and 11.2). On section 10(2), the Bench held that the object of the provision is to avoid the same income being taxed once in the hands of the HUF that earns it and again in the hands of the member to whom it is paid; that a member has an antecedent title and a claim to maintenance in the family property, so that what he receives in recognition of a pre-existing right is not an alienation (relying on N.S. Getti Chettiar); that transactions the other way, from member to family, are separately provided for by section 64(2), which shows the legislature dealt with the two directions differently; and that the CIT(A)'s limitations on section 10(2) — partition only, and only to the extent of the year's assessed income — have no basis in the Act (paras 12 to 12.3, with Vedanthanni v. CIT on the object of preventing double taxation). In the words reproduced by the source cited on this page: "The observation of the CIT(A) that HUF is as good as 'a body of individuals' and cannot be termed as "relative" is not acceptable. Rather, an HUF is 'a group of relatives'." The decision followed or applied Surjit Lal Chhabda v. CIT 101 ITR 776 (SC) — applied on the construction of 'Hindu Undivided Family'; CGT v. N.S. Getti Chettiar 82 ITR 599 (SC) — relied on for the pre-existing right of a member; K.G. Govindan & Sons v. CIT 247 ITR 192 (SC) — relied on against a construction producing absurdity; Vedanthanni v. CIT 1 ITR 70 (Mad) — relied on for the object of preventing double taxation.
It was decided by the ITAT on 2011-05-17 and is reported as I.T.A. No. 583/Rjt/2007 and I.T.A. No. 601/Rjt/2008 (ITAT Rajkot); (2011) 140 TTJ (Rajkot) 58. 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)(vi), section 56(2)(v), section 10(2), section 2(31), section 2(41), section 64(2), section 271(1)(c), section 234B, section 234C, 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 assessee's appeal was allowed and the Revenue's penalty appeal dismissed (paras 15 and 16). On the first issue, 'relative' in the Explanation includes 'relatives', and since the assessee received the gift from his HUF, which is a group of relatives, the gift is to be interpreted as received from relatives and is not taxable (para 11.2). On the alternative, the assessee having satisfied both conditions of section 10(2) — that he is a member of the HUF and that he received the amount out of the income of the family, there being no material to hold that the amount was part of any assets of the HUF — the receipt is exempt under section 10(2) (para 13). The penalty could not survive the deletion of the quantum addition (para 15). It arises in Gifts, Shares & Angel Tax, Capital Gains Exemptions and How Tax Law Is Read matters, on section 56(2)(vi), section 56(2)(v), section 10(2), section 2(31), section 2(41), section 64(2), section 271(1)(c), section 234B, section 234C of the Income Tax Act 1961, and was decided by Shri N.R.S. Ganesan, Judicial Member and Shri A.L. Gehlot, 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. For the section 10(2) route, put on record that the sum was paid out of the income of the family (not out of its capital assets): that is the condition the Bench tested. Do not rely on limb (ii) of the current Explanation for a member-as-recipient case; on its words it addresses only an HUF as recipient. Expect the Revenue to rely on section 2(41), which defines 'relative' without reference to an HUF; the answer is that the Explanation to the clause supplies its own definition and section 2(41) is not the operative one.
Still good law. Fifteen later decisions cite this order. It was genuinely applied in Harshadbhai Dahyalal Vaidhya (HUF) v ITO (ITAT Ahmedabad, 26 April 2013), where the Bench quoted the Rajkot reasoning that 'an HUF is a group of relatives' and 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', said in terms 'Our above view gets support from an order of Respected Rajkot Bench', and allowed the assessee's appeal. But a practitioner must be warned of a real and live Tribunal split the other way. In Shri Gyanchand M. Bardia v ITO (ITAT Ahmedabad, 21 February 2018) the Bench declined to follow Bhalodia, holding that 'the former category in clause (i) of (e) defining a relative qua an individual recipient does not include an HUF as a donor' and that the co-ordinate bench 'seem to have followed Bholadia case law which is no more applicable in view of subsequent legislative developments' — a reference to the re-cast Explanation to s.56(2)(vii), which since 1 October 2009 defines 'relative' separately for an individual and for an HUF. Pankil Garg v Pr CIT (ITAT Chandigarh, 17 July 2019) is the other way again. Under the rule that a Tribunal split does not change the status, this stays good law, but the point is genuinely contested and an adviser should not present it as settled. 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.
TWO DATE AND CITATION ODDITIES. The order is indexed in some places under 23 October 2007. That is the date of the Commissioner (Appeals)' order recited at paragraph 1, not the Tribunal's; the order itself is pronounced 17 May 2011 and signed 'Rajkot, Dt : 17th May, 2011'. And although the assessment year is 2005-06, the Bench analyses clause (vi) of section 56(2) throughout and records at paragraph 11 that clause (vi) was inserted with effect from 1 April 2007 by the Taxation Laws (Amendment) Act, 2006, describing it as covering receipts on or after 1 April 2006 but before 1 October 2009. The clause applicable to assessment year 2005-06 on the face of the statute is clause (v). The reasoning does not turn on the difference, since the Explanations to clauses (v) and (vi) were in the same terms, but this entry should not be cited as authority on which clause governed the year. ON THE STRUCTURE. The order runs to sixteen numbered paragraphs and the disposal is at paragraph 16. Paragraphs 8 to 16 have been read in full; paragraphs 2 to 4 are not available in the Tribunal's own words and nothing on this page rests on them. THE TWO HOLDINGS ARE INDEPENDENT, and that is the practical value of the order. The first is that a Hindu undivided family is not a body of individuals but a group of relatives, every person composing it falling within the Explanation's list, so a gift from the family to a member is a gift from relatives. The second, which does not depend on the first at all, is that a sum received by a member out of the income of the family is exempt under section 10(2), which requires only that he is a member and that the sum came out of the income of the family. The second limb is the safer one to lead with, because it is untouched by the later Tribunal disagreement about the definition of 'relative'. ON THE LATER SPLIT. The disagreement described in the validity note is about the first limb only, and it turns on the re-cast Explanation to s.56(2)(vii), which since 1 October 2009 defines 'relative' separately for an individual and for a Hindu undivided family. For a receipt before that date the re-cast Explanation is not in play at all. 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 assessee's appeal was allowed and the Revenue's penalty appeal dismissed (paras 15 and 16). On the first issue, 'relative' in the Explanation includes 'relatives', and since the assessee received the gift from his HUF, which is a group of relatives, the gift is to be interpreted as received from relatives and is not taxable (para 11.2). On the alternative, the assessee having satisfied both conditions of section 10(2) — that he is a member of the HUF and that he received the amount out of the income of the family, there being no material to hold that the amount was part of any assets of the HUF — the receipt is exempt under section 10(2) (para 13). The penalty could not survive the deletion of the quantum addition (para 15).
TaxSphere, “Vinitkumar Raghavjibhai Bhalodia v ITO — a gift by an HUF to its member is a gift from 'relatives', and is in any event exempt under section 10(2)”, https://taxnotice.vittsphere.com/caselaw/case/vinitkumar-bhalodia-v-ito-huf-is-a-group-of-relatives/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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