Section 56(2)(vii)

Section 56(2)(vii) — the law in short

What the courts have decided on section 56(2)(vii), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Deb Prasanna Choudhury v ADIT ITATHelps taxpayerNo later treatment found
  The AO says my gift is taxable because there is no registered gift deed. Is a deed required?
  No. The exclusion for a receipt from a relative turns on the relationship, not on the paperwork. Rs. 80 lakh that came to the assessee through banking channels from his sister's husband was outside the charge although no contemporaneous deed existed - the deed was drawn up nine years later before a notary abroad - and the whole addition sustained by the first appellate authority was deleted. The Tribunal gave a second reason as well: the Gift-tax Act has not been in operation since 1 October 1998, so no deed is called for. Questions about where the donor's own money came from are questions for the donor.
• Rabin Arup Mukerjea v ITO ITATHelps taxpayerNo later treatment found
  My step-sister gifted me a flat. Can the department tax it because we are not blood relations?
  No. Step-siblings fall within 'relative' for the gift exclusion. Because 'brother and sister of the individual' is not defined in the Act, the common-law meaning applies, and relationships by affinity - including the step-sibling relationship arising from a parent's marriage - come within those words. The registered gift was outside s.56(2)(vii) and the addition of Rs. 7,50,68,525 was deleted. Two limits: the holding is about an individual recipient, and says nothing about the separate definition that applies where the recipient is a Hindu undivided family, and the order relies on no precedent at all.
• Gyanchand M. Bardia v ITO — a sum received by a member from his HUF is not received 'without consideration' at all, and the Tribunal's own contrary order for the earlier year was distinguished ITATHelps taxpayer
  The Tribunal decided this very issue against my client in an earlier assessment year. Same facts, next year. Am I bound by it?
  Not necessarily. The Ahmedabad Bench, on the same assessee and the same issue, declined to follow the Tribunal's order for AY 2012-13 and deleted the addition, holding — following the Chandigarh Bench in Pankil Garg — that a member has a pre-existing right in the property of the HUF, so an amount given to him from that property is not a sum received without consideration or a gift at all, and section 56(2)(vii) is not attracted. The earlier order was distinguished on the footing that it had proceeded on the premise that the payment was a gift, a premise held incorrect in law.
• Pankil Garg v PCIT ITATHelps taxpayer
  I received money from my HUF. Is it taxable because an HUF is not my 'relative'?
  No. A sum received by a member from his HUF, even out of its capital or estate, is a capital receipt in his hands and not income, and s.10(2) was also available. The s.263 revision built on the contrary view was set aside.
• Trilok Chand Sain v ITO (M.A. No. 28/JP/2019) — the Jaipur order holding section 56(2)(vii)(b) applicable to agricultural land was RECALLED for not considering the definition of 'property' ITATHelps taxpayer
  The Assessing Officer has relied on the Jaipur Tribunal in Trilok Chand Sain to say section 56(2)(vii)(b) applies to agricultural land. Is that order still standing?
  It is not. On 21 June 2019 the same Bench allowed the assessee's miscellaneous application and recalled its order of 7 January 2019 in ITA No. 449/JP/2018, holding that its non-consideration of the meaning of 'property' in Explanation (d) to section 56(2)(vii) was an apparent mistake on a relevant and critical point. The Bench expressly declined to express any view at that stage on the applicability of that definition.
• Subodh Gupta (HUF) v Pr CIT ITATCuts both waysNo later treatment found
  My mother gifted shares to my HUF. Is she a 'relative' of the HUF?
  No. For a Hindu undivided family the Explanation makes only a member of that family a 'relative'. The karta's mother was not a member - the gift deed itself recited that the gift was to the family of her son - so 75,000 shares gifted by her were chargeable under s.56(2)(vii), and the list of relatives that applies to an individual does not travel across to a receipt in the family's hands. The decision has a second limb: the Principal Commissioner's valuation by reference to a later sale price was rejected, fair market value has to be computed under Rule 11UA, and the computation was restored to the Assessing Officer, so the amount was never determined. The appeal was partly allowed.
• Harshadbhai Dahyalal Vaidhya (HUF) v ITO — the relative exclusion is available to an HUF donee, tested against the relationships of its member ITATHelps taxpayerNo later treatment found
  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.
• Statutory position — s.194-IA: the fifty lakh threshold, the multiple-transferor/transferee proviso from 1 October 2024, and the stamp duty value base from 1 April 2022 CBDT Circulars & InstructionsCuts both ways
  Four of us bought one flat and each of us paid under fifty lakh rupees. The TDS officer says we should have deducted under section 194-IA. Did we have to, and does the answer depend on when we bought?
  It depends entirely on the date. From 1 October 2024 sub-section (2) carries a proviso which says that where there is more than one transferor or transferee in respect of any immovable property, the consideration is the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors — so a flat bought by four buyers for Rs 80 lakh is inside section 194-IA even though each buyer pays Rs 20 lakh. For a transfer before that date there is no such aggregation rule in the section, and the Tribunal has repeatedly read the obligation as arising qua each transferee.
• Statutory position — section 49(4): the amount charged under section 56(2)(x) becomes the cost of acquisition on a later sale CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has charged my client under section 56(2)(x) on the stamp-duty difference. When he sells the property, does he pay capital gains on that same amount all over again?
  No. Section 49(4) provides that where the capital gain arises from the transfer of a property the value of which has been subjected to income-tax under clause (vii), clause (viia) or clause (x) of section 56(2), the cost of acquisition of that property is deemed to be the value taken into account for the purposes of that clause. The amount already taxed as income from other sources therefore comes back as cost, and is not taxed a second time as capital gain.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.