2019 (9) TMI 337 - AT - Income Tax

Revision u/s 263 - PCIT has set aside the assessment order passed by the AO with a direction to make assessment afresh u/s 143(3) read with section 147 - taxability of gift received from 'HUF' - HELD THAT - In this case, originally, the assessment was framed u/s 143(3) of the Act accepting the returned income. The assessment was reopened u/s 147 of the Act only to examine the issue as to the taxability of the amount of gift received by the assessee from his 'HUF'. The issue was examined by the Assessing Officer and he accepted the returned income holding that the gift received from 'HUF' was not exigible to tax by relying upon the decisions of Vineetkumar Raghavjibhai Bhalodia vs ITO 2011 (5) TMI 1100 - ITAT RAJKOT and Mr.Biravelli Bhaskar vs ITO 2015 (8) TMI 121 - ITAT HYDERABAD The decisions of the higher judicial authorities were binding upon the Assessing Officer and the Assessing Officer accordingly followed the same. In view of this, the Assessing Officer took a possible view in the light of the direct judicial decisions on the issue. Under the circumstances, the order of the Assessing Officer cannot be said to be erroneous. Taxability of gift received from 'HUF' - Family income flows into a common pool from which resources are drawn to meet needs of all the members which are regulated by the head of the family. In such circumstances, any amount received by a member of the 'HUF', even out of the capital or estate of the 'HUF' cannot be said to be income of the member exigible to taxation. Since such a member himself has a pre-existing right in the property of the 'HUF', hence, it cannot be said to be a gift without consideration by the 'HUF' or by the other members of the 'HUF' to that recipient member. Provisions of section 56(2)(vii) are not attracted in case an individual member receives any sum either during the subsistence of the 'HUF' for his needs or on partition of the 'HUF' in lieu of his share in the joint family property. Converse is not true i.e. to say in case an individual member throws his self-acquired property into common pool of 'HUF'. The 'HUF' or other members of the 'HUF' do not have any pre-existing right in the self-acquired property of a member. If such an individual member throws his own/self-earned or self-acquired property in common pool, it will be an income of the 'HUF', however, the same will be exempt from taxation as the individual members of an 'HUF' have been included in the meaning of relative as provided in the explanation to section 56(2)(vii) of the Act. It is because of this salient feature of the HUF that in case of individual, the HUF has not been included in the definition of relative in explanation to section 56(2) (vii) as it was not so required whereas in case of HUF, members of the HUF find mention in the definition of relative for the purpose of the said section. Amount received by the assessee from the HUF , being its member, is a capital receipt in his hands and is not exigible to income tax. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of Delay
2. Validity of the Revision Order under Section 263
3. Taxability of Gift Received from HUF under Section 56(2)(vii)
4. Exemption under Section 10(2) of the Income Tax Act

Condonation of Delay:
The appeal filed by the assessee was delayed by 6 days due to medical reasons of the counsel, supported by an affidavit. Considering the short delay and the reasons provided, the delay was condoned.

Validity of the Revision Order under Section 263:
The PCIT set aside the assessment order passed by the Assessing Officer (AO) and directed a fresh assessment. The AO had initially accepted the assessee's income, including a gift received from HUF, based on judicial precedents from the Rajkot and Hyderabad Benches of the Tribunal, which held that gifts from HUF to an individual are not taxable as per Section 56(2)(vii). The PCIT, however, disagreed, stating that HUF does not fall within the definition of 'relative' for an individual under Section 56(2)(vii) and that the gift should be taxable. The Tribunal found that the AO's reliance on higher judicial decisions was a possible view and not erroneous. The Supreme Court in 'Malabar Industries Co. Ltd. vs CIT' held that for the Commissioner to exercise jurisdiction under Section 263, the order must be both erroneous and prejudicial to the Revenue. Since the AO followed binding judicial decisions, the Tribunal held that the PCIT's revision order was unjustified and set it aside.

Taxability of Gift Received from HUF under Section 56(2)(vii):
The PCIT argued that the HUF is not included in the definition of 'relative' for an individual under Section 56(2)(vii), making the gift taxable. The Tribunal, however, emphasized that HUF is a collective family unit with undivided interests, and any sum received by a member from HUF is not a gift but a capital receipt. The Tribunal held that the provisions of Section 56(2)(vii) do not apply to such receipts, as the family property is jointly owned and managed by the Karta, and members have pre-existing rights in the property.

Exemption under Section 10(2) of the Income Tax Act:
The assessee contended that the gift received from HUF was exempt under Section 10(2) as it was paid out of the HUF's income. The PCIT misinterpreted Section 10(2), suggesting that the sum must be for consideration. The Tribunal clarified that Section 10(2) exempts any sum received by a member from HUF's income, whether or not for consideration. The Tribunal found no denial or rebuttal of the assessee's claim that the amount was from HUF's income and thus held it exempt under Section 10(2).

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the PCIT's order on all counts. The gift received from HUF was held to be a capital receipt, not taxable under Section 56(2)(vii), and exempt under Section 10(2) of the Income Tax Act. The Tribunal also condemned the PCIT's disregard for binding judicial precedents, emphasizing the importance of judicial discipline and finality in litigation.