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2011 (5) TMI 584 - AT - Income TaxPenalty u/s 271(1)(c) - addition u/s 56 on account of receipt by the assessee from the HUF of which the assessee was the member - alternative contention of the assessee that the receipt is otherwise exempt under section 10(2) - Held that - Though for taxation purpose, an HUF is considered as a single unit, rather, an HUF is a group of relatives as it is formed by the relatives. Therefore the relative explained in Explanation to section 56(2)(vi) includes relatives and as the assessee received gift from his HUF , which is a group of relatives , the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the relatives therefore the same is not taxable under section 56(2)(vi). No penalty levy. Claim of exemption u/s 10(2) - Held that - Income earned by a HUF is assessable in its own hands, so as to avoid double taxation of one and same income once in the hands of the HUF which earns it, and again in the hands of the member whom, it is paid - the assessee received gift from HUF and has satisfied both the conditions of section 10(2) that the assessee is a member of HUF and received amount out of the income of family. There is no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same is exempt under section 10(2). Applicability of section 64(2) - Held that - The income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family - he transaction between a member of HUF and the HUF the Income-tax Act provides section 10(2) and section 64(2). Section 10(2) is not similar to section 64(2) - assessee received gift from HUF and has satisfied both the conditions of section 10(2) that the assessee is a member of HUF and received amount out of the income of family - Held that exemption is available - in favour of assessee.
Issues Involved:
1. Taxability of gift received from HUF under Section 56 of the I.T. Act, 1961. 2. Applicability of exemption under Section 10(2) of the I.T. Act, 1961. 3. Charging of interest under Sections 234B and 234C of the I.T. Act, 1961. 4. Imposition of penalty under Section 271(1)(c) of the I.T. Act, 1961. Issue-wise Detailed Analysis: 1. Taxability of Gift Received from HUF under Section 56 of the I.T. Act, 1961: The primary issue was whether the gift of Rs. 60 lakhs received by the assessee from the HUF is taxable under Section 56. The assessing officer and CIT(A) held that HUF is not covered under the definition of "relative" as per the Explanation to clause (vi) of sub-section (2) of Section 56, making the gift taxable. The assessee argued that HUF should be considered a group of relatives, thus falling within the definition of "relative." The tribunal accepted the assessee's contention, stating that an HUF, being a group of relatives, should be interpreted to mean that the gift received from the HUF is from relatives and, therefore, not taxable under Section 56(2)(vi). 2. Applicability of Exemption under Section 10(2) of the I.T. Act, 1961: The assessee alternatively contended that the gift is exempt under Section 10(2) of the Act. The CIT(A) rejected this, stating that Section 10(2) applies only to amounts received on partition and to the extent of the share of assessed income of the HUF for the year. The tribunal disagreed, holding that Section 10(2) exempts any sum received by a member from the income of the HUF, not limited to the income of the year or partition. The tribunal concluded that the assessee, being a member of the HUF, received the amount out of the family income, making it exempt under Section 10(2). 3. Charging of Interest under Sections 234B and 234C of the I.T. Act, 1961: The assessee contested the charging of interest under Sections 234B and 234C. The tribunal noted that since the addition of Rs. 60 lakhs was deleted, the charging of interest is consequential. The assessing officer was directed to allow consequential relief to the assessee. 4. Imposition of Penalty under Section 271(1)(c) of the I.T. Act, 1961: The revenue appealed against the deletion of the penalty of Rs. 20,31,720 imposed under Section 271(1)(c). The CIT(A) had deleted the penalty as the gift was not accepted as taxable. The tribunal upheld the deletion of the penalty, as the quantum addition of Rs. 60 lakhs was deleted, leaving no basis for the penalty. Conclusion: The appeal filed by the assessee was allowed, and the appeal filed by the revenue was dismissed. The tribunal concluded that the gift received from the HUF is not taxable under Section 56(2)(vi) and is exempt under Section 10(2). Consequently, the interest charged under Sections 234B and 234C and the penalty under Section 271(1)(c) were also not sustainable.
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