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2013 (11) TMI 617 - AT - Income TaxAddition u/s 56 on account of receipt by the assessee from the HUF of which the assessee was the member - Gift received from relatives - Assessee claims exemption under section 10(2) - Held that - As per this newly inserted clauses, (a) relative means in case of HUF any member thereof . Although this subsequent change in the Act do not apply for the year under consideration being incorporated by Finance Act, 2009 but it appears that by insertion of these words Hon ble Legislatures have visualized the difficulty, hence streamlined the provisions by removing the doubt. We therefore hold that since the assessee-HUF has undisputedly received a gift of Rs.7 lacs from a relative who is an uncle of the Karta of this HUF, i.e.; as per Explanation to sub-clause(iv); brother or sister of either of the parents of the individual , hence fall within the category of the Relative prescribed in the Act, therefore not chargeable to tax in the hands of the assessee. - Following decision of Vineetkumar Raghavjibhai Bhalodia Versus Income tax Officer, Rajkot Wd. 5(4), Morbi 2011 (5) TMI 584 - ITAT RAJKOT - Decided in favour of assessee.
Issues Involved:
1. Confirmation of addition of Rs. 7,00,000/- under Section 56(2) of the Income Tax Act. 2. Applicability of Section 56(2) of the Income Tax Act. 3. Classification of the transfer of money from individual to HUF as a gift. 4. Applicability of the exception provided in Section 56(2)(v) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Confirmation of Addition of Rs. 7,00,000/- under Section 56(2): The Assessee challenged the addition of Rs. 7,00,000/- made by the Assessing Officer (AO) under Section 56(2) of the Income Tax Act. The AO noted that the amount was introduced in the capital account of the HUF and treated it as income from "Other Sources" since the relationship between the donor and the donee did not fall within the definition of "Relative" as per the Explanation to Section 56(2)(v). The CIT(A) confirmed this addition, leading to the Assessee's appeal. 2. Applicability of Section 56(2) of the Income Tax Act: The AO's objection was based on the interpretation that the definition of "Relative" in Section 56(2) applies only to individuals and not to HUFs. The Assessee argued that the gift was received from a relative as defined under the Act. The Tribunal examined the legislative intent and concluded that the proviso to Section 56(2)(v) applies to both individuals and HUFs. The Tribunal interpreted that the definition of "Relative" should also extend to HUFs when a gift is received from a donor who falls within the prescribed list of relatives. 3. Classification of the Transfer of Money from Individual to HUF as a Gift: The AO contended that the transfer of Rs. 7,00,000/- from Harshad D. Vaidhya (individual) to Harshad D. Vaidhya (HUF) should be treated as a gift and thus taxable under Section 56(2). The Assessee provided evidence, including a gift deed and statements from the donor, to support that the gift was made to the HUF. The Tribunal noted that the donor, Ishwarlal Ambalal Vaidhya, gifted the amount to his nephew in his capacity as Karta of the HUF, and thus, the gift should not be taxable under Section 56(2). 4. Applicability of the Exception Provided in Section 56(2)(v): The Tribunal referred to the explanation of "Relative" in Section 56(2)(v) and concluded that the gift received by the HUF from a relative (uncle of the Karta) falls within the exception provided in the section. The Tribunal also considered the commentary from Sampath Iyengar's "Law of Income Tax" and the decision in Vineetkumar Raghavjibhai Bhalodia vs. ITO, which supported the view that gifts received by an HUF from relatives are not taxable under Section 56(2). The Tribunal held that the gift of Rs. 7,00,000/- received by the HUF from a relative is not chargeable to tax. Conclusion: The Tribunal allowed the Assessee's appeal, concluding that the gift of Rs. 7,00,000/- received by the HUF from a relative is not taxable under Section 56(2) of the Income Tax Act. The Tribunal's interpretation ensured that the proviso to Section 56(2)(v) applies to both individuals and HUFs, and the definition of "Relative" should be extended to include gifts received by HUFs from relatives.
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