2014 (12) TMI 262 - HC - Income Tax

Cash gifts received in cheque from relatives and blended with the HUF account - Applicability of section 56 and 64(2) Affidavits filed by the donors before AO ignored - Whether the Tribunal is right in presuming that the cash gifts were directly received by the appellant-HUF even though the cash gifts through cheques were received in the individual name only and thereafter blended with the HUF account Held that - The AO doubted the genuineness of the transaction, however, stated that the gifts received by the individual were duly accounted in HUF account and therefore added in the amount in the name of the HUF assesse contended that Section 64 (2) alone would get attracted and not Section 56(2) was not considered by the Tribunal and therefore the legal plea raised by the assessee has been totally ignored - the Tribunal has not considered the legal plea so raised and therefore prejudice is caused to the appellant in not considering this legal plea also, the issue as to the applicability of Section 64(2), as contended, should have been considered by the Tribunal in the manner in which the assessee justifies the transaction - the issue raised by the appellant requires an in-depth analysis of both the provisions, viz., Section 56(2)(vii) and Section 64(2) of the Income Tax Act thus, the order of the Tribunal is set aside and the matter is remitted back to the AO for fresh consideration decided in favour of assesse.

Summary

Issues:
1. Applicability of Section 56 vs. Section 64 of the Income Tax Act to cash gifts received and blended with HUF account.
2. Consideration of legal plea raised by the appellant regarding the application of Section 64(2) by the Tribunal and Commissioner of Income Tax (Appeals).

Analysis:

Issue 1:
The case involved the appellant receiving cash gifts through cheques in his individual name during a birthday celebration, which were subsequently deposited into the HUF account. The Assessing Officer added the amount to the HUF income under Section 56(2)(vi) of the Income Tax Act, invoking Explanation to Proviso to Section 56(2)(vi) to exclude HUF from the definition of relative. The appellant contended that Section 64(2) should apply as the amount was received as an individual and then transferred to HUF. However, both the Commissioner of Income Tax (Appeals) and the Tribunal upheld the Assessing Officer's decision, citing Section 56(2)(vii) amendment from 01.10.2009. The High Court found that the legal plea invoking Section 64(2) was not considered by the lower authorities, causing prejudice to the appellant. The Court set aside the Tribunal's order and remanded the matter to the Assessing Officer for a fresh assessment considering both Section 56(2)(vii) and Section 64(2) provisions.

Issue 2:
The appellant consistently argued that Section 64(2) should apply to the transaction, emphasizing that this argument was ignored by the lower authorities. The High Court noted that the Tribunal failed to consider the legal plea raised by the appellant, leading to the interference with the Tribunal's order. The Court highlighted the need for an in-depth analysis of both Section 56(2)(vii) and Section 64(2) by the Assessing Officer in de novo proceedings. Consequently, the High Court allowed the appeal by remanding the matter for fresh consideration without imposing any costs.

In conclusion, the High Court's judgment focused on the correct application of provisions under the Income Tax Act to cash gifts received and blended with the HUF account. The Court emphasized the importance of considering the legal pleas raised by the appellant and directed a fresh assessment by the Assessing Officer to determine the appropriate section applicable to the transaction.