2023 (5) TMI 480 - AT - Income Tax

Addition as gift from assessee HUF which was exempted u/s 56(2)(VII) - AO noted that assessee has shown gift from Ranjibhai D. Panchal (HUF), wherein the assessee is a Karta (Manager) of such HUF - AO disallowed and added back the gift to the total income of assessee by taking view that HUF does not fall in the list of relative - HELD THAT - If a member does not opt to receive his share out of the profits of the firm and opts that the same be added towards his capital in the firm, even then, when the said partner either on dissolution of the firm or otherwise receives back his capital, the said capital is not taxable as an income of the partner, rather, the same is taken as a capital receipt. In the case of 'HUF', or to say in the strict sense in case of 'coparcenary', the individual members receive their share on partition. However, during the subsisting coparcenary or to say broadly 'HUF', no member is entitled to receive any definite share out of the income of the 'HUF'. It is left to the prudence and wisdom of the manager who has to manage the affairs of the 'HUF', he may spend the money or property of the 'HUF' in the case of a need of a member, such as on the marriage of a unmarried female member or in case of certain treatment of any disease of the member or in case of educational needs of any children in the 'HUF'. The amount spent may be more than that the member may have gotten on the partition of the 'HUF'. The Karta of the 'HUF', even can gift the 'HUF' property for pious purpose and even he can contract a debt for the legal necessity and for family purposes and can bind the other members to the extent of their interest in the family property. Thus, in view of the above factual and legal discussion and respectfully following the decision in Pankil Garg 2019 (9) TMI 337 - ITAT CHANDIGARH direct AO to delete the addition u/s 56(2)(vii). Ground of appeal raised by the assessee is allowed.

Summary

Issues involved:
The appeal challenges the addition of Rs.18,00,000 received as a gift from the assessee HUF, which was claimed as exempt under section 56(2)(VII) of the Income Tax Act.

Details of the judgment:

1. Background: The assessee, an individual, declared total income for the assessment year 2017-18. The Assessing Officer disallowed and added back a gift of Rs.18.00 lakh from the HUF, where the assessee is the Karta, to the total income, arguing that HUF does not fall under the list of relatives. The appeal against this addition was first filed before the CIT(A) and later migrated to NFAC, Delhi.

2. Assessee's Submission: The assessee argued that the gift received from the HUF should be considered exempt as HUF is not different from family members. The assessee cited decisions from Chandigarh and Rajkot Tribunals where similar gifts were treated as exempt under the Income Tax Act.

3. Revenue's Argument: The Revenue contended that the legislative definition of relative does not include HUF. They argued that all submissions and case laws presented by the assessee were considered by NFAC/CIT(A) before confirming the Assessing Officer's decision.

4. Judicial Analysis: The Tribunal noted that while the Assessing Officer and NFAC/CIT(A) added the gift amount to the total income, the provisions of section 10(2) of the Act were not considered. The Tribunal referred to decisions from Ahmedabad and Chandigarh Tribunals, emphasizing that HUF is not a separate juristic person distinct from its members.

5. Decision: The Tribunal ruled in favor of the assessee, stating that any sum received by an individual as a member of an HUF, paid out of the family income, is not taxable. The Tribunal highlighted the unique nature of HUFs and their taxation principles, ultimately directing the Assessing Officer to delete the addition of Rs. 18.00 lakhs under section 56(2)(VII). Consequently, the ground of appeal raised by the assessee was allowed, and the appeal was allowed in favor of the assessee.

6. Conclusion: The Tribunal announced the order in the open court on 09/05/2023, in which the appeal of the assessee was allowed, and the addition of the gift from the HUF was directed to be deleted.