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Gift by HUF

shrikant (CA) (177 Points)

24 January 2020

HUF intends to transfer Shares of listed company to one of the member as a gift. Present value of shares Rs. 9 lakhs. Will it attract capital gain in the hands of HUF?
And will it be treated as other income in the hands of receipient as gift received from HUF?

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14 Replies

Roshni (Studwnt) (1141 Points)
Replied 24 January 2020

As per my knowledge...Gift from relative will be exempt to recipient and capital gain won't be attracted at the time of transfer. yes, gift from huf needs to be disclosed under income from other sources but it is an exempt income under sec 10.

Kapadia Pravin (17249 Points)
Replied 24 January 2020

HUF as such can not give gift to a member.
Such act will amount to deemed partition of HUF.

Roshni (Studwnt) (1141 Points)
Replied 24 January 2020

@ kapadia Pravin...HUF can give gift to its members...and FYI it will be partial partition for which there is no tax implications.

1 Like

CA. Rohan Somani (Chartered Accountant) (94 Points)
Replied 24 January 2020

U/s 56(2) "relative" means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

(ii) in case of a Hindu undivided family, any member thereof;

Vice Versa is not true. In the definition of relative for individual it is not given that HUF in which he is member is Relative for that individual.

So, If Individual receives any gift from HUF may not be Exempt u/s 56(2). As Definition is not clear.

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Roshni (Studwnt) (1141 Points)
Replied 24 January 2020

@ CA Rohan somani that's true...other side of it is if not gift it will be a partial partition on which no tax implications exists.

FCA surbhi jain (FCA) (897 Points)
Replied 24 January 2020

as per sec 56(2), relative does not include HUF as a relative.. instead its member is treated as relative in which he is the member. so transfer of shares to its members cannot be exempted under sec 56(2).

Roshni (Studwnt) (1141 Points)
Replied 24 January 2020

Recently,
1
the Chandigarh bench of the Income-tax Appellate Tribunal (Tribunal) held that the
provision of section 56 (2)(vii) of the Income-tax Act, 1961 (the Act) does not apply to a gift given by a
Hindu Undivided Family (HUF) to its members, on the premise that a member has pre-existing right
in the family properties. Thus, when a member receives any sum from the HUF, during the subsistence
of the HUF or on its partition, it cannot be treated as receipt without consideration. The Tribunal also
held that even otherwise, the taxpayer was entitled to exemption under section 10(2) of the Act.

shrikant (CA) (177 Points)
Replied 24 January 2020

What about taxability in the hands of HUF on trasnfer of shares in the form of gift. Capital Gain?

Roshni (Studwnt) (1141 Points)
Replied 24 January 2020

No capital gain... capital gain arises at time of sale

CA. Rohan Somani (Chartered Accountant) (94 Points)
Replied 24 January 2020

Originally posted by : Roshni
	@ CA Rohan somani that's true...other side of it is if not gift it will be a partial partition on which no tax implications exists.

There is no Partial Partition in HUF. there are only 2 thing: 1. Patition 2. No Partition.

Therefore, if Asset is transferred to Member of HUF without consideration otherwise than by Partition then it will be taxable in the the hands of Transferee (Member of HUF).

rama krishnan (12234 Points)
Replied 24 January 2020

I fully concur with Mr. rohan somani, well said

1 Like

Kapadia Pravin (17249 Points)
Replied 24 January 2020

In addition to my above reply
HUF can not unilaterly transfer of shares to any member in the form of a gift.

It will surely be a deemed partition of HUF. No place for partial partition.

HUF corpus can not be managed in a discretionary manner. You can't decide share of members. it's by default.

There is a view in one of above post that it will be taxable in the hands of Transferee (Member of HUF) but taxable as what ?

Receipt by a member upon partition is a capital receipt and not taxed.

CA. Rohan Somani (Chartered Accountant) (94 Points)
Replied 25 January 2020

@ Kapadia Pravin

"There is a view in one of above post that it will be taxable in the hands of Transferee (Member of HUF) but taxable as what ?"
See, you have to look into Sec. 56(2). It is taxable in the hands of Transferee (Member of HUF) if Transfer took place otherwise than by Partition. There are 5 types of category may be created to understanding of taxability of Gift under Other source:
(a) Monetary Gift
(b) Immovable Property (Without Consideration)
(c) Immovable Property (Without Adequate Consideration)
(d) Movable Property as capital assets (Without Consideration)
(e) Movable Property as capital assets (Without Adequate Consideration)

Accordingly we have to check GIFT Received AS WHAT it is Taxable under the Head Other Source.

Kapadia Pravin (17249 Points)
Replied 25 January 2020

Gift received from a HUF by a member of HUF is exempt from tax

Relative explained in Explanation to section 56(2)(vi) of the Act 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) of the Act