Gift received from HUF is a capital receipt in the hand of member

Pankil Garg v. PCIT (2019) 178 ITD 282 (Chd.)(Trib.).

ITAT DECISION

Income from other sources - HUF - Gift - Amount received as gift from 'HUF', being its member, is a capital receipt not liable to tax - Revision is held to be not valid.

Gifts not chargeable to tax [Sec. 56(2)(vii)]

Any sum of money or property received by any person [on or after 01-04-2017] in the following circumstances shall not be chargeable to tax:

a) Gifts received from relatives;
b) Gifts received by an individual on occasion of his/her marriage;
c) Gifts received by way of Inheritance/will;
d) Gifts received in contemplation of death of the payer;
e) Gifts received from any local authority;
f) Gifts received from any fund, foundation, university, educational institution, hospital, medical institution, any trust or institution referred to in Section 10(23C);
g) Gifts received from any trust or institution registered under Section 12A/12AA.
h) Share received as a consequence of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.
i) Share received as a consequence of business reorganization of a co-operative bank under section 47(vicb)
j) from such class of persons and subject to such conditions as may be prescribed

** 'Relative' shall mean

1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual
7. Spouse of the person referred in points 2-6 above.

BRIEF FACTS

The assessee received a gift of Rs.5,90,000/-from his 'HUF'. The AO held that since the amount of said gift was more than ` 50,000/-, hence, the same was exigible to tax as 'income from other sources' under S 56(2)(vii) of the Act. Subsequently, in course of reassessment proceedings, the assessee submitted that 'HUF' being a group of relatives, hence, the gift by the 'HUF' to an individual is nothing but a gift from a group of relatives and as per the exclusion clause 56(2)(vii) a gift from a relative was not exigible to taxation.

The AO accepted the contentions raised by the assessee and accordingly assessed the income of the assessee at the returned income.

CIT(APPEALS) set aside the order passed by the AO and held that the 'HUF' did not fall in the definition of relative in case of an 'individual' as provided in Explanation to clause (vii) to S. 56(2) as substituted by Finance Act, 2012 with retrospective effect from 1-10-2009. That though, the definition of a relative in case of a 'HUF' was extended to include any member of the 'HUF', yet, in the said extended definition, the converse case was not included that is to say in the case of individual, the 'HUF' had not been mentioned in the list of relatives. The Commissioner thus formed a view that though a gift from a member thereof to the 'HUF' was not exigible to taxation as per the provisions of S. 56(2)(vii), however, a gift by the 'HUF' to a member exceeding a sum of ` 50,000/-was taxable. Accordingly set aside the order of the AO and directed the AO to make the assessment afresh.

TRIBUNAL DECISION

On appeal the Tribunal held that the property of the 'HUF' neither can be said to belong to a third person nor can be said to be in 'corporate entity', rather, the same is the property of the members of the family. It is because that the share of each of the individual member in the property or income of the 'HUF' is not determinate, hence, the family, as such, is treated as a separate entity for taxation purposes. 'HUF' otherwise is not recognized as a separate juristic person distinct from the members who constitute it.

A member of the 'HUF' has a pre-existing right in the family properties. A Coparcener has a pre-existing right and interest in the property and can demand partition also, however, the other members of the 'HUF' have right to be maintained out of the 'HUF' property. On division, the share in the estate/capital of the 'HUF' cannot be treated as income of the recipient, rather, the same will be a capital receipt in his hands.

Accordingly, the amount received by the assessee from the 'HUF', being its member, it is a capital receipt in his hands and is not exigible to tax. (AY. 2011-12).

DISCLAIMER: The case law produced here is only for information and knowledge of readers. The views expressed here are the personal views of the author and it will not be considered as professional advice. Please do contact your tax consultant for more clarification.