Tax applicability on gift

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This query is : Resolved

nukul sarawogi (Querist)

19 August 2013 My client wants to give gift of debenture worth Rs. 2.50 Lakhs to HUF (created by his son). My client is not the member of HUF.

I want to know the following:
1. Whether the gift will be taxable in the hand of Karta of HUF. (i.e. his son)?

2. Further interest income arising from debenture will be taxable either in the hand of client or his son.?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

19 August 2013 Your client wants to give gift of debenture worth Rs. 2.50 Lakhs to HUF (created by his son). the gift will be taxable in the hand of the HUF as your client is not the member of HUF. In such a situation interest income will be taxed in the hands of the HUF only.
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A better planning may be opted.
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You client can gift the debentures to his son and in turn his son may gift to his own HUF. Interest only will be clubbed in the hands of the son.
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CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)

19 August 2013 Alternatively your client should become the member of son's HUF & then he may gift it so as to avoid tax liability.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)

19 August 2013 Alternatively your client should become the member of son's HUF & then he may gift it so as to avoid tax liability.

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nukul sarawogi

nukul sarawogi (Querist)

21 August 2013 Dear Paras and Tushar,

Thanks for your reply. But in one of case law, opinion is in favor of assesse. Please refer to below case laws:

IT : Where assessee-HUF received a sum of Rs. seven lakh as gift from a relative of Karta of HUF, in terms of proviso to section 56(2)(v) amount so received could not be brought to tax [2013] 33 taxmann.com 483 (Ahmedabad - Trib.) IN THE ITAT AHMEDABAD BENCH 'C' Harshadbhai Dahyalal Vaidhya (HUF) v. Income-tax Officer, Mehsana Ward - 4* MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND ANIL CHATURVEDI, ACCOUNTANT MEMBER IT APPEAL NO. 1527 (AHD.) OF 2010[ASSESSMENT YEAR 2005-06] APRIL 26, 2013 Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as [Gift received by HUF] - Assessment year 2005-06 - Whether where assessee-HUF received a sum of Rs. seven lakh as gift from a relative of Karta of HUF, in terms of proviso to section 56(2)(v) amount so
received could not be brought to tax - Held, yes [Para 7.5] [In favour of
assessee]

I am looking for your views in above regards,

Thanks,
Nukul

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

21 August 2013 The decisions of the courts varies according to the interpretation of law existed at the time of transactions took place.
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56(2)(v) will not apply for the prospective gift transactions after 31.03.2006.
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As "Your Client wants to gift" means the law
as on the date of transaction will be applicable- as such Section 56(2)(vii) will apply.
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Relatives have been redefined by including the relatives of HUF also. In case of a HUF -any member there of is relative.
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The courts may opined differently for the gift transactions taken place on or after 1-10-2009 when the donor is other than a member.
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