The Income Tax Appellate Tribunal (ITAT), Surat Bench, has recently, in an appeal filed before it, held that section 56(2) (vii) is not applicable to individual receiving sum from HUF as its member.
The aforesaid observation was made by the Surat ITAT, when an appeal was filed before it by the assessee, as directed against the order of National Faceless Appeal Centre, Delhi [NFAC/Ld. CIT(A)], for the assessment year 2017-18, which in turn arose out of the assessment order passed by Income Tax Officer, Navsari Circle, / the Assessing Officer, under section 143(3) of the Income Tax Act, 1961.
The ground of the assessee’s appeal being that the AO as well as the CIT(A)/National Faceless Appeal Centre (NFAC), has erred in making additionof Rs.18,00,000/- received as gift from assessee HUF, which was exempted under Section 56(2)(VII) of the Income Tax Act, the brief facts of the case were that the assesseewas an individual, who had filed his income for assessment year 2017-18, declaring the total income at Rs.21,35,210/-.
During the scrutiny assessment, it so happened that the Assessing Officer noted that assessee had shown gift of Rs.18.00 lakh from Ranjibhai D. Panchal (HUF), wherein the assesseewas a Karta (Manager) of such HUF. Consequently, the Assessing Officer disallowed and added back the gift to the total income of the assessee, by taking view that the HUF does not fall in the list of relative.
Aggrieved by the additions in the assessment order, the assessee filed an appeal before the CIT(A), and the appeal of the assessee was migrated to NFAC, Delhi. However, the CIT(A) also confirmed the action order of assessing officer.
And it is being further aggrieved by the addition in the assessment order, that the assesseehas filed the present appeal before the Surat ITAT.
It was submitted by , Shri Sujesh C Suratwala, C.A, the AR for the assessee, by relying upon various decisions in the assessee’s favour, that it was categorically held in all these judicial precedents that HUF is an artificial person of familymembers who falls within the definition of relative as prescribed under sub-clause (e) of clause (vii) of under section 56(2) of the Income Tax Act, and hence that, as the assessee has received gift from its own HUF, which is also exempt under section 10(2) of Income Tax Act, thus, the assess may be allowed relief on alternative submissions.
On the other hand, Shri Vinod Kumar, the Sr-DR for the Revenue,submitted that all the submissions and the case law relied by the AR for the assessee has been considered by NFAC/Ld. CIT(A) while confirming the order of Assessing Officer, and that the Legislature, while giving the definition of relative has not included “HUF” in the definition of relative.
Hearing the opposing contentions of both sides as thereby perusing the materials available on record, the Surat ITAT observed, “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.”
Finally, the ITAT coram of Pawan Singh, the Judicial Member, thus held:
“Thus, in view of the above factual and legal discussion and respectfully following the decision in Pankil Garg Vs ITO, I direct the assessing officer to delete the addition of Rs. 18.00 lacs under section 56(2)(vii). In the result, the ground of appeal raised by the assessee is allowed.”
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