Gift received by HUF from Mother of Karta would attract Income Tax: ITAT [Read Order]

While hearing the case of Subodh Gupta vs Commissioner of Income Tax (CIT), Delhi bench of Income Tax Appellate Tribunal (ITAT) recently held that gift received by Hindu Undivided Family (HUF) from the mother of Karta would attract Income Tax.

Assessee in the instant case is a Hindu Undivided Family who filed its return of income for the relevant assessment year and declared total income of Rs. 579720.

During the year, the assessee has received 75000 equity shares of a company of Mrs Sneha Gupta, who is mother of the Karta of assessee- Hindu undivided family and the assessee treated the same as gift and in its view the said gift was not covered under section 56 (2) (vii) of the Income Tax Act as gift is from mother of the karta of assessee and thus “relative‟.

Thereafter, a notice was issued by the PCIT by holding that mother is not a member of an HUF and therefore is not covered in the definition of “relative‟ therefore, the said gift and added the same to the total income of the assessee and also initiated penalty proceedings under section 271(1) (c) of the Income Tax Act 1961.

Assessee approached the Tribunal on appeal.

After considering the material facts and circumstances, the tribunal bench comprising of Judicial Member Amit Shukla and Accountant Member Prashant Maharishi observed that the provisions of section 56 (2) is applicable in the case of the assessee. The proviso to the above section provides that the above clause shall not apply to any sum of money or any property received from any ‘relative’.

The bench said that “the ‘relatives’ mentioned with respect to an individual cannot be considered when the recipient of the property is an HUF. Further, it substitutes the earlier definition of the ‘relative’ when there was no reference about what constitutes ‘relatives’ with respect to the HUF. It only talks about ‘relatives’ with respect to an individual. Therefore, earlier the issue was that if the gift is received by an HUF from its members, probably it was taxable.”