No Income Tax Leviable on Gift from Brother in Law: ITAT [Read Order]
The tribunal clarified that any query regarding the source of the funds would pertain to the donor (the brother-in-law) and could not be a basis to tax the recipient, as the specific exemption was applicable.
No Income Tax - Gift - ITAT - taxscan
No Income Tax - Gift - ITAT - taxscan
In a ruling in favour of the assessee, the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) set aside the Commissioner of Income Tax (Appeals)'s order, holding that the addition of Rs. 80 lakhs received as a gift from a brother-in-law was erroneous as it falls under the 'relative' exemption of Section 56(2)(vii) of the Income Tax Act.
The assessee, Deb Prasanna Choudhury is an NRI, had received a sum of Rs. 80 lakhs in his NRE account from his brother-in-law. It was contended that the gift deed was made outside India in the USA and as per the Transfer of Property Act, the gift deed is not required in case of movable property.
The case was selected for scrutiny and re-assessment under Section 148, where the Assessing Officer (AO) added this amount to the assessee's total income, treating it as taxable under Section 56(2)(vii). It was stated that since the amount was received from the relative through a banking channel, the same was not liable to be assessed at income from other sources in view of the exemption provided to the relatives as mentioned therein. Aggrieved, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)].
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The CIT(A) partly allowed the appeal but confirmed the addition of Rs. 55 lakhs. The CIT(A) held that the gift deed, made in the USA without the recipient's signature and years after the transaction, raised questions about its genuineness. Furthermore, the source of a significant portion of the funds (Rs. 55 lakhs) remained unexplained, leading to the dismissal of the ground.
The tribunal observed that both the AO and the CIT(A) had misdirected themselves by focusing on the procedural validity of the gift deed and the source of funds, rather than the specific legal provision governing the taxability of the gift. Section 56(2)(vii) of the Act explicitly exempts any sum of money received from a 'relative' from being taxed as 'income from other sources'. The term 'relative' is defined in the Explanation to the clause and includes 'the brother or sister of the spouse of the individual'.
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The ITAT noted that the exemption under Section 56 does not hinge upon the existence of a valid gift deed but solely on the fact that the sum was received from a relative as defined in the Act. The assessee had provided bank statements proving the receipt of funds from his brother-in-law's account through normal banking channels, which was sufficient to establish the relationship.
The tribunal clarified that any query regarding the source of the funds would pertain to the donor (the brother-in-law) and could not be a basis to tax the recipient, as the specific exemption was applicable.
Accordingly, the tribunal held that the CIT(A) erred in confirming the addition. The appeal filed by the assessee was allowed, and the addition of Rs. 55 lakhs upheld by the CIT(A) was deleted.
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