By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 56(2)(v) – Gift received from relative of karta is not taxable in the hands of HUF.
Facts: The assessee in the capacity of HUF received a gift of Rs. 7 lakh from a person who was uncle of the karta of the HUF. The Assessing Officer brought said amount to tax under head ‘income from other sources’ by invoking provisions of section 56(2)(v). The objection of the Assessing Officer was that as per the Explanation to section 56(2)(v) the definition of relative does not include relationship vis-a-vis HUF, therefore the amount received from the donor by the HUF does not fall within the relationships as prescribed in the said Explanation.
Held: For the year under consideration, i.e. asst. yr. 2005- 06, the definition of “relative” was in respect of the relationship by an individual donee with close relatives as defined therein. However, it is very pertinent to note that the operative section i.e., s. 56(2)(v) was in respect of (i) individual and (ii) HUF. Meaning thereby the legislature had clear intention to include both the categories i.e., individual as well as HUF within its scope as well as within its operation. Thus, the section is applicable in respect of money exceeding Rs. 25,000 received without consideration either by an “individual” or by an “HUF”. The proviso annexed to s/s. (v) states that the charging clause shall not apply to any sum of money received from any relative. Meaning thereby the proviso is applicable to both of them i.e. “individual” as well as “HUF”. The donor relative can be either relative of “individual” or “HUF”, as the case may be. In other words, if an amount exceeding Rs. 25,000 is received as a gift either by “individual” or by “HUF”, then such an amount is chargeable to income under the head “Income from other sources” but an exception is provided in the first proviso that the said clause of charging the amount to tax should not apply to an amount received from any relative. Thus, the proviso prescribes that the charging of the gifted amount shall not apply to any sum of money received as a gift from a “relative” either by an “individual” or by “HUF”. Naturally, the proviso to cl. (v) of section 56(2) is not restricted to an “individual” but it governs an “individual” as well as an “HUF”. The position is absolutely clear that even in case of HUF if a sum of money is received from any relative and that relative is as defined in Explanation, then also it falls within the exception as prescribed in this section.
Therefore, since the assessee-HUF has undisputedly received a gift of Rs. 7 lakh from a relative who is an uncle of the Karta of this HUF, i.e., as per Explanation, sub-cl. (iv) “brother or sister of either of the parents of the individual”, and thus falls within the category of the “relative” prescribed in the Act, therefore, not chargeable to tax in the hands of the assessee.
Editor’s Note: The section amended by Finance Act 2012 w.e.f. 01-10-2009, defining the term relative in respect of an HUF. Therefore the decision may not apply from 01-10-2009
