Explanation to proviso to clause (v)/(vi) of subsection (2) of section 56 — Gifts from relatives exempt from tax — Whether the gift received from HUF is exempt from tax — Held, Yes — Also held that the amount is exempt u/s.10(2) of the Act.
Issue: The issues before the Tribunal were as under:
1. Whether gift received from HUF by a member of HUF falls under the definition of ‘relative’ as provided in the Explanation to clause (vi) of sub-section (2) of section 56 of the Act?
2. Whether amount received by the assessee from his HUF is covered by section 10(2) of the Act?
The Assessing Officer was of the view that HUF is not covered in the definition of ‘relative’. Therefore, the gift received from the HUF was taxable. On appeal, the CIT(A) confirmed the view of the AO and further observed that if the Legislature wanted, it would have specifically mentioned so in the definition of ‘relatives’. According to him, the exemption u/s.10(2) was available only if the amount was received on partial/total partition and secondly to the extent of share in the assessed income of the current year. Before the Tribunal, the Revenue supported the orders of the lower authorities.
Held:
The Tribunal noted that a Hindu Undivided Family is a person within the meaning of section 2(31) of the Income-tax Act and is a distinctively assessable unit under the Act. Further, it observed that the Act does not define the expression ‘Hindu Undivided Family’, hence, it must be construed in the sense in which it is understood under the Hindu Law. According to it, HUF constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of ‘relative’ as provided in Explanation to clause (vi) of section 56(2) of the Act. It did not agree with the views of the CIT(A) that HUF is as good as ‘a body of individuals’ and cannot be termed as ‘relative’. According to it, an HUF is ‘a group of relatives’. Further, from a plain reading of section 56(2)(vi) along with the Explanation to that section and on understanding the intention of the Legislature from the section, the Tribunal found that a gift received from ‘relative’, irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax as a group of relatives also falls within the Explanation to section 56(2) (vi) of the Act. It pointed out that the Act does not provide that the word ‘relative’ represents a single person. Accordingly, the Tribunal held that the ‘relative’ explained in Explanation to section 56(2)(vi) of the Act includes ‘relatives’ and as the assessee received gift from his ‘HUF’, which is ‘a group of relatives’, the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the ‘relatives’ and therefore, the same was not taxable u/s. 56(2) (vi) of the Act.
As regards the alternative claim for exemption u/s.10(2) — the Tribunal did not agree with the CIT(A) and held that the assessee was entitled to exemption u/s.10(2). According to it, the assessee was a member of HUF and had received the amount out of the income of the family. There was no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same is exempt u/s.10(2) of the Act.
