Gift received from mother of KARTA in HUF is taxable?

Subodh Gupta (HUF) vs. Pr CIT (ITAT Delhi)- 20 Jan 2018

Some important discussions pointers for easy reference:-

1- The fact of the case shows that the assessee has received 75000 equity shares of a company from Mrs Sneh Gupta, who is mother of the Karta of assessee- Hindu undivided family. According to the assessee above gift was not covered under section 56 (2) (vii) of the act as gift is from mother of the karta of assessee and thus „relative‟.

2- In nutshell, he directed the Ld. assessing officer to modify the order passed to the extent that the market value of 75,000 equity shares received from the mother of the Karta of HUF treating as income under section 56 (2) (vii) which the AO failed to bring to tax as the income of the assessee HUF. Consequently, the income of the HUF was enhanced by Rs. 17819 8500/–

3- On the issue of merit, he submitted that assessee is an HUF and mother of the karta of HUF has given gift to the assessee HUF. She is not a member of the assessee HUF. Hence, the gift is chargeable to tax in the hands of HUF.

4- The Ld. departmental representative relied upon the amendment to the section 263 of The Income Tax Act. He submitted that w.e.f. 1/6/2015 explanation (2) has been inserted, which provides that an order passed by the Ld. assessing officer shall be erroneous insofar as it is prejudicial to the interest of the revenue , if the impugned order is passed without making enquiries, verification which should have been made

5- Therefore, it is apparent that Ld. assessing officer has not made any enquiry with respect to the taxability of gift received by the assessee from the mother of the Karta of assessee.

6- Therefore, we concur with the views of the ld PCIT that order passed by the Ld. assessing officer is erroneous as well as prejudicial to the assessee interest of the revenue as it is passed without making enquiries verification, which should have been made by the Ld. assessing officer.

7- Hence, as the donor is the mother of the karta of HUF, she can give gift to each member of such HUF without attracting tax liability in his or her individual hands, therefore, if the gift is given to the collective name of HUF comprising the same individual, it should also not attract tax. The above contentions deserves to be rejected because the proviso to section 56 (2) (vii) provides definition of „relatives‟ in case of individual and HUF separately.

For reading full text of the case please refer - http://itatonline.org/archives/subodh-gupta-huf-vs-pr-cit-itat-delhi-s-562vii-taxability-of-gifts-as-income-meaning-of-the-term-relative-in-the-context-of-a-hindu-undivided-family-huf-and-whether-if-the-donor-is-the-mo/subodh-gupta-huf-relative/