Hindu undivided family receipts and tax exemption: current-year income limits section 10(2), while the relative exception protects the transfer.

Section 10(2) exemption for a payment by a Hindu undivided family applies only where the amount is paid out of the family's current year income; funds drawn from accumulated earlier income do not satisfy that condition, so the exemption claim failed. By contrast, section 56(2)(v) was held inapplicable because a receipt from a Hindu undivided family member falls within the proviso for amounts received from a relative, the family being treated as within the statutory concept of relative on the facts discussed. The receipt was therefore covered by the relative exception, while the alternative exemption claim was rejected.

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Issues: (i) Whether a sum of Rs. 10 lakhs received by a member from her Hindu undivided family could be treated as exempt under section 10(2) of the Income-tax Act, 1961 when the payment was made out of accumulated income of earlier years and not out of the current year's income; (ii) Whether receipt of money from a Hindu undivided family by a member falls within the proviso to section 56(2)(v) of the Income-tax Act, 1961 as receipt from a "relative".

Issue (i): Whether a sum of Rs. 10 lakhs received by a member from her Hindu undivided family could be treated as exempt under section 10(2) of the Income-tax Act, 1961 when the payment was made out of accumulated income of earlier years and not out of the current year's income.

Analysis: The exemption under section 10(2) applies only where the sum is paid out of the income of the family and is received by an individual as a member of the Hindu undivided family. The Tribunal held that the expression "income" in this context refers to the current year's income, not accumulated funds of earlier years. Since accumulated income had already become part of the family estate, it could not be treated as current income for the relevant year. On the facts, the family's income for the year was far below the amount gifted, so the payment could not satisfy the statutory condition.

Conclusion: The claim of exemption under section 10(2) was not allowable and this issue was decided in favour of the Revenue and against the assessee.

Issue (ii): Whether receipt of money from a Hindu undivided family by a member falls within the proviso to section 56(2)(v) of the Income-tax Act, 1961 as receipt from a "relative".

Analysis: The proviso to section 56(2)(v) excludes sums received from a relative, and the explanation defines relative to include lineal ascendants and descendants. Applying the personal law concept of a Hindu undivided family, the Tribunal held that the family unit comprises persons connected by lineal relationship and, therefore, falls within the statutory concept of relative for the purpose of the proviso. The Tribunal also drew support from the principle that the karta's power to deal with family property may operate in an individual capacity in appropriate circumstances, reinforcing that the receipt from the HUF could not be taxed under section 56(2)(v).

Conclusion: Section 56(2)(v) was held inapplicable and the receipt was treated as covered by the relative exception, in favour of the assessee.

Final Conclusion: The addition made on account of the family gift was not sustainable on the section 56(2)(v) issue, but the alternative claim of exemption under section 10(2) failed; as the Revenue's appeal was ultimately dismissed, the assessee succeeded in retaining the relief granted by the first appellate authority.

Ratio Decidendi: For the purpose of section 56(2)(v), a receipt from a Hindu undivided family member is covered by the relative exception, while section 10(2) applies only to sums paid out of the current year's income of the family and not out of accumulated past income.

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