Gift from HUF deemed exempt under Income Tax Act | Relief granted on interest & penalty

The Tribunal upheld the decision that the gift received from the HUF is exempt under sections 56(2)(vi) and 10(2) of the Income Tax Act, 1961. Additionally, the Tribunal directed the Assessing Officer to allow consequential relief regarding interest charged under sections 234B and 234C. The penalty imposed under section 271(1)(c) was deleted as the Tribunal found no basis for it to stand after deleting the quantum addition, thereby dismissing the Revenue's appeal.

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Issues Involved:
1. Whether a gift received from a Hindu Undivided Family (HUF) by a member of the HUF falls under the definition of "relative" as provided in the Explanation to clause (vi) of sub-section (2) of section 56 of the Income Tax Act, 1961.
2. Whether the amount received by the assessee from his HUF is covered by section 10(2) of the Income Tax Act, 1961.
3. Charging of interest under sections 234B and 234C of the Income Tax Act, 1961.
4. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Definition of "Relative" under Section 56(2)(vi):
The Revenue contended that the term HUF does not come under the term "group of relatives" defined under section 56(2) of the Income Tax Act, 1961. The assessee argued that the case is covered by the decision of the Rajkot Bench of the Tribunal, which held that a gift received from an HUF by a member of the HUF is exempt from tax under section 56(2)(vi) because HUF is a collective name given to a group consisting of individuals, all of whom are relatives under the Explanation to section 56(2) of the Act.

The Tribunal analyzed the definition of "relative" as provided in the Explanation to clause (vi) of sub-section (2) of section 56, which includes various familial relations but does not explicitly mention HUF. However, the Tribunal concluded that an HUF is a "group of relatives" and thus, gifts received from an HUF are exempt from tax under section 56(2)(vi). The Tribunal supported this interpretation to avoid absurdity in the statute, as held in the case of K G Govindan & Sons vs CIT (247 ITR 192).

2. Coverage under Section 10(2):
The alternative contention was whether the amount received by the assessee from his HUF is covered by section 10(2) of the Act, which exempts any sum received by an individual as a member of an HUF out of the income of the HUF. The Tribunal referred to the legislative intent and judicial precedents, concluding that the assessee satisfied both conditions of section 10(2) – being a member of the HUF and receiving the sum out of the HUF's income. Therefore, the gift amount is exempt under section 10(2).

3. Charging of Interest under Sections 234B and 234C:
The issue of charging interest under sections 234B and 234C was deemed consequential. Since the primary addition was deleted, the Tribunal directed the Assessing Officer to allow consequential relief to the assessee.

4. Imposition of Penalty under Section 271(1)(c):
The Assessing Officer had imposed a penalty under section 271(1)(c) on the ground that the gift received by the assessee from the HUF was not accepted. However, since the Tribunal deleted the quantum addition, the penalty had no basis to survive. Consequently, the Tribunal upheld the CIT(A)'s order deleting the penalty and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the gift received from the HUF is exempt under sections 56(2)(vi) and 10(2) of the Income Tax Act, 1961. The Tribunal also directed the Assessing Officer to allow consequential relief concerning interest charged under sections 234B and 234C and upheld the deletion of the penalty under section 271(1)(c).

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