Gift from HUF not taxable under IT Act: Tribunal rules in favor of assessee

The Tribunal held that the amount received by the assessee from his HUF is not taxable as a gift under Section 56(2)(vii) of the Income Tax Act. Citing consistent decisions and the case of Pankil Garg v. PCIT, Karnal, the Tribunal ruled in favor of the assessee, overturning the Assessing Officer and CIT(A)'s decision. The Tribunal allowed the appeal, directing the deletion of the addition made by the A.O. and setting aside the CIT(A)'s order.

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Issues Involved:
1. Taxability of gift received by the assessee from his HUF under Section 56(2)(vii) of the Income Tax Act.
2. Applicability of Section 10(2) of the Income Tax Act for exemption of the amount received from HUF.

Issue-wise Detailed Analysis:

1. Taxability of Gift Received by the Assessee from His HUF under Section 56(2)(vii):

The solitary issue in the appeal concerns the taxability of a Rs. 50,00,000 gift received by the assessee from his HUF under Section 56(2)(vii) of the Income Tax Act. The Assessing Officer (A.O.) treated the gift as taxable, and the CIT(A) confirmed this, noting a similar decision in the assessee's case for the assessment year 2012-13. The assessee argued that the gift should not be taxed, citing various Tribunal decisions, including those of the Ahmedabad Tribunal, which held that gifts from HUF to its members are not taxable as they are considered amounts received from "relatives" as per the definition in Section 56(2)(vii).

The Tribunal noted that the ITAT has consistently held that sums given by HUF to its members/coparceners are not taxable under Section 56(2)(vii). Significant decisions supporting this view include:
- Vineetkumar Raghavjibhai Bhalodia v. ITO - [2011] 140 TTJ (RAJKOT) 58
- Harshadbhai Dahyalal Vaidhya - [2013] 155 TTJ (AHD) 71
- Hemal D. Shaah v. DCIT - ITA No. 2627/MUM/2015
- Shri Pankil Garg v. PCIT, Karnal - ITA NO. 773/CHD/2018

In these cases, the ITAT held that gifts from HUF to its members fall within the exception provided in Section 56(2)(vii) for sums received from relatives. The Tribunal also referred to Section 10(2) of the Act, which exempts amounts given to members of HUF from the HUF's taxable income.

2. Applicability of Section 10(2) for Exemption:

The assessee also argued that the amount received should be exempt under Section 10(2) of the Act, which exempts sums received by a member from the HUF's income. The Tribunal noted that the ITAT, in various decisions, has held that amounts given by HUF to its members are exempt under Section 10(2) as they are part of the HUF's taxable income.

In the case of Pankil Garg v. PCIT, Karnal, the ITAT Chandigarh Bench held that the amount given by HUF to its member is not a gift but an apportionment of the member's share in the HUF property. Therefore, it does not qualify as a gift under Section 56(2)(vii). The Tribunal emphasized that every member of HUF has a pre-existing right in the HUF property, and any amount given to a member is merely a distribution of what already belongs to them.

Tribunal's Decision:

The Tribunal, considering the consistent decisions in favor of the assessee and the detailed reasoning in the case of Pankil Garg v. PCIT, Karnal, held that the amount received by the assessee from his HUF is not in the nature of a gift and hence not taxable under Section 56(2)(vii). The addition made by the A.O. and upheld by the CIT(A) was directed to be deleted. The Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal.

Conclusion:

The appeal filed by the assessee was allowed, and the Tribunal pronounced the order in the open court on 25-03-2022.

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