Income Tax on Gift from HUF to member

[deepak gulati]

What is the status of gift from HUF to any of its member in light of judgment Vineetkumar Raghavjibhai Bhalodia vs. ITO (ITAT Rajkot), whether it is exempt or not.

[Vivek Harsh]

Gift - whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) of the Act as a group of relatives also falls within the Explanation to section 56(2)(vi) of the Act - 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" therefore the same is not taxable under section 56(2)(vi) of the Act

Vineet kumar Raghavjibhai Bhalodia vs. ITO (ITAT Rajkot)(2011 (5) TMI 584 - ITAT RAJKOT )

[DEV KUMAR KOTHARI]

The issue is debatable and the revenue is likely to contest the issue decided by Tribunal in favour of assessee.

Therefore, it is advisable to avoid gift from HUF to members. 

 

If at all it is required to tranfer funds from HUF to member, the same should be for some specific purposes and consented by all members, and the donee member should continue to be member / co parcner is remaining properties.

AI Summary

Tax treatment of gifts from an HUF to a member depends on whether the HUF qualifies as "relatives" for exemption.
Tax treatment of a gift from an HUF to a member depends on whether the HUF is treated as a group of relatives under the Explanation to section 56(2)(vi). Following ITAT Rajkot, gifts from an HUF to a member can be exempt as gifts from "relatives." However, the position is debatable and may be contested by revenue; practitioners therefore advise avoiding gratuitous transfers, or documenting transfers for specific purposes with consent of co-parceners and retention of the donee's membership.