As per the 2012 amendment effective from 1st October, 2009 in case of an HUF, its member shall be treated as a relative!
The scope of definition of ‘income’ u/s. 2(24) was widened by the Finance Act, 2004 by providing that ‘income’ would now include any sum referred to in Section 56(2)(v). Section 56(2)(v) was introduced to provide that, “where any sum of money exceeding Rs.25,000 is received without consideration by an Individual or HUF from any person on or after the 1st September, 2004, the whole of such sum shall be chargeable to tax as Income from Other Sources.” However, with effect from 1st April, 2006, it came to be provided vide Section 56(2)(vi) that such receipts from one or more persons aggregating to more than Rs.50,000 in a financial year shall be treated as income in the hands of the recipient individual or HUF.
In the above regard, exceptions have been carved out in respect of any sum of money received from any relative (as defined for purpose of this section) or on the occasion of the marriage of the individual or under a will or by way of inheritance or in contemplation of death of the payer or receipts from any local authority as defined in Section 10(20) or fund, foundation, university, educational institution, hospital or other medical institution referred to under Section 10(23C) or receipt from any trust or institution registered under Section 12AA and accordingly such receipts will be exempt from tax.
GIFTS FROM RELATIVES EXEMPT FROM TAX
One of the important exceptions provided, in regard to taxing gifts as income, is in respect of sums received by any individual from his/her relative out of natural love and affection. For this purpose, the term ‘relative’ has been defined to include the individual’s spouse, brother or sister of the individual or spouse, brother or sister of either of the parents of the individual, any lineal ascendant or descendant of the individual or spouse and finally the spouse of any of the above-referred persons. Thus, apart from the closest members of the immediate family such as parents, grandparents, children, grandchildren, brothers and sisters, even uncles, aunties and in-laws have been empowered to give tax free gifts without any monetary limits. However, cousins, nephews and nieces have been kept out of the list.
2012 AMENDMENT AFFECTING HUF GIFTS
The Finance Act, 2012 has widened the definition of relative under Section 56(2)(vii) by providing that in case of a Hindu Undivided Family, any member thereof shall be treated as a relative. Therefore, an HUF can now make or receive gifts, to or from any of its members, without attracting any liability for income-tax. It is important to note that this amendment has been made retrospectively with effect from 1st October, 2009.
In the above context, the decision of the ITAT Rajkot Bench, in the case of ‘Vineetkumar Raghavjibhai Bhalodia vs. ITO’  140 TTJ 58 (Rajkot), also merits a significant mention. In this decision, the ITAT held that gift received by an individual from his HUF was entitled to exemption. The reasoning for the same was justified by the Tribunal on the basis that the term ‘relative’ explained in Explanation to section 56(2)(vi) includes ‘relatives’ and as the taxpayer received gift from his ‘HUF’, which is ‘a group of relatives’, such gift received by the member from his HUF should be interpreted to mean that the gift was received from ‘relatives’ and hence the same was not taxable under section 56(2)(vi).
However, in case of any gift being made by an individual to his HUF, the impact of the clubbing provisions under Section 64(2) needs to be borne in mind. As per the same, if any member of the HUF gives a gift to his/her HUF, the income derived by the HUF from such gifted property is liable to be clubbed with the total income of the member. Similar provisions in regard to clubbing of wealth have also been provided.
SPECIFIED GIFTS IN KIND ALSO TAXABLE
Section 56(2)(vi) had cast income-tax liability only in respect of a ‘gift of any sum of money exceeding Rs.50,000’. In view of this clear language, any gift received in kind (not being any sum of money) clearly fell outside the liability for income-tax, irrespective of the value of such gift.
However, as per the new provisions of Section 56(2)(vii) introduced with effect from 1st October, 2009, in case of nine specified properties as mentioned hereunder, received by an Individual or HUF, either by way of gift or for a purchase consideration that is treated by the Assessing Officer as inadequate, the market value of such gift or the differential value of such purchase, if exceeding Rs.50,000, will be taxed as income from other sources: (i) Land and building; (ii) Shares and securities; (iii) Jewellery; (iv) Archaeological collections; (v) Drawings; (vi) Paintings; (vii) Sculptures; (viii) Any work of art; (ix) Bullion.
Interestingly, with only nine properties specified in the hit list, a host of other valuables such as motor cars, electronics, furniture, air tickets etc. have still been kept out of the tax purview and as on date, you can thus enjoy the luxury of receiving gifts of any of these.
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