Tax Insights

from India Tax & Regulatory Services

Amount received from an HUF by

its member not taxable under
section 56(2)(vii)

August 6, 2019

In brief
Recently,1 the Chandigarh bench of the Income-tax Appellate Tribunal (Tribunal) held that the
provision of section 56 (2)(vii) of the Income-tax Act, 1961 (the Act) does not apply to a gift given by a
Hindu Undivided Family (HUF) to its members, on the premise that a member has pre-existing right
in the family properties. Thus, when a member receives any sum from the HUF, during the subsistence
of the HUF or on its partition, it cannot be treated as receipt without consideration. The Tribunal also
held that even otherwise, the taxpayer was entitled to exemption under section 10(2) of the Act.

In detail received from a relative/ Tribunal’s ruling

Facts
 The taxpayer had received
a gift from his HUF. The
same was not offered to tax
in the return of income.
 The Tax Officer (TO)
accepted the returned
position. Subsequently, the
TO reopened the
assessment to tax the gift
which was in excess of the
limit under section
56(2)(vii) of the Act. The
TO agreed on the non-
taxability of the gift,
relying on the rulings of
the Rajkot and Hyderabad
bench of the Tribunal2 and
completed the
reassessment proceeding.
Both the decision were on
the premise that an HUF is
nothing but a group of
relatives and any gift
group of relatives is
excluded from the purview
of section 56(2)(vii) of the
Act.
 Subsequently, the
Principle Commissioner of
Income-tax (PCIT)
considering that the HUF
is not covered in the list of
relative to an individual
held that the gift from a
HUF to its member is
liable to tax and invoked
section 263 of the Act
setting aside the TO’s
order and directing the TO
to make fresh assessment.
Issue before the Tribunal
Whether the provisions of
section 56(2)(vii) of the Act are
applicable to gift by HUF to its
members?
 The TO’s order was passed
after application of mind
and was not erroneous and
therefore the PCIT had
wrongly exercised
jurisdiction under section
263 of the Act.
 The interpretation of the
PCIT that for claiming
exemption under section
10(2) of the Act the
amount should be received
for a consideration is
misconceived.
 To claim exemption under
section 10(2) of the Act,
two conditions must be
fulfilled, i.e., (1) the
individual is the member
of an HUF and (2) the sum
received is from the
income of the HUF. The
TO or PCIT had not
rebutted/ denied the claim

1
ITA No. 773/ CHD/ 2018
2
Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 12 ITR(T) 616 (Rajkot) and Mr. Biravelli Bhaskar Karimnagar v. ITO [ITA
No. 398/HYD/ 2015]

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Tax Insights
or PCIT had not rebutted/
denied the claim of the
taxpayer that amount is
received from income of the
HUF and hence, the taxpayer
was eligible for exemption
under section 10(2) of the
Act.
 HUF is a creation of law and
cannot be created by the
members. There is no
presumption that a family is
joint because it is comprises
of joint property. If the
persons in the family live
together and are joint in food
and worship, irrespective of
the fact that there is joint
property of the family, it
constitutes a HUF.
 A HUF is not an entity
separate from its members.
All the members collectively
own and enjoy property
without determination of
their shares until partition.
2 pwc
During the subsisting
coparcenary or to say broadly
HUF, no member is entitled
to receive any definite share
out of the income of the HUF.
It is left to the prudence and
wisdom of the manager (karta
of HUF) who has to manage
the affairs of the HUF and
can even gift the HUF
property.
 On division, the share in the
estate/ capital of the HUF
cannot be treated as income
of the recipient, rather, the
same will be a capital receipt
in his hands.
 As the share of any member
in the family property is not
determined, the amount
received from the HUF
cannot be said to be more
than his share in the HUF
and be considered as the
income of the member. Each
member of the HUF has a
pre-existing right in the
assets of the HUF, and
therefore, receipt of any sum
from the HUF cannot be said
to be a gift without
consideration by the HUF or
gift by other members of the
HUF.
 The provisions of section
56(2)(vii) are not attracted
when a member receives any
sum from its HUF, either
during the subsistence of the
HUF for his needs, or on
partition of HUF.
The takeaways
This judgement reaffirms/
strengthens the argument of non-
taxability of gifts received by an
individual from an HUF.
Let’s talk
For a deeper discussion of how
this issue might affect your
business, please contact your
local PwC advisor
Tax Insights

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