Gift from Relative of members of HUF should also be tax free!

December 6, 2006 by taxworry · Leave a Comment

Someone Asked on Yahoo Group-Answered By Me

A relative of Karta of HUF gives gift of Rs. 4,00,000 to HUF. Whether the above gift is exempt or taxable u/s 56(2)(vi). Can HUF have relation with relative of Karta of HUF. If taxable, can HUF avail benefit of sec 80C and basic exemption limit for purpose of taxation.

On plain reading of Explanation to Section 56(2)(vi) , it seems that the word relative is Explained only to be associated with Individual . The explanation states as follows :

“Explanation.For the purposes of this clause, relative means
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).]”

HUF being a group of Individuals can not have any blood relations , however the existance of HUF is based on existence of Individuals. Without Individuals there cannot be any HUF . As such , in my view the word Relative used in section is also in relation with HUF and gift received from any relative of any member of HUF should not be taxable .

Refernce may be made to a ruling by Orissa Bench of Tribunal in Gift-tax Officer V. K. B. B. Subudhi.Bench :ITAT CUTTACK [28 ITD 495] where the Tribunal held as follows

“The next point is whether daughters-in-law can be treated as relatives of HUF. In this respect we feel that the Circular No. 1-59/GT dated 27-2-1959 of CBDT is beneficial to the assessee which runs as under :

“Under clause (vii) of section 5(1) , exemption is given up to a maximum of Rs. 10,000 in value on the occasion of the marriage of any relative (male or female) dependent upon the donor for support and maintenance. If the gift exceeds this amount, only the excess will be considered in computing the taxable gift. Normal expenditure incurred on the marriage itself like expenses on a feast, etc. will not be taken into account in computing the value of the gifts. The exemption will be allowed also in cases of gifts made by a Hindu undivided family to members of the family dependent upon the family for support and maintenance.”

The above circular clearly shows that the CBDT had no objection to treat male or female dependent as relative of an HUF.“

Therefore, you should argue the case accordingly.

Under The I T act Section 80C and basic exemption is always available to HUF also.

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