Gift Received from Brother-in-Law is Exempt under section 56(2)

PCIT Vs Arvind N Nopany (Gujarat High Court)

The issue under consideration is whether the gift received from Brother-in-law is exempt u/s 56(2) of I T Act?

High Court states that, the tribunal took into consideration the details of the donor, more particularly, the PAN number, capital gain statement, bank statements and the other relevant documents. Upon perusal of the same, the tribunal concurred with the findings recorded by the CIT (Appeals) as regards the genuineness of the transaction. The tribunal, thereafter, looked into the Section 56 of the Act. As per the plain reading of the Section 56(2), the assessee would fall within the definition of the term “relative”. In the overall view of the matter, HC are convinced with the reasons assigned by the appellate tribunal. HC are of the view that none of the questions of law formulated in the memorandum of the tax appeal could be termed as substantial questions of law. Accordingly, the appeal filed by the revenue dismissed.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. This tax appeal under Section 260A of the Income Tax Act, 1961 [for short ‘the Act, 1961’] is at the instance of the revenue and is directed against the order dated 24th January 2019 passed by the Income Tax Appellate Tribunal Ahmedabad Bench ‘A’, Ahmedabad in the ITA No.128/AHD/2016 for the A.Y 2008­09.

2. The facts giving rise to this appeal may be summarized as under:­

2.1. A search under section­132 of the Act was carried out in the cases of Nopany Group, Vadodara on 29th September 2011. It appears that the assessee is connected with the Nopany Group. A search was conducted of the premise of the assessee. A notice under Section­153A(a) of the Act was issued to the assessee requiring the assessee to furnish the return of the income. It appears that in the course of the search undertaken of the residential premises of the assessee, few documents were recovered. It was revealed that the assessee had received an amount of Rs.16,00,00,000/­ [Rupees Sixteen Crore] by way of a gift from one Shri Narotam Sekhsariya. The donor happens to be the brother­in­law of the assessee.

2.2. The question before the Assessing Officer was of with regard to the genuineness of the transaction of the gift. It appears that the assessee succeeded before the CIT (Appeals). The CIT (Appeals) took the view that the donor viz. Shri Narotam Sekhsariya would qualify as “relative” within the meaning of Section­56(2)(vi) of the Act. The CIT (Appeals) while partly allowing the appeal preferred by the assessee observed as under:­

“The Ld. AR, after taking me through the provisions, submitted that the brother­in­law would fall in the category of “relative” when explanation (ii) and (viii) are read, as required, together. I have perused the provisions. I firstly find, as submitted by the AR, that there is no mention of “blood relative” in the whole section. Receipts exceeding Rs.50,000/­ without consideration is taxable u/s.56 unless saves by proviso. Explanation defines “relatives”, and as per clause (ii) read with clause (vii), the sister’s husband is also a relative. Thus, I am in absolute agreement with the Ld. AR that the Ld. AO’s attempt to somehow read “blood relative” in proviso, when plainly and clearly only “relative” is mentioned and is defined in proviso to s.56, shows that the Ld. AO has misread the provisions and applied the same unreasonably. I am satisfied, in view of my earlier finding after quoting from Hindu Adoption and Maintenance Act, 1956, in para 12 above that the receipts from Shri Narottam Sekhsaria are clearly covered clause (a) of proviso to s.56(2) read with explanation (ii) and (vii). Thus, it is held that the gifts of Rs.5 Crore in both the years received from Narottam Sekhsaria, being from a “relative”, is, Brother­in­law of the appellant is not taxable u/s.56. The gifts having been fully established as genuine and from explained sources, the receipts are also not taxable u/s.68. Thus, the addition of Rs.5 crore each made by the AO for both the assessment years under appeal is not sustainable and therefore, the same is deleted. The appellant gets equivalent relief. The related grounds succeed.

2.3. The revenue being dissatisfied with the order passed by the CIT(Appeals) preferred an appeal before the Income Tax Appellate Tribunal

2.4 The appellate tribunal vide impugned order dismissed the appeal. While dismissing the appeal, the tribunal has observed as under:­

“7. We find that the details of the donor starting from PAN number, capital gain statement, bank statement and others is annexed to the paper book, which was duly placed before the authorities below. It appears that when Shri Narottam Sekhsaria was not brought to the Learned AO by the assessee no further enquiry was conducted by him, no record against the assessee was also brought. Apart from that, the creditworthiness and/or genuineness of the transaction though doubted by the learned AO, the same has not been proved by any cogent document in favour of the revenue. Further that we find that the Learned AO acted beyond his jurisdiction by raising doubts regarding the relationship of the assessee and the donor ignoring the statutory provision in this regard as already been highlighted by the assessee before him in his written reply dated 04.02.2015. Without rebutting the submission made by the assessee the order of addition was made by the Learned AO. Further that, whether the gift so received by the assessee from his brother­in­law is exempted from tax under section 56 of the Act has been considered on a wrong notion. Instead of relative as provided by the statute “blood relative” has been considered by the Learned AO and as a result whereof addition was made which is absolutely erroneous as rightly pointed out by the Learned CIT (A) as it reflects from the order impugned. Thus, in the absence of any infirmity in the order passed by the Learned CIT (A) we decline to interfere with the same. Hence, the Revenue’s Appeal is dismissed.”

2.5. Being dissatisfied with the order passed by the appellate tribunal, the revenue is here before this Court with the present appeal.

3. The revenue has proposed the following substantial questions of law:­

[A] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is right in deleting the addition of Rs.5,00,00,000/­ for A.Y.2008­09 on account of so called gift claimed to have been received from the relative without appreciating that the donor of the gift does not fall within the definition of relative as envisaged under explanation to clause (vi) of section 56(2) of the I.T. Act?

[B] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is right in deleting the additions of Rs.5,00,00,000/­ for A.Y.2008­09 on account of so called gift claimed to have been received from the relative, when the affidavit filed by the assessee before the State Land Authority admits that the assessee has no sister and hence, the existence of relative i.e. brother­in­law does not arise?

[C] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is right in deleting the addition of Rs.5,00,00,000/­ without appreciating that the so called claim of gift received was without any reason or occasion?

4. Having heard the learned senior counsel appearing for the appellant – Revenue and having gone through the materials on record, we take notice of the fact that the tribunal took into consideration the details of the donor, more particularly, the PAN number, capital gain statement, bank statements and the other relevant documents. Upon perusal of the same, the tribunal concurred with the findings recorded by the CIT (Appeals) as regards the genuineness of the transaction. The tribunal, thereafter, looked into the Section 56 of the Act.

5. Section­56 of the Act is with regard to the income from other sources. What is relevant for us is Section­56(2)(vi), more particularly, the explanation (e) which reads thus:­

(e) “relative” means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

6. The plain reading of the aforesaid provision would indicate that the assessee would fall within the definition of the term “relative” as explained under Section­56 of the Act.

7. In the overall view of the matter, we are convinced with the reasons assigned by the appellate tribunal. We are of the view that none of the questions of law formulated in the memorandum of the tax appeal could be termed as substantial questions of law.

8. In the result, this appeal fails and is hereby dismissed.