Asstt. CIT V. Lucky pamnani [2011]
Gifts received by minors from a donor, who is not a brother or sister of either of their parents, is hit by provisions of section 56.
The decision makes it clear that the test of 'relative' must be applied with
reference to the donor and the donee, and not with reference to the donor
and the person in whose hands the gift is assessable under a deeming
provision like section 64.
full text:-
IN THE ITAT MUMBAI BENCH ‘A’
Assistant Commissioner of Income-tax* 14(3), Mumbai
v.
Lucky Pamnani
D. MANMOHAN, VICE-PRESIDENT
AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
IT APPEAL NO. 4333 (MUM.) OF 2009
[ASSESSMENT YEAR 2005-06]
MAY 31, 2010
Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as - Assessment year 2005-06 - Minor children of assessee received gifts of10 lakhs during previous year relevant to assessment year under consideration - According to Assessing Officer, gifts were not received from ‘relatives’ within meaning of section 56(2)(v) and, hence, gift amount was to be added to total income of assessee - On appeal, Commissioner (Appeals) took a view that income of minors being assessable to tax in hands of father, by applying deeming provision under section 64, he should be considered as an ‘individual’ for purpose of connecting relationship with donor - Whether section 56(2)(v) speaks of relationship between donor and donee and not a deemed assessee - Held, yes - Whether since with reference to minors, donor was not a brother or sister of either of parents and he could not even be considered as a lineal descendant, Assessing Officer was justified in bringing to tax impugned sum in hands of assessee - Held, yes
FACTS
The minor children of the assessee received gifts of10 lakhs during the previous year relevant to the assessment year under consideration. According to the Assessing Officer, gifts were not received from ‘relatives’ within the meaning of section 56(2)(v) and, hence, gift amount was to be added to the total income of the assessee. On appeal, the Commissioner (Appeals) set aside the addition.
On revenue’s appeal :
HELD
On a careful perusal of record, it was noticed that the Commissioner (Appeals) set aside the addition on a wrong premise that the assessee had received the gift, overlooking the fact that the recipients of the gift were his two sons. Section 2(31) defines the expression ‘person’ which includes ‘individual’. Any human being is an individual, whether a male, female, adult or minor. Income earned by a minor can be assessed to tax in the hands of the minor child provided a minor earns income by virtue of manual work done by him or by carrying on any activity involving application of skill, talent or specialized knowledge and experience (See section 64). This proves beyond doubt that minor is also considered as an ‘individual’ under the Act. In this backdrop, the language of section 56 had to be looked into. Section 56(2)(v) states that any sum of money, exceeding25,000, received without consideration by an ‘individual’ is assessable to tax under the head ‘Income from other sources’. Proviso read with Explanationscarves out certain exceptions which says that if it is received from a ‘relative’, specified therein, it shall not automatically be taxed under section 56. By virtue of sub-clause (iv) of Explanation to section 56(2)(v), ‘gift received from brother or sister of either of the parents of the individuals’ falls outside the ambit of sub-clause (v) of sub-section (2) to section 56. [
In the instant case, with reference to the ‘donee’, the relationship of the donor could not fall in the category of grandfather; donee was not even a lineal descendant of the donor. [
In the instant case, minors having received gift, relationship of the donor should be with reference to the minor who was to be treated as ‘the individual’. With reference to the minor, the donor was not a brother or sister of either of the parents and he could not even be considered as a lineal descendant. The Commissioner (Appeals), therefore, erred in law in assuming that income of the minors being assessable to tax in the hands of the father, by applying deeming provision under section 64, he should be considered as an ‘individual’ for the purpose of connecting the relationship with the donor. [
When section 56 deems a particular receipt as income from other sources, irrespective of the genuineness of the gift, it was difficult to appreciate as to why the Commissioner (Appeals) had given prominence to the availability of copy of passbook and the mode of receipt of the gift, etc., though it was neither the case of the assessee nor the case of the Assessing Officer at the assessment stage (since reference to the bona fides of gift is unnecessary for consideration, while applying section 56). Suffice to say that the amount of gift received was hit by the provisions of section 56 and, hence, the Assessing Officer was justified in bringing to tax the impugned sum in the hands of the assessee by invoking the provisions of section 56, read with section 64. Therefore, the order of the Commissioner (Appeals) was to be set aside and the order of the Assessing Officer was to be upheld. [
Peeyush Jain for the Appellant.
ORDER
Per D. Manmohan, Vice-President. - Only ground of the revenue reads as under :
“The learned CIT(A) erred in deleting the addition of10 lakhs being gift received by his two minor sons which does not fall under the definition of ‘relatives’ as per section 56(2)(v) of the Income-tax Act on the ground that Assessing Officer has not consideredExplanation (iv) below clause (v) of sub-section (2) of section 56 which includes the relative as brother and sister of the parents of the individual.”
2. None appeared on behalf of the assessee. We have heard the learned DR and carefully perused the record.
3. Facts in short are that minor children of the assessee received gifts of10 lakhs during the previous year relevant to the assessment year under consideration. A sum of5 lakhs each was received by minor sons viz., Master Devesh Pamnani and Master Ayush Pamnani from Shri Rajesh Sawlani who is the blood brother of the assessee’s mother Smt. Meena Pamnani.
4. According to the Assessing Officer gifts were not received from ‘relatives’ within the meaning of section 56(2)(v) of the Income-tax Act and hence gift amount of10 lakhs was added to the total income of the assessee.
5. On an appeal filed by the assessee, learned CIT(A) set aside the addition by observing as under :
“I have considered the rival submission on the issue and has also carefully considered the finding of the Assessing Officer. I find that Assessing Officer has not appreciated full facts of the case. In fact, Explanation (iv) below clause (v) of sub-section (2) of section 56 includes the relative as “brother or sister of either of the parents of the individual” which means brother or sister of the appellant is a relative. In this case the donor Shri Rajesh Sawlani is the maternal uncle of the appellant who is the blood brother of his mother Smt. Meena Pamnani Therefore, this fact proves that it has been taken from the relatives. In addition to this legal and factual position it is also seen from the bank statement that gifts has been properly depicted/entered in the bank statement. Not only that appellant has also submitted the copy of gift declaration/gift deed dated 9-12-2006 which has been made by Mr. Rajesh Sawlani. Furthermore appellant has also submitted the zerox copy of the passport and visa of Mr. Rajesh Sawlani. All these fact proves the genuineness of claim of gift, hence addition made of10 lakh on account of gift is hereby deleted and Assessing Officer is directed to reduce the assessment.”
6. Aggrieved, revenue is in appeal before us. We have heard the learned DR who strongly supported the Order of the Assessing Officer. On a careful perusal of record, we notice that the learned CIT(A) set aside the addition on a wrong premise that the assessee has received the gift, overlooking the fact that the recipients of the gift are his two sons viz., Master Devesh Pamnani and Master Ayush Pamnani. Section 2(31) defines the expression “person” which includes “individual”. Any human being is an individual, whether a male, female, adult or minor. Income earned by a minor can be assessed to tax in the hands of the minor child provided a minor earns income by virtue of manual work done by him or by carrying on any activity involving application of skill, talent or specialized knowledge and experience (See section 64). This proves beyond doubt that minor is also considered as an ‘individual’ under the Income-tax Act. In this backdrop the language of section 56 has to be looked into. Section 56(2)(v) states that any sum of money, exceeding25,000, received without consideration by an ‘individual’ is assessable to tax under the head “Income from other sources”. Proviso read with Explanations carves out certain exceptions which says that if it is received from a ‘relative’, specified therein, it shall not automatically be taxed under section 56 of the Act. By virtue of sub-clause (iv) of Explanation below section 56(2)(v), “gift received from brother or sister of either of the parents of the individuals” falls outside the ambit of sub-clause (v) of sub-section (2) to section 56 of the Act.
7. In the instant case, with reference to the “donee”, the relationship of the donor cannot fall in the category of grandfather; donee is not even a lineal descendant of the donor which is highlighted with the help of the following chart :
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8. In the instant case, minors having received gift, relationship of the donor should be with reference to the minor who is to be treated as ‘the individual’. With reference to the minor the donor is not a brother or sister of either of the parents and he cannot even be considered as a lineal descendant. Learned CIT(A) therefore, erred in law in assuming that income of the minors being assessable to tax in the hands of the father, by applying deeming provision under section 64 of the Act, he should be considered as an ‘individual’ for the purpose of connecting the relationship with the donor, overlooking the fact that section speaks of the relationship between the donor and the donee and not a deemed assessee. Learned CIT(A) has gone a step further in enthusiastically adding as under :
“2.1. . . . In addition to the legal claim, ld. AR has also submitted the xerox copy of the bank passbook revealing the receipt of gifts and has also submitted the xerox copy of the DD of gift issued by the donor from abroad from the bank account of Asia Exchange Centre, Dubai, UAE of ICICI Bank.”
9. When section 56 of the Act deems a particular receipt as income from other sources, irrespective of the genuineness of the gift, it is difficult to appreciate as to why the learned CIT(A) had given prominence to the availability of copy of passbook and the mode of receipt of the gift etc., though it was neither the case of the assessee nor the case of the Assessing Officer at the assessment stage (since reference to the bona fides of gift is unnecessary for consideration, while applying section 56 of the Act). Suffice to say that the amount of gift received is hit by the provisions of section 56 of the Act and hence the Assessing Officer was justified in bringing to tax the impugned sum in the hands of the assessee by invoking the provisions of section 56, read with section 64, of the Income-tax Act. We therefore set aside the Order of the learned CIT(A) and upheld the Order of the Assessing Officer.
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