CHANDIGARH TRIBUNAL

SANJAY GARG, JM & ANNAPURNA GUPTA, AM.

ITA No. 773/CHD/2018

17 Jul, 2019

(2019) 56 CCH 0367 ChdTrib

Legislation Referred to

Section 56(2)(vii)

Case pertains to

Asst. Year 2011 – 12

Decision in favour of:

Assessee

Income ift from HUF—Capital Receipt—Assessee filed return of income which was assessed by AO without making any additions—Subsequently, AO reopened assessment u/s 147 r/w s. 148 on ground that assessee during year under consideration had received a gift from his HUF—AO held that since amount of said gift was more than Rs. 50, 000/-, hence, same was exigible to tax as ‘income from other sources’ u/s 56(2)(vii)—Assessee relied upon decision of Tribunal in case of Vineetkumar Raghavjibhai Bhalodia vs ITO wherein, it was held that gift by HUF to an individual was nothing but a gift from group of relatives and further as per exclusion clause 56(2)(vii), a gift from relative was not exigible to taxation, hence, gift received by assessee from HUF was not taxable—Accordingly, AO assessed income of assessee at returned income—However, subsequently, PCIT invoking his jurisdiction u/s 263, set aside AO’s order and held that ‘HUF’ does not fall in definition of relative in case of an ‘individual’ as provided in Explanation to clause (vii) to s. 56(2) as substituted by Finance Act, 2012 with retrospective effect from 1.10.2009—PCIT formed a view that though a gift from a member thereof to ‘HUF’ was not exigible to taxation as per provisions of s. 56(2)(vii) however, a gift by ‘HUF’ to a member exceeding a sum of Rs. 50,000 /- was taxable—Thus, AO made a mistake in not taking recourse to clear and unambiguous provisions of s. 56(2)(vii) and hence, AO was directed to make assessment afresh—Held, PCIT in impugned order passed u/s 263, however, held that word ‘paid out’ means that sum must be paid out either in return of ‘goods’ or ‘services’ or that same must be for some consideration—Such an interpretation by PCIT of s. 10(2) was wholly misconceived—There was no rebuttal or denial either in AO’s order or in order of PCIT in respect of contention of assessee that amount in question was received out of income of HUF—In view of this, assessee, otherwise, was entitled to exemption u/s 10(2)— As per provisions of s. 10(2), any sum received by an individual, as a member of ‘HUF’, which has been paid out of income of family or out of income of estate of family was not exigible to taxation—Said exemption was given on pattern of a partnership firm to avoid double taxation of same amount—’HUF’ or other members of ‘HUF’ do not have any pre-existing right in self-acquired property of a member—If such an individual member throws his own/self-earned or self-acquired property in common pool, it would be an income of ‘HUF’, however, same would be exempt from taxation as individual members of an ‘HUF’ have been included in meaning of ‘relative’ as provided in explanation to s. 56(2)(vii)—It was because of this salient feature of HUF that in case of individual, HUF had not been included in definition of relative in explanation to s. 56(2)(vii) as it was not so required whereas in case of HUF, members of HUF find mention in definition of ‘relative’ for purpose of said section—Amount received by assessee from ‘HUF’, being its member, was a capital receipt in his hands and was not exigible to income tax—Assessee’s appeal allowed.

The issue was examined by the Assessing Officer and he accepted the returned income holding that the gift received from ‘HUF’ was not exigible to tax by relying upon the decisions of Tribunal in the case of Vineetkumar Raghavjibhai Bhalodia vs ITO and in Mr. Biravelli Bhaskar vs ITO. The decisions of the higher judicial authorities were binding upon the Assessing Officer and the Assessing Officer accordingly followed the same. In view of this, the Assessing Officer took a possible view in the light of the direct judicial decisions on the issue. Under the circumstances, the order of the Assessing Officer cannot be said to be erroneous. The Supreme Court in the case of Malabar Industries Co. Ltd. vs CIT has held that for exercise of jurisdiction by the Commissioner u/s 263 of the Act, pre-requisite condition is that the order of the Income Tax officer is erroneous in so far as it is prejudicial to the interest of Revenue. Thus, the Commissioner has to be satisfied if the twin conditions namely (i) the order of the Assessing Officer sought to be revised is erroneous and; (ii) it is prejudicial to the interest of Revenue. The Supreme Court has further held that if one out of the said twin conditions is absent, the recourse cannot be had to section 263(1) of the Act by the Commissioner. Since the Assessing Officer had duly applied his mind to the issue and followed the decisions of the higher judicial authorities i.e., Coordinate Benches of the Tribunal, hence, in the light of the decision of the Supreme Court in the case of ‘Malabar Industries Co. Ltd. vs CIT’, the order of the Assessing Officer cannot be held to be erroneous and, therefore, the PCIT wrongly exercised jurisdiction u/s 263 of the Act and the same cannot be held to be justified. The order of the PCIT is liable to be set aside on this score alone.