Step-Sibling is a ‘Relatives’ Under Section 56(2)(vii) – Tax Exemption available: ITAT

 

The primary issue in this case revolved around whether a step-sibling qualifies as a “relative” under Section 56(2)(vii) of the Income Tax Act, 1961. The Assessing Officer (AO) had reopened the assessment under Section 147/148, alleging that the property gifted to the assessee by his step-sister was taxable as income from other sources since step-siblings were not considered “relatives” under the said section.

The Tribunal extensively analyzed the definition of “relative” and noted that while the Income Tax Act does not explicitly define step-siblings as “brother and sister,” the term must be interpreted in accordance with common law principles. Referring to Black’s Law Dictionary, the ITAT observed that the term “relative” includes persons connected by affinity, which refers to relationships formed through marriage. Since step-siblings are connected by their parents’ marriage, they are related by affinity and thus fall within the broader understanding of “brother and sister.”

The Tribunal also examined definitions from other legal frameworks, such as the RBI Act and the Companies Act, both of which explicitly recognize step-siblings as relatives. Relying on these references, the ITAT concluded that step-siblings should be treated as “brother and sister” under Section 56(2)(vii). Consequently, the gift received by Mr. Rabin Mukerjea from his step-sister, Ms. Vidhie Mukerjea, was deemed exempt from tax as a gift from a relative.

Since the Tribunal deleted the addition on merits, the objections raised regarding the validity of reassessment proceedings under Section 148 were treated as academic. In conclusion, the ITAT allowed the appeal, confirming that the gift received by the assessee was not taxable and ordering the deletion of the ₹7.5 crore addition.

The Copy Of the order is as under:

1742548610-CAV6rB-1-TO