Gifts received by HUF from Aliens / Strangers

 

Further, HUF can also receive gifts from any alien stranger. However, In this regard, it is pertinent to note that till the enactment of Section 56(2) gifts were exempt from any tax in hands of the donor as well as the donee. However, Section 56(2) (v) was introduced in the statute books w.e.f 1.4.2005 and reads as under:

 

Section 56(2) - In particular and without prejudice to the generality of the provisions of sub-section (1), the following income shall be chargeable to income-tax under the head “Income from other sources” namely:

 

(v)        where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, but before the 1st day of April, 2006 the whole of such sum:


Provided that this clause shall not apply to any sum of money received—


(a)       from any relative; or
(b)       on the occasion of the marriage of the individual; or
(c)        under a will or by way of inheritance; or

(d)       in contemplation of death of the payer.

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).]

 

The above provisions of Section 56(2)(v) were operative only upto 31s1 March,2006 and from 1st April,2006 a new sub-clause (vi) was added in Section 56(2) which reads as follows:

 

Section 56(2) (vi) - Where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 [but before the 1st day of October, 2009], the whole of the aggregate value of such sum:


Provided that this clause shall not apply to any sum of money received —


(a)       from any relative; or
(b)       on the occasion of the marriage of the individual; or
(c)        under a will or by way of inheritance; or
(d)       in contemplation of death of the payer; or
(e)       from any local authority as defined iii the Explanation to clause (20) of section 10; or
(f)        from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g)       from any trust or institution registered under section 12AA.


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)


Thus, in view of the above it is important to keep in mind that the gifts which are received by HUF must be exempt u/s 56(2) (vi) of the Income- tax Act, 1961, otherwise tax liability may arise.


In order to so plan this, the following things must be kept in mind:-


The proviso to Section 56(2) (vi) exempts the following types of gifts from being treated as income:

 

1.   Gift from any relative is exempt. Further, explanation to this proviso defines the word relative by referring to individuals. Therefore ordinarily speaking, the HUF seems to have been excluded from this clause as there cannot be any relative of a HUF. However, the extended meaning of this clause can be taken to mean that the relatives of members of HUF are covered by this clause and therefore any gift from any relative of a member to HUF is exempt in the hands of the HUF. However, this is a very liberal and extended meaning which must not be taken in view of the fact that huge tax liability may entail upon the HUF. It is only a matter of time before the Courts of law settle this controversy.in this regard, it is pertinent to refer to the decision in the case of Goli Eswariah vs CGT (1970) 2 SCC 390 [=(170) 76 ITR 675 wherein the Apex court held that when a coparcener throws is separate property into the common stock, he makes no gift under Chapter VII of the Transfer of Property Act. In such a case there is no donor or donee.

 

2.   Secondly, gifts on the occasion of the marriage of the individual is exempt in the hands of individual without any limit. This being not applicable to HUF is not discussed here.

 

3.   Thirdly, gifts under a will or by inheritance are exempt under this clause and therefore, if a HUF receives any gift by a will of any person, the same is exempt without any limit. HUF may not ordinarily receive any gift by inheritance as such and therefore, the clause is not applicable in the case of HUF.

 

4.         Fourthly, gifts in contemplation of death can be received by HUF in case a person makes such a gift.

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