GIFTS RECEIVED BY THE ASSESSEE FROM HIS PARENTS

[Mr. M. GOVINDARAJAN]

The Gift Tax Law has been abolished and erstwhile law was of taxing the person who has made gifts. The person making the gift has not to pay any Income Tax at all irrespective of the quantum of the gift.   It is the recipient of the gifts who alone is called upon to make payment of the tax in respect of the gifts received by him.

Section 56 of Income Tax Act, 1961 provides that if an individual/HUF receives from any person or persons any gift, exceeding ₹ 50000 in any previous year, the aggregate amount shall be taxable as Income From Other Sources in the hands of individual or HUF.  However gifts of any amount received from or given to any relatives - parents, spouse, and spouse’s brothers and sisters, brothers and sisters of parents and spouse’s lineal descendants are entirely tax-free.

In case of gift from parents the assessee is to prove the same with documents.  Otherwise the said amount will be added to the income of the assessee.  The Assessing Officer is to consider all the submissions and documentary evidences put forth in this regard by the assessee.

In ‘Rajarun Sadasivan v. The Income Tax Officer, Non Corporate Ward – 2(3), Chennai’ – 2020 (11) TMI 298 – ITAT, Chennai,  the assessee and his parents were partners in a partnership firm doing the business of real estate in the name Vedic Partners.  The assessee received gift ₹ 5 lakhs from his parents each. 

The   Assessing Officer recognizes that the origin or the source is the bank withdrawal of the assessee.  The said amount was given to the firm and from the firm, amount was given to him by his parents.  The Assessing Officer observed that the assessee did not satisfactorily explain the nature of the payments made to the firm. The Assessing Officer added the same to the income of the assessee.  The assessee filed appeal before the Commissioner (Appeals) who upheld the assessment made by the Assessing Officer.  Against the order of Commissioner (Appeals), the present appeal has been filed by the appellant before the Appellate Tribunal.

The appellant submitted the following before the Appellate Tribunal-

• The returns copy of the partnership firms shows the capital account of the assessee and his parents, wherein the gift of ₹ 5 lakhs each to the assessee has been recorded.
• The capital account of the assessee also records the gift he has received from his parents.
• The assessee had deposited the amount of ₹ 10 lakhs on three dates being ₹ 5 lakhs on 02.08.2013, ₹ 1 lakh on 06.08.2013 and ₹ 4 lakhs on 24.01.2014.
• The amounts were withdrawn from the bank account of the partnership firm on four dates being ₹ 2 lakhs on 15.06.2013, another ₹ 2 lakhs on 02.07.2013, ₹ 5 lakhs on 12.07.2013 and ₹ 1.5 lakhs on 08.08.2013.
• The said withdrawals were duly debited to the capital account of the two partners, who had gifted the amount to the assessee. 
• The Assessing Officer had disbelieved the claim of the assessee and made the addition.
• The Commissioner (Appeals) had dismissed the assessee’s appeal by holding that the gift was against human probabilities.
• The gift received by the assessee has been recorded in the accounts of the partnership firm. 
• The amounts have been reduced from the capital accounts of the partners.
•  The withdrawal of the money from the bank account was also not been disputed and the deposit in the assessee’s account was after the date of withdrawal from the bank account of the firm.
• The addition made by the Assessing Officer and confirmed by the Commissioner (Appeal) was liable to be deleted.

The Department contended the following before the Appellate Tribunal-

• There was absolutely no correlation between the dates of withdrawal of money and the payment of cash. 
• As recorded by the Assessing Officer, there were no entries in the cash book of the firm.
• No evidence has been produced to show that the assessee had actually received the said gifts from the parents. 
• The said amount of ₹ 10 lakhs is actually the unexplained cash of the assessee and the same had been rightly added by the Assessing Officer and confirmed by the Commissioner (Appeals).

The Appellate Tribunal considered the submissions placed before the Appellate Tribunal by the appellant and the Department.   The Appellate Tribunal observed the following contradictions in the assessment order-

•  The assessment order shows that in para 6.6, the Assessing Officer recognizes that the origin or the source is the bank withdrawal of the assessee. It was stated that the same were given to the firm and from the firm, amount was given to him by his parents. In sub-para (ii), the Assessing Officer says that the assessee did not satisfactorily explain the nature of the payments made to the firm. In sub-para (ii), the Assessing Officer further questions that when cash gift is made, there must be physical movement of funds, whereas in the present case there is only a mere book entry. This para is in contradiction to sub-para (i). 
•  In sub-para (iii), the Assessing Officer questions when the assessee has enough balance in his cash book, why he needed to channelize a lump sum payment of ₹ 5 lakhs to the firm on one day and the firm pays the same in the form of gift through another partner. This sub-para again is a contradiction to the earlier sub-paras.
• . In sub-para (iv), the Assessing Officer questions the routing of the funds to the firm and further goes on to say that there would be payment entry of cash to the partners from the firm’s cash book. Again there is contradiction. 

The Appellate Tribunal observed that the assessment order clearly shows that the deposits are much after the dates of withdrawals.  It is the evidence of the physical movement of funds that is being questioned by the Assessing Officer.    The fact that the amounts have been withdrawn and nothing has been found to show that these funds which had been withdrawn had been used for any other purpose, the claim of the assessee that these funds have been gifted to him from his parents cannot be doubted.

The Appellate Tribunal held that the gifts of ₹ 5 lakhs each received by the assessee from his parents are actually the withdrawals made by the parents from the partnership firm Vedic Partner.