Gift received by an HUF from uncle of Karta of such HUF shall be not be taxable in the hands of HUF:

AO made an addition in the hands of the assessee-HUF in respect of sum introduced by Karta of the HUF during AY 2005-06. The said addition was made since he was of the view that HUF can’t have any relatives and hence, sum received by HUF from its Karta is to be taxed as gift u/s 56(2). Hon’ble ITAT observed that the Karta of the HUF had received a gift from his uncle (brother of his father). It was an undisputed fact that the said gift was accepted by the donee as Karta of the HUF. Hon’ble ITAT was of the view that HUF is basically “a group of relatives”. It was further observed that for the purpose of S.56(2)(vii) introduced w.e.f. 01/10/09, “Relative” in case of HUF includes “any member thereof”. Considering the aforesaid scenario, it was held that the assessee-HUF had received gift from a relative who is uncle of Karta of the assessee-HUF (i.e. “Brother or sister of either of the parents of an individual). Hence, the gift was not chargeable in the hands of the assessee-HUF.

Note: Hon’ble ITAT has, in the case, treated uncle of Karta of assessee-HUF as relative of HUF by adopting liberal interpretation. However, in case of a gift received by any HUF after 01/10/09 from any person other than member of such HUF shall be taxable in light of Explanation to S.56(2)(vii) according to which only “Members” of HUF are considered to be relatives of an HUF.

[HARSHADBHAI DAHYALAL VAIDHYA HUF Vs. ITO – ITA No.1527/Ahd/2010]