Section 87A – Income Tax Rebate

A new section 87A by Finance bill 2013 has been introduced for Income Tax Deduction of Rs. 2000/- for Assessment Year 2014-15.  This rebate can be availed Tax payer/Assessee under section 87A.

The proposed new section 87A seeks to provide that an assessee, being an individual resident in India, whose total income does not exceed Rs. 5,00,000/- , shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under Chapter VIII of the Income-tax Act) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of Rs. 2,000/- whichever is less.

Points:

1.   These amendments will take effect from 1st April, 2014 and will, apply in relation to the assessment year 2014-15 and subsequent assessment years.

2.   Rebate is available  only to individuals

3.   No rebate to Non Resident.

4.   If the total tax payable is less than Rs. 2000/-, rebate is restricted to “total tax payable”.

5.   Rebate benefit is not applicable to a super senior citizen, since he is already fully exempted up to Rs. 5 lakh.

Service Tax Amnesty Scheme (VCES – 2013)

Service tax amnesty scheme (VCES 2013) was introduced in Finance Act, 2013 and is effective from 10th may 2013. Tax payers can pay tax dues from October 1, 2007 to December 31, 2012 without interest and penalty.

Why VCES?

At present about 17 lakh taxpayers are registered under Service Tax. Of these only 7 lakh have been paying the levy; VCES is aimed at encouraging those who haven’t yet started paying service tax promptly.

Features of VCES

Based on Notification no 10 dated 13th May, 2013, circular no 169 dated 13th May, 2013 and circular no 170 dated 8th August, 2013, salient feature of are given below:

Eligibility

A person who was required to pay Service Tax under the Service Tax provisions for the period 1st October 2007 to 31st December, 2012, but remains outstanding as on 1st March, 2013 is eligible to get benefit of the scheme provided the same was not detected by Service Tax Department as on 1st March, 2013.
Scheme is available to people who have already registered under service tax. Those who are not registered can first get themselves registered under Service tax and then apply for amnesty scheme.

Benefits of the Scheme

• No interest to paid for delay in payment. Interest is normally levied up to 18% on delayed payments.
• No penalty will be levied, which normally may go up to 50% of the service tax.
• No matter shall be reopened thereafter in any proceedings under the Act before any authority or court relating to the period covered by such declaration

Payment of Tax Dues declared by the scheme

• 50 % of total dues declared in the declaration filed must be paid on or before 31st December, 2013. Amount paid under the scheme will not be refunded.
• If 50 % amount declared is not paid on or before 31st December, 2013, the declarant cannot get benefit of the scheme, and the amount may be adjusted against his service tax liability.
• Balance 50% is to be paid on or before 30th June, 2014.
• Balance amount, if any, as on 1st July, 2014 is to be paid on or before 31st December, 2014 with 18% interest.
• Balance amount, if any, as on 1st January, 2015 can be recovered by the dept as if it is Service Tax  due but not paid.

Rejection of the Declaration

• The dept may reject the declaration if it feels that the declaration is “substantially false”. In such case, the declarant may be required to revise upward  “Tax Dues” amount stated in the declaration filed by him.
• Otherwise, he may be required to pay Service Tax with Interest and Penalty.

Should you apply for VCES

Given the benefits of no interest and penalty, it is advisable to take the benefit of this scheme. Application should be made at the earliest with complete details in the prescribed format to avoid possibilities of rejection.

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Section 80EE: Additional Interest Deduction on House Property Loan

Finance Minister presented Union Budget 2013-14 in parliament. In the Union Budget 2013-14 a new Section 80EE inserted in Indian Income Tax, 1961 for additional deduction of interest on housing loan. An assessee able to take additional interest deduction on housing loan from Assessment Year 2014-15

Additional Interest deduction on house property loan will be allowed on only to new loan sanctioned for house property. The loan sanctioned for house property does not exceed from 25 lakhs. Loan has been sectioned from 01-04-2013 to 31-03-2014. If the loan has been sanctioned before 01 April, 2013 than assessee not able to take benefit of Section 80EE of India Income Tax, 1961

A Brief Summary:

1. Loan has been sanctioned for house by any financial institutions from 01 April, 2013 to 31 March, 2014.

2. Loan amount sanctioned for acquisitions house property does not exceed Rs. 25 Lacs.

3. There are no other house property on the date of sanction housing loan to assessee.

4. Value of house property not exceed of Rs. 40 lacs.

5. Buyer of house property is the first time buyer.

Note: - This is a brief disclosure on Addition Interest Deduction House Property Loan under Section 80EE and under Section 24 (b) of India Income Tax Act, 1961.

Section 194-IA : TDS on purchase of Immovable Properties

Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land) for value Exceeding Rs.50 Lakhs.

The Finance Bill 2013 has introduced a new section 194-IA providing for TDS @ 1% to be deducted by purchaser. In case valid PAN of seller is not available , tax deduction will be at higher rate of 20%. This amendment is effective from 1st June, 2013. 

For reducing the further compliance burden on the transferee, it is also provided that a simple one 

page challan for payment of TDS would be provided containing details (including PAN) of transferor and transferee  and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one-time transaction. 

The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS. 

The New Payment Challan for TDS requires the Property Purchaser to Furnish following details in the form for payment of TDS :- 

·         Permanent Account No. (PAN) of Transferee (Payer/Buyer) 

·         Permanent Account No. (PAN) of Transferor (Payee/Seller) 

·         Category of PAN of Transferee 

·         Category of PAN of Transferor 

·         Full Name of the Transferee 

·         Full Name of the Transferor 

·         Complete Address of the Transferee 

·         Complete Address of the Transferor 

·         Complete Address of the Property Transferred 

·         Details of amount paid/Credited 

Deposit of tax

Any tax deducted under section 194-IA will be

·         Deposited within 7 days from the end of month in which tax was deducted

·         Deposited by way of Challan-cums-statement in Form 26QB

·         Deposited electronically into RBI/SBI or any authorized bank. Director General of income-tax (Systems) will specify formats , standards and procedure for such electronic remittance

TDS Certificate

·         TDS Certificate in respect deduction under section 194-IA will be issued by deductor in Form No 16B

·         Form 16B has to be issued within 15 days from the due date of depositing tax

·         Form 16B will have to be downloaded from income tax web portal.

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Section 80E : Deduction for Interest on Education loan

Q. Who is eligible for deduction u/s 80E?

A. Loan should be taken by individual for pursuing higher education of self, spouse or his /her Children’s. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children’s education. This deduction is not available to HUF.

Q. What is eligible amount?

A. Only interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax Act, 1961, out of his/her income chargeable to tax i.e. Deduction will be allowed only when actual interest is paid.

Q. How much amount is deductible?

A. There is no limit for amount of repayment of interest. Unlimited amount of interest can be deducted under this section. However there is no benefit available on the repayment of principal amount of the loan. The assesse can claim the amount of interest in the initial assessment year & carry forward up to 7 assessment years.

Deduction is allowed for a continuous period of eight years, starting with initial assessment year in which the assessee  starts paying the interest on the loan or until the interest is paid in full whichever is earlier. 

Q. Can loan be taken for any education?

A. The loan should be taken for the purpose of higher education.

Q. Can higher studies be pursued outside India?

A. There is no condition that the course should be in India.

Q. Can loan be taken from relatives?

A. The loan should be taken from any financial institution or any approved charitable institution. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.


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Public Provident Fund (PPF): The Tax Advantage.

The Public Provident Fund Scheme has introduced by Central Govt. on 1st July 1961. PPF account cannot be opened in joint names or as company. It also prohibits NRI’s from opening an PPF account.

SUBSCRIPTION & FREQUENCY:

·         The minimum amount on has to deposit in financial year is 500/- not paid in instalment & in multiple of Rs. 5/- and the maximum amount on has invest in PPF is Rs. 100000/-** whether in his name or jointly with minors and in a maximum of 12 installments in that financial year.

·         A PPF account will be discontinued if minimum amount of Rs. 500/- not deposited in year but it can be restored with deposit of Rs. 50/- per year of default plus minimum subscription.

·         The account under this scheme can open in any branch of State Bank of India, and its subsidiaries, or in any Head Post Office or any Selected Post Office or any of Nationalized Bank.

TERMS:

·         The term/duration of PPF account is 15 years from the end of financial year in  which the account is opened but can be extended for one or more block of 5 years after 15 years

·         Subscriber can avail the withdrawal facility from the PPF account after the expiry of the 5 financial years from the end of year in which the initial subscription was made by applying in form C.

·         Only one withdrawal in a year is allowed.

TAX BENEFITS:

·         The interest recoverable against loan taken from PPF account shall accrue to the Central Government.

·         U/s 80C of Income Tax Act, 1961 investment in PPF is qualified for deduction. Investment in PPF account earns interest 8% per annum compounded annually.

·         The interest earned in PPF account is tax free U/s 10(11) of the income tax act

·         Deposits credit balance under in PPF account is free of Wealth Tax.

OTHER BENEFITS:

•    Loan can be taken after the expiry of one year from the end of the year in which initial subscription is  made but before expiry of five years from the end of the year in which initial subscription was made. Application for the same has to make in the form D.
•  Loan is allowed up to 25% of balance of PPF account including interest at end of second year immediately preceding the year in which the loan is applied.
• Subscriber can avail the withdrawal facility from the PPF account after the expiry of the 5 financial years from the end of year in which the initial  subscription was made by applying in form C

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Digital Signature (DSC) in India

A Digital Signature (DSC) is an electronic security mark.This certificate ensures that you will not be sending sensitive data to a hacker or imposer site the browser also makes sure the domain name matches the name on the CA and that the CA has been generated by a trusted authority like us. PKI based digital signature(DSC) is cost effective with low price compared to other digital signature in the world. Digital signature reduce paper consumption as well as costs of transmission and storage.

Why is Digital Signature Certificate (DSC) required?

Like physical documents are signed manually, electronic documents, for example e-forms are required to be signed digitally using a Digital Signature Certificate. Transactions that are done using Internet if signed using a Digital Signature certificate (DSC) becomes legally valid.

A Digital Signature Certificate(DSC) is not only a digital equivalent of a hand written signature it adds extra data electronically to any message or a document where it is used to make it more authentic and more secured. Digital Signature ensures that no tampering of data is done once the document has been digitally signed. A DSC is normally valid for 1 or 2 years, after which renewal is required.

What are the types of Digital Signature (DSC) -

• Class2 DSC - For Income Tax Returns e-filing, MCA 21 & ROC, LLP, TDS Certificates, VAT Returns.
• Class 3 DSC - For MCA21, ROC, Income Tax, DGS&D, Northern Railway, IRCTC, e-Tendering, Trade Mark,e-procurement and other departments & organisations. Digital Certificates shall be used to access the website and authenticate the vendors. Vendors like E-Tendering etc. Vendors shall have to procure legally valid Digital Certificate issued by a Licensed Registration Authority (LRA).
• DGFT - For Importers & Exporters.

What is the legal status of a Digital Signature? 

Digital Signatures are legally admissible in a Court of Law, as provided under the provisions of IT.

How much time do CAs take to issue a DSC?

The time taken by Certifying Authorities to issue a DSC may vary from three to seven days.

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INTIMATION U/S 143(1) OF THE INCOME TAX ACT

Finance act 2008, had introduced section 143(1) of the Indian Income tax. This is the new scheme of processing of returns. Suppose if the return is filed within the due date or if the return is not filed and the assessing officer issues notice to the assessee requiring him to file the return of income, then such return of income gets processed under section 143(1).

While processing such returns , following adjustments are made to the total income:
a. Total income is adjusted for any arithmetical mistake in the return or
b. An incorrect claim which they observe from the information given in the return.

Meaning of incorrect claim I am giving as follows:
a. Conflicting data at different places in the return
b. Difference in data specified in the return and the actual documents(evidence)
c. If the deduction claimed by the assessee exceeds the limit specified in the act/rules either in value or in percentage.

After adjusting the income for the above two adjustments( i.e arithmetical mistake and incorrect claim), the adjusted total income is arrived at.
On this adjusted total income, income tax authority calculates the tax which is further adjusted for tax reliefs and taxes already paid. Then the final output is either the tax payable or tax refundable.

We have to interpret the Intimation u/s 143(1) as follows:-

a. If “NET AMOUNT REFUNDABLE” mentioned in Intimation u/s 143(1) letter more than Rs 100, there is a tax refund due from income tax department to tax payer. Refunds amounting less than Rs 100 won’t be refunded. 

b. If “NET AMOUNT DEMAND” mentioned in Intimation u/s 143(1) letter more than Rs 100, there is tax amount due from tax payer. This will be treated as demand notice for the payment of income tax due. This Intimation letter encloses challan form to pay income tax if the due is more than Rs 100.

If “NET AMOUNT REFUNDABLE /NET AMOUNT DEMAND”  is less than Rs 100, you can treat this Intimation u/s 143(1) as completion of income tax returns assessment under Income Tax Act. It can be useful for the proof of Income/ Completion of income tax returns assessment.

Service Tax Applicability For Tour Operator.

Applicability of Service Tax on Tour & Travel Operator

Who is a “Tour Operator” under the Service Tax Laws?

Tour operator means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.

What is the value of taxable service provided by a tour operator?

The value of taxable service provided by a tour operator to a client is the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour.

What are the rates of service tax applicable on various services provided by a tour operator?

S.No.	Taxable Service	Partial abatement/ Composition Scheme	Conditions	Statutory Reference
1	Accommodation booking service	10% of amount charged	1) No CENVAT Credit. 2) Invoice should be inclusive of cost of accommodation	S. No. 11(ii) of Notif. No. 26/2012-ST dt 20.6.12
2	Package tours - wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided as part of the package	Tax is payable on 25% of gross amount charged	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for the tour.	S. No. 11(i) of Notif. No. 26/2012-ST dt 20.6.12
3	Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour.	Tax is payable on 10% of  amount charged	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for such accommodation. 3)  This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.	S. No. 11(ii) of Notif. No. 26/2012-ST dt 20.6.12
4	Tour operator – Other than abovementioned services	Tax is payable on 40% of amount charged.	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for the tour. 3)  The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.	S. No. 11(iii) of Notif. No. 26/2012-ST dt 20.6.12
5	Air Travel Agent	Option to pay service tax at flat rate on ‘basic fare’ @0.6% in case of domestic booking and 1.2% in case of international booking – plus E. Cess	No restriction on availment of CENVAT credit. Option, once exercised, will apply uniformly in respect of all the bookings of passage for travel by air made during the financial year.	Rule 6(7) of Service Tax Rules

Who is an Air Travel Agent? Are his services chargeable to Service Tax?

An “Air Travel Agent” is any person engaged in providing any service connected with the booking of passage for travel by air.

Any service provided or to be provided to any person, by an air travel agent in relation to booking of passage for travel by air is a taxable service.

How is the taxable value of service provided by an air travel agent to be computed? What are the specific inclusions or exclusions?

In case of air travel agent, the value of taxable service is the gross amount charged by such agent from the customer for services in relation to the booking of passage for travel by air, excluding the air fare but including the commission, if any received from airline in relation to such booking.

Thus, the value of taxable services will include the commission received by the travel agent from the airline. However, it will exclude the fare amount collected from the customer.

The air travel agents receive certain commission for domestic and international tickets from the airlines. The details of the commissions payable by the airlines is indicated in the agency agreement entered into between the airline and the air travel agent. The travel agent files a fortnightly return to the airlines indicating the details of tickets booked, fare collected and the commission earned along with other particulars. After adjusting the commission, he remits the balance amount to the airlines. This fortnightly return would be the basis for assessment of Service Tax in respect of air travel agents.

Can the air travel agent pay service tax under any composition scheme?

An option has been given to the air travel agents to pay the Service Tax under the composition scheme as follows:

·         For booking domestic tickets: @ 0.6% of the basic fare

·         For booking international tickets: @ 1.2% of the basic fare

The basic fare is defined as that part of the fare on which commission is payable by the airlines.

E. Cess and S. H. E. Cess @3% of the tax amount determined as above will be payable additionally.

Which are the specified categories of persons, providing services to whom are exempt from service tax?

Services provided to the following persons are fully exempt:

·         United Nations or any such specified International Organization

·         Office of a foreign diplomatic mission or consular post in India

·         Personal use or for the use of family members of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consular post in India

What is the place of provision of passenger transportation services?

The place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey.

What does a “continuous journey” mean?

A “continuous journey” means a journey for which:-

(i)                  a single ticket has been issued for the entire journey; or

(ii)                more than one ticket or invoice has been issued for the journey, by one service provider, or by an agent on behalf of more than one service providers, at the same time, and there is no scheduled stopover in the journey.

What is the meaning of a stopover? Do all stopovers break a continuous journey?

“Stopover” means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time. All stopovers do not cause a break in continuous journey. Only such stopovers will be relevant for which one or more separate tickets are issued. Thus a travel on Delhi-London-New York-London-Delhi on a single ticket with a halt at London on either side, or even both, will be covered by the definition of continuous journey. However if a separate ticket is issued, say New York-Boston-New York, the same will be outside the scope of a continuous journey.

Whether service tax will apply on related fees/charges on journeys starting outside India, even if the transaction for related charges is made in India?

and

Whether service tax will apply on related fee charges on journeys starting in India, even if the transaction for related charges is made outside India?

As per Clarification given in Draft Circular F. No.354 /146/2012 – TRU dated 27.09.2012:

“According to Rule 11 of Place of Provision of Services Rules, 2012, the place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey. Therefore, if place of embarkation of passenger is located within the taxable territory, service tax is leviable on the gross amount payable for such continuous journey, irrespective of where the ticket is booked and where fees/charges are collected. If the place of embarkation of a passenger on a continuous journey falls outside the taxable territory, service tax is not leviable, irrespective of where the tickets are booked and where fees/charges are collected. However, only such charge will be determined under Rule 11 of POP as are directly related to the continuous journey. The POP of other charges will be judged on their own merits.”

However, it is to be noted that as per Rule 8 of Place of Provision for Service Rules, 2012, where the service receiver and service provider are located in the taxable territory, the provision of service would be the location of service receiver irrespective of where the service is performed, delivered or consumed.

For determining “location of service” as above, if the service recipient has obtained service tax registration, it is the registered premises of the service receiver. However, if the service receiver is not registered under service tax, his location will be determined as follows:

1.       Location of business establishment

2.       Location of fixed establishment

3.       Where services are used at more than one establishment, the establishment most directly concerned with the use of service

4.       In the absence of above, the usual place of residence.

GIFT RECEIVED FROM HUF IS NOT TAXABLE

GIFT RECEIVED FROM HUF IS NOT TAXABLE

Rajkot Bench of ITAT in the case of  Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot has discussed the  controversial issue of taxability of gifts from HUF to its members. The issues taken up were 

1.    Whether a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under provisions of section 56(2)(vi)?

Answer: Held, yes.

2.    Whether HUF is a group of relatives and therefore, gift received from HUF would be exempt from tax under section 56(2)(vi)?

Answer: Held, yes

3.    Whether for getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive sum out of income of such HUF, may it be income of earlier year?

Answer: Held, yes

4.    Whether where assessee was a member of HUF and received gift from HUF which was out of income of family and there was no material on record to show that gift amount was part of any assets of HUF, same would be exempt under section 10(2)?

Answer: Held, yes

Fact of the case: During the course of assessment proceedings the Assessing Officer noticed that the assessee had accepted gift of Rs. 60 lakhs from HUF and the Assessing Officer was of the view that HUF is not covered in the definition of 'relative'. Therefore, the gift received from the HUF was held to be taxable. The Commissioner (Appeals) confirmed the view of the Assessing Officer that the sum 'relative' is defined in Explanation to proviso to clause (v) of sub-section (2) of section 56. He further observed that if the legislature wanted that money exceeding Rs. 25,000 is received by the member of the HUF from the HUF is also not chargeable to tax, it would have specifically mentioned so in the definition in 'relatives'. He also considered the alternative submissions of the assessee that the said gift was exempt under section 10(2). He observed that under section 10(2) if the sum is received by any coparcener of HUF on partial or total division is exempt. The case under consideration was not a case that the said amount of Rs. 60 lakhs received by way of total or partial partition of the HUF. The Commissioner (Appeals) further observed that the above section speaks about sum received by a member of HUF if the same is out of income of the estate belonging to the family. If    section 10(2) is read with section 64(2) what is to be seen is that sum received by a member of the HUF from the income of the HUF cannot exceed the amount which can be apportioned to his share in the estate or property or asset of the HUF. The Commissioner (Appeals) held that the assessee had failed to make out a case either before the Assessing Officer or before him to prove and to establish that Rs. 60 lakhs received from HUF was equal to or less than the income, which could be apportioned to his share of income in the HUF.

On second appeal :

HELD

Gift received from HUF is a gift receive from relative

A Hindu Undivided Family is a person within the meaning of section 2(31) and is a distinctively assessable unit under the Act. The Income-tax Act does not define expression 'Hindu Undivided Family'. It is well defined area under the Hindu Law which has received recognition throughout. Therefore, the expression 'Hindu Undivided Family' must be construed in the sense in which it is understood under the Hindu Law as has been in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 (SC). Actually a 'Hindu Undivided Family' constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of 'relative' as provided in Explanation to clause (vi) of section 56(2). The observation of the Commissioner (Appeals) that HUF was as good as 'a body of individuals' and could not be termed as 'relative' was not acceptable. Rather, an HUF is 'a group of relatives'. Now having found that an HUF is 'a group of relatives', the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the 'group of relatives' from the HUF not exempt from taxation. To better appreciate and understand the situation, it would be appropriate to illustrate an example, thus - an employee amongst the staff members of an office retires and in token of their affection and affinity towards him, the secretary of the staff club on behalf of the members of the club presents the retiring employee with a gift could that gift presented by the secretary of the staff club on behalf of the staff club be termed as a gift from the secretary of the staff club alone and not from all the members of the club, as such? Answer to this quoted example would be that the gift presented by the secretary of the club represents the gift given by him on behalf of the members of the staff club and it is the collective gift from all the members of the club and not the secretary in his individual capacity. And if it is held otherwise, it will lead to an absurdity of interpretation which is not acceptable in interpretation of statutes.

Further, from a plain reading of section 56(2)(vi ) along with the Explanation to that section and on understanding the intention of the legislature from the section, it could be seen that a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) as a group of relatives also falls within the Explanation to section 56(2)(vi). It is not expressly defined in the Explanation that the word 'relative' represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case on hand. In the instant case the assessee received gift from his HUF. The word 'Hindu Undivided Family', though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a 'Hindu Undivided Family' is made up of 'a group of relatives'. Thus, a singular words/words could be read as plural also, according to the circumstance/situation. To quote an example, the phrase 'a lot'. Here, the phrase 'a lot' remains as such, i.e., plural, in all circumstances and situations, where in the case of 'one of the friends' or 'one of the relatives', the phrase remains singular only as the phrase states so that one amongst the relatives and at no stretch of imagination it could mean as plural whereas in the phrase 'a lot' the words 'a' and 'lot' are inseparable and if split apart both give distinctive numbers, i.e. 'a' singular and 'lot' plural and whereas when read together, it can only read as plural in number unlike in the case of    'one of the relatives' where 'one' is always singular in number whereas 'relatives' is always plural in number, but when read together it could read as singular in number. Applying this description with the case on hand, it could be said that though for taxation purpose, an HUF is considered as a single unit, rather, an HUF is 'a group of relatives' as it is formed by the relatives. Therefore, the 'relative' explained in Explanation to section 56(2)(vi) includes 'relatives' and as the assessee received gift from his 'HUF', which is 'a group of relatives', the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the 'relatives' therefore the same was not taxable under section 56(2)(vi ).

Section 10(2) exemption in case of gift from HUF

Section 10(2) provides that tax shall not be payable by an assessee in respect of any sum which he receives from a member of Hindu Undivided Family and as the sum has been paid out of the family income, or in the case of an impartible estate, whose such sum has been paid out of the income of the estate belonging to the family, subject however, to the provisions of section 64(2). The object of the provision is that a Hindu Undivided Family, according to section 2(31) is a 'person' and a unit of assessment. Income earned by a HUF is assessable in its own hands, so as to avoid double taxation of one and same income once in the hands of the HUF which earns it, and again in the hands of the member whom, it is paid. In respect of the family property qua its members it has been held by various authorities and courts that there is an antecedent title of some kind of a Member in the properties of HUF and a family arrangement which merely acknowledges and defines how that title is looked at and it is not an alienation of property at all. But even if it should be regarded as a transfer, the object of avoiding family litigation is consideration in money's worth. The real consideration in a family arrangement is based upon a recognition of a pre-existing right hence, there is no transfer of property at all. The Apex Court in CGT v. N.S. Getti Chettiar [1971] 82 ITR 599based its observation on that ground in a case of unequal family partition and held that it is not transfer, hence no gift tax liability is attracted. Every member of the HUF has a claim as to his maintenance. Receiving anything in consideration of his pre-existing right in a property or income covers by section 10(2).

There are two ways involved in a transaction, i.e., (i) amount given and (ii) the amount received. If one relate the provisions of Income-tax Act to these ways of 'given' and 'received' in case of an HUF it could be said that the case of amount received by an HUF from its member is provided in section 64(2). Section 64(2) was inserted by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971. This section was inserted to avoid creation of multiple HUFs and others. Similar provisions was also inserted in the Gift-tax Act, 1958 and accordingly transfer of assets in such case was termed as deemed gift. The provisions of section 64(2) provides that - where in the case of an individual being a member of a Hindu Undivided Family, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration then, notwithstanding anything contained in any other provisions of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act. The individual shall be deemed to have transferred the converted property, though the family, to the members of the family for being held by them jointly. The income derived from the concerted property or any part thereof shall be deemed to arise to the individual and not to the family. Where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly. To cover the transaction between a member of HUF and the HUF the Income-tax Act provides section 10(2) and section 64(2). Section 10(2) is not similar to section 64(2). It deals with the transaction differently which would mean that the legislature in their own wisdom was aware about the circumstances and accordingly provisions are enacted in the Act. Therefore, in our opinion, both the situation of amount received and amount given to HUF by a member is to be dealt with accordingly. 

Firstly, there is no provision in the Act to contend that it is applicable only to the extend of income of the year. Secondly, the property or the income of HUF belongs to the members thereof who are either entitled to share in the property on partition or have a right to be maintained. For getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive the sum out of the income of such HUF may be of earlier year.

The assessee received gift from HUF and had satisfied both the conditions of section 10(2) that the assessee was a member of HUF and received amount out of the income of family. There was no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same was exempt under section 10(2). 

Exemption of any sum or property received by a HUF from its members [ Section 56(2)(vii)] [W.e.f. 1.10.2009]

The definition of relative as given in section 56(2)(vii) is only in relation to an individual and not in relation to a HUF. It is therefore proposed to amend the provisions of section 56 so as to provide that any sum or property received without consideration or inadequate consideration by a HUF from its members would also be excluded from taxation.