The assessee received a gift of Rs.5,90,000/- from his ‘HUF’. The AO  held that since the amount of said gift was more than Rs.50,000/-, hence, the same was exigible to tax as ‘income from other sources’ under S  56(2)(vii) of the Act.

Subsequently, in course of reassessment proceedings, assessee submitted that ‘HUF’ being a group of relatives, hence, the gift by the’ ‘HUF’ to an individual is nothing but a gift from group of relatives and as per the exclusion clause 56(2)(vii) a gift from relative was not exigible to taxation. The AO accepted the contentions raised by the assessee and accordingly assessed the income of the assessee at the returned income. CIT set aside the order passed by the AO and held that the ‘HUF’ did not fall in the definition of relative in case of an ‘individual’ as provided in Explanation to clause (vii) to section 56(2) as substituted by Finance Act, 2012 with retrospective effect from 1-10-2009. That though, the definition of a relative in case of a ‘HUF’ was extended to include any member of the ‘HUF’, yet, in the said extended definition, the converse case was not included that is to say in the case of individual, the ‘HUF’ had not been mentioned in the list of relatives. The Commissioner thus formed a view that though a gift from a member thereof to the ‘HUF’ was not exigible to taxation as per the provisions of section 56(2)(vii), however, a gift by the ‘HUF’ to a member exceeding a sum of Rs.50,000/- was taxable. Accordingly set aside the order of the AO and directed the AO to make assessment afresh. On appeal the Tribunal held that the property of the ‘HUF’ neither cannot be said to belong to a third person nor can be said to be in ‘corporate entity’, rather, the same is the property of the members of the family. It is because that the share of each of the individual member in the property or income of the ‘HUF’ is not determinate, hence, the family, as such, is treated as separate entity for taxation purposes. ‘HUF’ otherwise is not recognized as a separate juristic person distinct from the members who constitute it. A member of the ‘HUF’ has a pre-existing right in the family properties. A Coparcener has a pre-existing right and interest in the property and can demand partition also, however, the other members of the ‘HUF’ have right to be maintained out of the ‘HUF’ property. On division, the share in the estate/capital of the ‘HUF’ cannot be treated as income of the recipient, rather, the same will be a capital receipt in his hands. Accordingly the amount received by the assessee from the ‘HUF’, being its member, it is a capital receipt in his hands and is not exigible to tax. (AY. 2011 – 12)