| Question And Answer | |
|---|---|
| Subject: | Section 56(2)(x) |
| Category: | Income-Tax |
| Querist: | Vivek Goel |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | private discretionary trust, section 56(2)(x) |
| Date: | April 22, 2022 |
An individual settles his property to a private discretionary trust which has beneficiary as his brothers, brothers’ wife, brothers’ children and their spouses and their children.
Since all the persons do not come within the definition of relative as defined in explanation to 56(2)(vii) , it may not be covered by the exception provided by proviso (X) to 56(2)(x).
Question is, it being a discretionary trust where the individual shares are not defined, will section 56(2)(x) apply? If applied then how will one compute taxable part?
No, the discretionary trust will not be granted exemption from provisions of section 56(2)(x) of the Income-tax Act, 1961 (Act), as the share of the beneficiaries are discretionary and beneficiaries include individuals who aren’t “relatives” as per the Act.
Reference can be drawn to the decision of the Hon’ble ITAT Rajkot Bench in the case of Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 12 ITR(T) 616 (Rajkot) held 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 provisions of section 56(2)(vi) of the Act and that an HUF is a group of relatives and therefore, gift received from HUF would be exempt from tax under section 56(2)(vi) of the Act.
Further, The Hon’ble ITAT Mumbai Bench in the case of Shri Hemal D. Shah v. DCIT ITA No. 2627/Mum/2015 dated March 08, 2017 for Assessment Year 2010-11, has relied on the above decision of Harshabhai Dahyalal Vaidhya (HUF), inter alia, considering disallowed receipts in the hands of the assessee as some of the members of the HUF (cousins of the assessee) were not within the definition of relative under the scheme of 56(2)(x) of the Act.