Pranav B Prem

In a significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that step-siblings are considered "relatives" under Section 56(2) of the Income Tax Act. Consequently, gifts received from step-siblings cannot be taxed as "income from other sources."

Background of the Case

The appeal was filed by Mr. Rabin Arup Mukerjea against the order passed by the Commissioner of Income Tax (Appeals)-57, Mumbai, concerning the assessment year 2016-17. The primary contention revolved around whether the gift received by the assessee from his step-sister, Ms. Vidhie Mukerjea, could be taxed under Section 56(2)(vii) of the Income Tax Act. The assessee, a non-resident Indian, had not filed any return of income in India as he did not have any income or source in the country. The case arose when the assessee applied under Section 197 for a lower deduction of tax concerning the sale of a property received as a gift from his step-sister through a registered gift deed dated January 21, 2016.

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Relationship Between the Parties

The Tribunal noted the complex family structure: Ms. Vidhie Mukerjea is the daughter of Ms. Indrani Mukerjea from her first husband, Mr. Sanjeev Khanna, while Mr. Rabin Mukerjea is the son of Mr. Peter Mukerjea from his first wife, Mrs. Shabnam Singh. After the marriage of Ms. Indrani Mukerjea and Mr. Peter Mukerjea, Vidhie and Rabin became step-siblings. The property in question, located at Flat No. 80, Marlow, Worli, Mumbai, was originally gifted to Ms. Vidhie Mukerjea by her stepfather, Mr. Peter Mukerjea. Subsequently, Ms. Vidhie Mukerjea gifted the property to Mr. Rabin Mukerjea through a registered gift deed.

Arguments by the Assessing Officer (AO)

The AO contended that the term "relative" under Section 56(2) of the Income Tax Act does not explicitly include step-siblings. According to the AO, since there was no biological connection between the donor and the donee, the gift was taxable as income from other sources. The AO relied on the absence of any express inclusion of step-siblings within the definition of "brother" and "sister" under the Income Tax Act. The AO issued a notice under Section 148, asserting that the value of the gifted property amounting to Rs. 7,50,68,525/- had escaped assessment and should be taxed.

Findings of the ITAT

The Tribunal rejected the AO's narrow interpretation of "relative." It emphasized that the term "brother" and "sister" under Section 56(2) should include step-siblings. The Tribunal highlighted the concept of "affinity," which legally recognizes relationships formed by marriage. Referring to the Black's Law Dictionary, the Tribunal observed that: "Affinity is the tie arising from marriage between the husband and the blood relations of the wife, and vice versa."

The Tribunal also drew attention to various legal provisions from other statutes to support its conclusion:

1. Section 2(15B) of the Income Tax Act defines "child" to include a stepchild.

2. Section 45S of the Reserve Bank of India Act, 1934 lists "step-brother and step-sister" as relatives.

3. Section 2(77) of the Companies Act, 2013 explicitly includes step-siblings in the definition of "relative."

The Tribunal further reasoned that there are five categories of brother-sister relationships:

1. Uterine siblings (sharing the same mother)

2. Consanguine siblings (sharing the same father)

3. Germane siblings (sharing both parents)

4. Step-siblings (connected through the marriage of parents)

5. Adopted siblings (legal relationship through adoption)

The ITAT held that in the absence of any restrictive definition under the Income Tax Act, step-siblings should be included within the ordinary meaning of "brother and sister." Thus, the gift given by Ms. Vidhie Mukerjea to Mr. Rabin Mukerjea fell within the ambit of "relative," making it exempt under Section 56(2).

Key Observations by the ITAT

The Tribunal made the following crucial observations:

1. Broad Interpretation of "Relative": The term "brother and sister" is not confined to biological siblings but includes step-siblings due to the relationship of affinity arising from the marriage of their parents.

2. Legal Precedents and Definitions: The Tribunal relied on other statutory definitions where step-siblings are considered relatives, and no negative covenant under the Income Tax Act excludes such a relationship.

3. Deletion of Addition: Based on the above reasoning, the ITAT deleted the addition of Rs. 7,50,68,525/- made by the AO and held that the gift was not taxable under Section 56(2).

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Verdict

The ITAT's decision clarifies a significant aspect of the Income Tax Act by recognizing step-siblings as "relatives" under Section 56(2).  The Tribunal allowed the appeal in favor of Mr. Rabin Mukerjea, holding that the gift received from his step-sister was not taxable as income from other sources.

Appearance:

Assessee by: Shri Ashok Rao /Shri Manoj Raghani

Revenue by: Shri Krishna Kumar, Sr. DR

Cause Title: Rabin Arup Mukerjea V. ITO

Case No: ITA No.5884/Mum/2024

Coram: Amit Shukla [Memeber (Judicial)], Amarjith Singh [Member (Accountant)]

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