Kolkata ITAT: HUF Can Be Donee But Not Donor; Exemption Denied on ₹5.84 Lakh Gift Claimed From HUF
Sangeetha Prathap
The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held that a Hindu Undivided Family (HUF) can legally act only as a donee and not as a donor. Since the definition of “person” under Section 2(31) of the Income Tax Act treats an HUF as a separate taxable entity distinct from an individual, and because the source of funds gifted was not properly substantiated, the Tribunal refused to grant exemption for a gift of ₹5.84 lakh claimed to have been received from an HUF.
The assessee had claimed that the amount was gifted by an HUF in which her husband was the Karta. However, the Tribunal observed that under the Explanation to Section 56(2)(vii), an HUF does not qualify as a “relative” for purposes of gifting to an individual. The Bench further held that the Karta does not enjoy the unrestricted right to alienate or gift the assets of the HUF, and gifts can be made only for limited purposes such as pious obligations or legal necessities. Members of an HUF may give gifts from their self-acquired assets to other members, but the HUF itself cannot be treated as a donor for the purposes of Section 56(2)(vii).
The Division Bench consisting of Sonjoy Sarma (Judicial Member) and Sanjay Awasthi (Accountant Member) considered the legislative history and relied on the Ahmedabad ITAT ruling in Gyanchand M. Bardia, emphasising that the Finance Act, 2012 had retrospectively amended the law with effect from October 1, 2009, clearly limiting the role of an HUF to that of a donee. If the intent of the legislature had been to treat the HUF as a donor also, it would have explicitly stated so.
On the alternative argument that the amount should be exempt under Section 10(2), the Tribunal noted that the provision can apply if — and only if — the assessee proves that she is a member of the HUF and that the amount received represents her share of the HUF’s income. Since no fact-finding had been conducted on these aspects and the constitution of the HUF or source of funds was never established, the Tribunal remanded the issue to the Assessing Officer for fresh examination.
With respect to the addition of ₹96,000 towards miscellaneous gifts, the Tribunal noted that the assessee had already offered the amount to tax as “income from other sources.” In such a situation, treating it under Section 68 would not materially benefit the revenue, and therefore no further adjudication was necessary. Accordingly, the assessee succeeded on this point.
On the allegation of unexplained income of ₹2.99 lakh arising from off-market commodity trades, the Tribunal observed that although such trades are not illegal, they impose a higher burden of proof on the taxpayer. Since the transaction required deeper verification of price, dates of trade, demat movement and payment trail, the Tribunal set aside the addition and directed the Assessing Officer to re-examine the evidence — including verifying whether the PAN quoted in the contract notes truly belonged to the assessee.
Ultimately, the appeal was partly allowed. The Tribunal upheld the legal principle that an HUF cannot be a donor to an individual for the purpose of claiming exemption under Section 56(2)(vii), yet permitted reconsideration of the claim under Section 10(2) pending factual verification.
Appearance
Assessee represented by: Miraj D Shah, AR
Department represented by: Monalisha Pal Mukherjee, JCIT
Cause Title: Seema Sureka vs Deputy Commissioner of Income Tax
Case No: I.T.A. No. 2682/Kol/2024
Coram: Sonjoy Sarma (Judicial Member), Sanjay Awasthi (Accountant Member)
