ITAT rules that a property gift worth Rs. 7.5 crore received from a step-sister is not taxable under Section 56(2) of the Income Tax Act.
CA Pratibha Goyal | May 16, 2025 |
Gift of Property of Rs. 7.5 Cr Received from Step-sister not Taxable under Income Tax: ITAT
The brief facts are that the assessee is an individual and a non-resident Indian, since the assessee did not have any income or source from India, therefore, he was not filing any return of income in India. The assessee had made an application u/s.197 in the month of January 2021 for a lower deduction of tax on account of the sale of property (Flat No. 80, Marlow, 62B, Sir Pochkhanawala road, Worli, Mumbai – 400 025).
This property was received by the assessee as a gift from Ms. Vidhie Mukerjea on 21/01/2016 by way of a registered gift deed with Joint Registrar, Mumbai City-III, Mumbai, wherein Ms. Vidhie Mukerjea has been referred to as ‘donor’ and Mr. Rabin Arup Mukerjea has been referred to as ‘donee’.
According to the ld. AO the donor and donee were not relatives as per the meaning contained in Section 56(2) of the Act and therefore, ld. AO has reason to belief that receipt of the property without consideration are chargeable to tax and accordingly, reasons were recorded and notice u/s.148 was issued on 23/02/2021.
Assessee based on various propositions of law objected that the step brother and step sister are related, which are covered within the ambit of the definition of “relative” provided in Section 56(2)(vii) r.w. Clause E of the Explanation, i.e., “brother and sister of the individual”.
However same was not acceptable to the ld. AO and he held that step stepbrother and step stepsister cannot be treated as relatives.
Accordingly based on his own interpretation, ld. AO rejected the claim of the assessee holding that gift given by Ms. Vidhie Mukerjea to the assessee who are step sister and step brother do not fall in the category of ‘relatives’ and therefore, gifted property of Rs.7,50,68,525 is taxable as income from other sources.
The ld. CIT(A) also confirmed the action of the ld. AO and held that the definition stated in Section 56(2) is to be interpreted keeping the blood relationship, lineal ascendant and lineal descendant, and hence, no further meaning could be ascribed to this term.
Various provisions have been cited of different Acts to canvass that ‘step’ child has been recognised under the various Acts, for example Section 2(15B) of the Income Tax Act, 1961 defines the word ‘child’. It states that “any relation to an individual, includes a step child and an adopted child of that individual”; thus, a step child has been treated as a child for the purpose of the Income Tax Act and if this analogy is taken into consideration, then step brother and step sister should also be reckoned as brother and sister. Further, Section 45S of the Reserve Bank of India Act, 1934 provides the list of relatives which includes ‘step brother and step sister’. Similarly, Section 2(77) of the Companies Act, 2013 includes step brother and step sister within the meaning of term ‘relative’. Although under the Income Tax Act, step brother or step sister has not been defined, but here if we are interpreting the word ‘relative’ to understand the relation between step brother and step sister, whether they can be treated as relative for the purpose of Income Tax Act, then some inference can be drawn from the aforesaid provision from different Acts.
In Black’s Law Dictionary ‘relative’ means: ‘a kinsman, a person connected with another by blood or affinity. When used generically, includes persons connected by ties of affinity as well as consanguinity, and, when used with a restrictive meaning, refers to those only who are connected by blood. Individual related by affinity of consanguinity within the third degree as determined by common law, or individual in a step or adoptive relationship within such third degree. A person or thing having relation or connection with some other person or thing; as, relative, rights, relative powers.’ Thus, according to the Black’s Law Dictionary, ‘relative’ includes persons connected by ties of affinity as well as consanguinity and when used with a restrictive meaning, refers to those only who are connected by blood. Individual related by affinity also include individual in a step or adoptive relationship. Thus, the term ‘relative’ would also include ‘step brother and step sister’.
16. Thus, as per the Dictionary meaning of the term ‘relative’, it includes a person related by affinity, which means the connection existing in consequence of marriage between each of the married persons and the kindred of the other. If the aforesaid Dictionary meaning is to be referred and relied upon, then the term ‘relative’ would include step brother and step sister by affinity. If the term ‘brother and sister of the individual’ has not been defined under the Income Tax Act, then, the meaning defined in common law has to be adopted and in absence of any other negative covenant under the Act, in our view, brother and sister should also include step brother and step sister who by virtue of marriage of their parents have become brother and sister. Accordingly, we hold that gift given by step sister, i.e., Ms. Vidhie Mukerjea to a step brother, i.e., Mr. Rabin Arup Mukerjea falls within the definition of ‘relative’, that is, they are to treated as brother and sister as per Section 56(2)(vii) and consequently, property received by brother from sister cannot be taxed u/s.56(2). Accordingly, the claim of the assessee that gift received by his step sister Ms. Vidhie Mukerjea is exempt from being taxed as income from other sources is accepted and accordingly, the addition made by the ld. AO is deleted.
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