Top Stories A Comprehensive Case Analysis of Gift Tax Section 56(2)(vi) of the Income Tax Act lays out the tax regulations pertaining to the exchange of gifts. By Yogitha S. Yogesh – On January 10, 2025 7:38 pm – 14 mins read Gift transactions in India are subject to income tax. Certain gifts received in India are subject to taxation, despite the fact that there aren’t many exclusions. Even a small financial transaction between friends and family can result in tax implications for the recipient.

In India, the gift tax was first implemented in 1958 and ended in 1998. “Income from other sources” was the heading under which the government reinstated it in 2004. Tax officials monitor gift-giving and receiving through the information filed under the income from other sources head since it may be a component of money laundering or tax evasion. Section 56(2)(vi) of the Income Tax Act lays out the tax regulations pertaining to the exchange of gifts. It specifies that any gift, whether given with or without consideration, that exceeds Rs 50,000 within a fiscal year would be added to your other sources of income and subject to taxation in accordance with your tax bracket. Anyone who receives more than Rs 50,000 in cash gifts in a single fiscal year must include this amount in their gross total income and make the appropriate tax payment. The total amount will be taxable in the hands of the recipient if the present was given to them without any payment and had a fair market worth of more than Rs 50,000. The difference between the fair market value (FMV) and the consideration will be included to the income and taxed appropriately if the gift is received with consideration but for less than the FMV and the difference exceeds Rs 50,000. Cash Gift from Father and Father-in-Law Not Taxable Under Income Tax Act: ITAT Krishna Nand Rai vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1583 The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that cash gifts from a father and father-in-law are not taxable under the Income Tax Act,1961. A single-member bench comprising Madhumita Roy(Judicial Member) examined the evidence in detail and found the claim of the assessee to be credible. It observed that the supporting documents, such as proof of agricultural income and the marriage card, were consistent and had not been disputed by the authorities. The issue of discrepancies in the affidavits’ dates was viewed as a technicality that did not undermine the substantive evidence provided. The tribunal concluded that the addition was unsustainable, as the assesssee had successfully demonstrated the genuineness of the gifts and their source. As a result the addition of Rs. 10,80,000 was deleted, and the appeal was decided in favor of the assessee. ITAT upholds AO’s Addition of Rs. 9.65 Lakh u/s 56(2)(x) as Gift not Qualifying from a Relative Aravind Reddy Devagiri vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1336 The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Assessing Officer’s ( AO ) addition of ₹9.65 lakh under section 56(2)(x), of Income Tax Act,1961 ruling that the gift received from the father’s Hindu Undivided Family ( HUF ) did not qualify as a relative under the Act and was therefore taxable. The two member bench comprising Duvvuru RL Reddy ( Judicial Member ) and S.Balakrishnan ( Accountant Member ) after considering the arguments,acknowledged that the assessee received Rs. 9,65,000 from Shri Devagiri Lakshmi Narsimha Reddy HUF, with the assessee’s father acting as Kartha. The AO correctly noted that the gift was received without any consideration and did not meet the definition of a relative under the Act. Thus, the tribunal found no reason to interfere with the Revenue Authorities’ decision and upheld the addition made by the AO. The appeal was not allowed. ITAT invalidates Deemed Gift Addition u/s 56(2)(vii)(b)(ii) based on Allotment Letter Validity Tamojit Das vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1234 The Kolkata Bench of Income

Tax Appellate Tribunal ( ITAT ) invalidated the deemed gift addition made under Section 56(2)(vii)(b)(ii) of the Income Tax Act,1961, emphasizing that an allotment letter issued by a developer constitutes a valid agreement for the purpose of assessing such gifts. The two-member bench comprising Rajpal Yadav (Vice-President) and Rakesh Mishra (Accountant Member) concluded that the allotment letter in this case constituted a valid agreement, aligning with the provisions of the Income Tax Act. Thus, the addition made under Section 56(2)(vii)(b)(ii) was invalidated, and the appeal was allowed, resulting in the deletion of the addition. ITAT invalidates Addition u/s 56(2)(vii) and deletes Deemed Gift due to Incorrect Valuation Date Partha Pratim Chakrabarty vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1214 The Kolkata Bench ofIncome Tax Appellate Tribunal ( ITAT ) invalidated the addition made under Section 56(2)(vii) of the Income Tax Act,1961 and deleted the deemed gift classification due to the incorrect valuation date The bench held that the CIT(A) should have carefully examined these details and exercised proper jurisdiction, especially given the clear evidence favoring the assessee. The two member bench comprising Rajpal Yadav ( Vice-President ) and Manish Borad ( Accountant Member ) ruled that the addition made under Section 56(2)(vii) was unjustified, allowing the appeal and deleting the addition. In conclusion,the appeal filed by the assessee was allowed. Registered Gift Deed for Immovable Property cannot be Treated as Unexplained Cash Credit u/s 68 of Income Tax Act: ITAT Income Tax Officer vs Inder Jaggi CITATION: 2024 TAXSCAN (ITAT) 1009 The respondent/ assessee, Inder Jaggi, an individual, filed their Return of Income (ROI) for the Assessment Year (AY) 2017-18 electronically on 07.11.2017, declaring a total taxable income of ₹8, 90,050. During the year under consideration, the assessee operated through three proprietorship firms: Siddhi Vinayak Baxi Motors, Siddhi Vinayak Purti Gas, and Taxi Owners United Transport Company. The case was selected for limited scrutiny under the Computer Aided Scrutiny Selection (CASS) system. Statutory notices under sections 143(2) and 142(1), along with a questionnaire, were issued. The assessee complied with these notices as required. The tribunal noted that the CIT(A) had correctly found that the tax implications of the gift would arise only when the asset is actually sold or transferred. The cost of acquisition should be determined based on applicable provisions at that time,

not based on notional entries in the books of accounts. The tribunal upheld the CIT(A)’s decision to delete the addition, concluding that the AO’s anticipatory assumptions regarding future tax benefits from the recorded value in the books were misplaced. The tribunal found no merit in the revenue’s arguments based on hypothetical future events. Consequently, the appeal filed by the revenue was dismissed. Gift From NRI Relative Not Taxable as Income if Genuineness is Proved: ITAT Abul Wais Abdus Salam vs ITO CITATION: 2024 TAXSCAN (ITAT) 949 In a recent case, the Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) held that a gift received from a Non-Resident Indian ( NRI ) relative is not chargeable to income tax if genuineness is proved. The assessee/appellant, Abul Wais Abdus Salam, is an individual, proprietor of A-1 Trading Company engaged in the business of trading in plastic granules. He filed his return of income on 01.01.2022 declaring total income of Rs. 19,88,600/-. On examining the above submissions of the assessee, the single bench of Mr Prashant Maharishi observed that the assessee had in fact, satisfactorily proved the genuineness of the gift received, as well as the relationship with the donor. As gifts received from an NRI relative are not chargeable to tax, the tribunal directed the addition of  20,00,000/- made towards the income of the assessee to be deleted. In result, the appeal was allowed. Huge Amount cannot be given to anybody for “Free”: ITAT upholds Addition of Gift Indira Ramaiah vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 798 The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the addition of a gift, stating that a huge amount cannot be given to anybody for free. The assessee also filed confirmation from Mr. Srinivasan Mahesh on payment of Rs.1,55,64,500/- in which it has been stated that loan is interest free and it is still outstanding. After considering the entire submissions of the assessee, the AO noted in respect of cash jewelry purchase of Rs.14.34 lakhs there is contradictory statement of assessee at one place that she was not aware of the transaction and PAN of assessee has been misused by somebody else without her knowledge, while later she submitted that jewellery of Rs.14.34 lakhs was purchased by her relative  Puttarangaiah for a function as he did not have PAN during purchase and filed a confirmation letter on a simple paper from P. Venkatachalaiah, S/o.  Puttarangaiah. The two member bench of the ITAT comprising George George K ( Vice President ) and Laxmi Prasad Sahu ( Accountant member )  rejected the argument of the  AR that loan was  still outstanding and it was liability of the assessee, since it was not substantiated with cogent evidence. Accordingly ITAT dismissed the grounds of assessee. Gift Vouchers and Cards are Actionable Claims, GST Applicable on the Date of Redemption u/s 12(4)(b) of CGST Act: Madras HC Kalyan Jewellers India Ltd vs Union of India CITATION: 2024 TAXSCAN (HC) 236 A Single Bench of the Madras High Court has recently held that gift vouchers and gift cards are actionable claims and Goods and Services Tax ( GST ) is applicable on the date of redemption under Section 12(4)(b) of the Central Goods and Services Tax ( CGST ) Act. It was thus held that, “If the “Gift Vouchers/Cards” is for a specified item of jewellery of specified value, tax is payable at the time of its issuance, as there is supply( i.e transfer ) within in the meaning of Section 7(1-A) of the respective GST Enactments read with Sl.No.1(c) to the II Schedule to the respective GST Enactments. Therefore, tax is payable in view of Section 12(4)(a) of the respective GST Enactments at the time of issuance of such “Gift Vouchers/Cards”.”  The Bench also held, “ On the other hand, if there is no supply ie. no transfer within in the meaning of Section 7(1-A) of the respective GST Enactments read with Sl.No.1( c) to the II Schedule to the respective GST Enactments, time of supply will get postponed to the actual time of redemption of the “voucher” to a future date of sale of merchandise or such goods when such Gift Voucher/Card is presented by the customer at the Counter of the petitioner. The petitioner will be liable to tax on the date of redemption under Section 12(4)(b) of the respective GST Enactments.” Gift received from mother shall not be termed as Unexplained Cash Credits: ITAT deletes addition imposed u/s 68 of Income Tax Act Shri Jignesh Kanubhai Patel vs Assistant Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 2081 The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the gift received from the mother shall not be termed as unexplained cash credits hence no addition shall be imposed under Section 68 of the Income Tax Act, 1961. The Two-member bench comprising of Waseem Ahmed (Accountant member) and

Siddhartha Nautiyal (Judicial member) held that the gift deed was an afterthought since the aforesaid transfers were made on dates much prior to the date when the search was carried out at the premises of the assessee and notice under Section 153A of the Income Tax Act was issued to the assessee. The gifted deed was on a stamp paper and the same was also duly supported by way of bank transfers and the assessee has been able to reasonably explain the source of the gift from his mother. Thus, the additions are liable to be set aside and the appeal of the assessee was allowed. Burden to Prove Genuineness of Large Volume of Cash Deposit as Gift to Grandson During Demonetization Lies on Assessee: ITAT Pitchi Reddy Garlapati vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 2079 The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT), while re-directing adjudication of an income tax appeal observed that the burden to prove that the large volume of cash deposit as a gift to a grandson during the demonetisation is not suspicious shall lies on the assessee. A Single Bench of K. Narasimha Chary, (Judicial Member) allowed the appeal filed it reasonable for the learned CIT(A) to entertain a doubt as to whether there was an occasion for Mr. Aleti Sanjeeva Reddy to possess that much of cash with him because it is unlikely that the same amount of Rs. 8 lakhs that was withdrawn six months earlier was kept idle without turning it in the business. However, no liability could be fastened on the likelihood or otherwise. Such a thing falls in the realm of verification of fact. ITAT Deletes Addition on Account of Cash Gifts Received from Mother through Gift Deed in Absence of Contrary Material Sharon Agarwal vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1217 The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition on account of cash gifts received from mother through gift deed as no contrary material was found. A Single Bench of B. R. R. Kumar, (Accountant Member) observed that the gift deed had not been disputed by the revenue. The fact of acceptance of the gift had also not been controverted by the (CIT(A)). In the absence of any contrary material by the revenue, the Bench allowed the appeal filed by the assessee and deleted the addition made by the Assessing Officer. Provisions of Deemed Gift u/s 56(2)(vii)(b) of Income Tax Act cannot be Applied Retrospectively: ITAT  Mrs. Arvinder kaur vs ITO CITATION: 2023 TAXSCAN (ITAT) 596  The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) has recently held that provisions of deemed gift under section 56(2)(vii)(b) of Income Tax Act 1961 could not be applied retrospectively. “In the context of “deemed gift” on the basis of inadequate consideration, the series of documents executed between the assessee and her maternal uncle indicate that the transaction was Gift only and had completed before 01.10.2009. So the provisions of Section 56(2)(vii)(b) of the Income Tax  Act 1961 which were introduced in the Act by Finance Act, 2010, with retrospective effect from 01.10.2009 are wrongly applied”. Gift of Immovable Property to Sister Not Taxable: ITAT Sanjay Bansal vs ITO CITATION: 2023 TAXSCAN (ITAT) 887 The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that a gift of immovable property to sister is neither taxable as capital gain or under section 56(2)(vii)(b) of the Income Tax Act, 1961 Granting relief to the assessee, the Tribunal held that “By no stretch of imagination the impugned gift of immovable property can be brought to tax in the hands of the recipient donee Smt. Manju Garg under section 56(2)(vii)(b). Firstly, the provision of section 56(2)(vii)(b) came into existence w.e.f. 01.10.2009 and therefore will apply for transaction undertaken on or after such date as explained by the CBDT in Circular No. 5 dated 03.06.2010 reported in (2010) 324 ITR (st) 293. Secondly, proviso under section 56(2)(vii) says that this clause shall not apply to any property received from any relative. The expression ‘relatives’ under Explanation (e) to section 56(2)(vii) means ‘brother or sister of the individual’. Since the impugned transaction of gift of property is between brother and sister it falls outside the ambit of the provision of section 56(2)(vii)(b) of the Act. Therefore, the question of taxability of the impugned gift in the hands of the recipient donee Smt. Manju Garg does not arise at all.” Provisions of Deemed Gift u/s 56(2)(vii)(b) of Income Tax Act cannot be Applied Retrospectively: ITAT Mrs. Arvinder kaur vs ITO CITATION: 2023 TAXSCAN (ITAT) 596 The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) has recently held that provisions of deemed gift under section 56(2)(vii)(b) of Income Tax Act 1961 could not be applied retrospectively. After considering these points the division bench of the ITAT comprising G.S.Pannu, President and Anubhav Sharma, Judicial Member allowed the appeal filed by the assessee and observed that “In the context of “deemed gift” on the basis of inadequate consideration, the series of documents executed between the assessee and her maternal uncle indicate that the transaction was Gift only and had completed before 01.10.2009. So the provisions of Section 56(2)(vii)(b) of the Income Tax  Act 1961 which were introduced in the Act by

Finance Act, 2010, with retrospective effect from 01.10.2009 are wrongly applied”. Property transferred to Mother for Rs. 5 Lakhs not ‘Gift’, Taxable as ‘Capital Gain’: ITAT Orders to Apply S. 50C Jay Atulbhai Mody, Vs I.T.O., Ward-2(2)(3), Rajkot. CITATION: 2022 TAXSCAN (ITAT) 1902 The Income Tax Appellate Tribunal (ITAT), Rajkot bench has held that the property transferred in the name of mother for a nominal consideration of Rs. 5 lakhs cannot be treated as a “gift” as the same is taxable as “capital gain” under section 45 of the Income Tax Act, 1961. Concluding the order, the ITAT referring the matter to the DVO, held that “From the above, there remain no ambiguity that the impugned property transferred by the assessee to his mother for consideration of Rs. 5 Lakh is liable to be brought under the ambit of capital gain. However, the question arise for determination of sales consideration. As the AO has taken consideration as per section 50C of the Act whereas the AR before us has challenged the value adopted by the AO and subsequently sustained by the learned CIT(A). In the interest of justice and fair play, we set aside the issue to the file of the AO to refer the matter to the DVO to determine the value of the property in pursuance to the provisions of section 50C of the Act. Hence the ground of appeal of the assessee is partly allowed.” Cash Gift of Rs. 39 Lakh from Husband during Assessment Proceedings was Mere Afterthought after Search: ITAT Upholds Addition Smt.K.Gomathi vs The Dy. Commissioner of Income Tax CITATION: 2022 TAXSCAN (ITAT) 1765 The Income Tax Appellate Tribunal (ITAT) Bench at Chennai has recently held that, the claim of  the assessee, K Gomati that Rs. 39 Lakhs was received as gift from husband during the assessment proceedings was merely an afterthought of search. Subsequently, the addition made by the Assessing Officer (AO) was upheld. The Commissioner of Income Tax, M Rajan submitted on behalf of the department that, “If you go through the claim of the assessee, out of Rs.46,79,000/- sum of Rs. 39,75,000/- gift was received by cash and the assessee could not explain the same with necessary evidences including declaration of cash in hand for the relevant assessment year, wealth tax returns filed by her husband. The balance amount of Rs.7 lakhs was also claimed to have been paid through proper banking channel, but no evidence was filed.” No ‘Occasion’ required for ‘Gift’ under Income Tax Law: ITAT deletes Addition towards Gift from NRI Brother  ITO vs Dr. Satish Natwarlal Shah CITATION: 2022 TAXSCAN (ITAT) 1761 While delivering an assessee-friendly ruling, the Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that there is no occasion required for “gift” under the Income Tax Act, 1961. A two-Member bench of the Tribunal comprising of Ms. Annapurna Gupta, Accountant Member and Shri T.R. Senthil Kumar, Judicial Member observed that “Respectfully following the above judgments, the assessee received the gift from his own brother who is a Non-Resident from the year 1966. The allotment of shares were made under NRI quota to the assessee’s brother in USA. Thus the source and genuineness is being proved beyond doubt, the assessee having received the above gifts from his brother, who is as per the Explanation 2 to Section 56(2)(v) of the Act, there need not be any “occasion” for receipt of gift by the assessee.” Share Valuation for Gift Tax Purposes shall be in accordance with Restrictions on Transfer: Supreme Court DEPUTY COMMISSIONER OF GIFT TAX vs M/S BPL LIMITED CITATION: 2022 TAXSCAN (SC) 179 The Supreme Court of India, in a recent ruling, has held that the valuation of shares shall be done taking into consideration the restrictions and limitations on transfer of said shares. Following the observations made, it was held that “Equity shares which are quoted and transferable in the stock exchange are to be valued on the basis of the current transactions and quotations in the open market.The shares in question would become transferable post the lock-in period. It is a fact that the market price fluctuates, and the share prices can move up and down. Share prices do not remain static. Equally, the restriction or bar on transferability has an effect on the value/price of the shares”, in addition to the conclusion that “Valuation cannot ignore the limitations attached to the shares” by the Apex Court. Amount given by HUF to Member, which is not in the Nature of Gift not Taxable:

ITAT Shri Gyanchand M. Bardia vs I.T.O. CITATION: 2022 TAXSCAN (ITAT) 116 The ITAT, Ahmedabad bench has held that the amount received by the assessee from its HUF which is not in the nature of gift or received without consideration shall not be taxable undersection 56(2)(vii) of the Income Tax Act, 1961. Allowing the contentions of the assessee, the Tribunal concluded that “In view of the above, therefore, we are of the view that the decision of the ITAT Chandigarh Bench in the case of Pankil Garg(supra) would squarely apply to the present case following which we hold that the amount received by the assessee from its HUF of Rs. 50 lakhs is not in the nature of any sum received without consideration/gift and therefore not exigible to tax as per provisions of Section 56(2)(vii) of the Act.The addition so made and upheld by the Ld. CIT(A) is therefore directed to be deleted.” Gift Tax can be assessed on basis of Guideline Value for Valuation of Stamp Duty and Registration: Madras High Court Shri S.K.R.Viswanathan vs The Gift-Tax Officer CITATION: 2021 TAXSCAN (HC) 554 A two-judge bench of the Madras High Court has held that the guideline value for the purpose of the valuation of stamp duty and registration can be taken as the basis for the purpose of determining the value of the gift as against the value as per Schedule II of Gift Tax Act. The Court held that “in any event, we are not on the valuation but we are here on the conduct of the assessee as to how he understood the concept of valuation and we are clear that the assessee was clear in his mind as to how the valuation is required to be done. Therefore, to state at this juncture that the valuation has not been done in terms of Schedule II of the Gift Tax Act is an argument that is stated to be rejected. That apart, when we examine the submissions made by the assessee before the CGT(A), an alternate submission was made stating that on and after 01.04.1987 after sub-section (2) was inserted in Section 3 of the Act, the tax can be at the rate of 30% on the value of all taxable gifts and the Assessing Officer erroneously adopted the Schedule of rates given in Schedule I to the Act.” Gift is to be treated as genuine when Assessee discharges onus of proving Identity, Creditworthiness and Relationship: ITAT deletes Addition Smt. Tapasi Singh vs ITO CITATION: 2021 TAXSCAN (ITAT) 457 The Income Tax Appellate Tribunal (ITAT), Kolkata Bench while deleting the addition ruled that gift is to be treated as genuine when assessee discharges onus of proving identity, creditworthiness and relationship. The ITAT held that the primary onus to establish the identity and creditworthiness of the concerned donors as well as the genuineness of the relevant transactions involving gifts thus was duly discharged by the assessee by producing the relevant documentary evidence and without bringing on record any material or evidence to disprove or dislodge the claim of the assessee The Tribunal opined that the lower authorities were not justified in treating the gifts received by the assessee as unexplained cash credit under section 68 merely on the basis of doubts and suspicion. Therefore, the Tribunal deleted the addition of Rs. 4,00,000/- made by the AO and confirmed by the CIT(A) under section 68

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