Any reward within the type of cash gained by means of a person from his/ her kin isn’t vulnerable to tax below the Source of revenue Tax Act (‘the Act’). The kin which are lined below this provision are usually the fast kin like oldsters, partner, brothers/sisters, uncles/aunts or even spouses of those kin.
The Act has no longer laid down any limits at the cost of a present gained from those kin which can be tax-free. However this is the catch: Any source of revenue earned on those items by means of the donee will probably be taxable within the palms of the latter. Whilst, for lots of folks, this provision does sound too excellent to be true, what the IT division seeks to ensure in case of high-value items is the credit-worthiness of the donor. In different phrases, does the donor have the capability/capacity to provide high-value items?
In one of the crucial tax instances, a taxpayer’s go back was once decided on for scrutiny by means of the tax officer for the restricted goal of investigating the rise in his capital account as declared within the go back of source of revenue. Throughout the review, the tax officer noticed that the taxpayer had classified an quantity of Rs 8 lakhs as a present gained from a relative. When the related paperwork for a similar had been produced, the tax officer noticed that the quantity was once gained from any other person (hereafter, known as the debtor).
The taxpayer submitted that the mentioned quantity was once a present of Rs 8 lakhs from his aunt, who was once based totally out of UAE. On her instructions, the debtor (in India) who was once liable to go back some outdated debt because of the aunt, paid the cash at once to the taxpayer in his Indian checking account. The taxpayer additional argued that his aunt being a relative, as outlined below the Act, the sum of Rs 8 lakhs gained from her could be exempt from tax.
To reinforce his declare, the taxpayer produced a certificates from the respective Financial institution in regards to the switch of the quantity from the account of the debtor to his account. The tax officer, to test the genuineness of the transaction, wrote a letter to the debtor at his cope with (as supplied by means of the taxpayer), which was once returned by means of the postal government unserved.
The tax officer was once no longer satisfied with the genuineness, creditworthiness and id of the donor as a close to relative and accordingly added the reward quantity to his taxable source of revenue as unexplained money credits.
Unsatisfied with this order, on the first appellate degree, the taxpayer reiterated ahead of the authority that the quantity is a present from his aunt. The tax officer argued that the nexus of the quantity being transferred from the account of the debtor with the aunt may just no longer be proved by means of the taxpayer all over the review. It was once the taxpayer’s duty to end up the id, genuineness and creditworthiness of the aunt and the debtor. With the similar no longer being performed, the appellate authority too showed the addition of the quantity of Rs 8 lakhs to the taxpayer’s source of revenue.
Earlier than the Tax Tribunal, the taxpayer argued that having submitted the financial institution certificates, the duty to end up the genuineness of the reward throughout the banking channel and credit-worthiness of the payer stands duly discharged. The taxpayer additional submitted that below the related provisions of the Act, as soon as the lifestyles of the individual in whose identify, the credit are discovered within the books of the taxpayer is proved, the supply of the supply isn’t required to be proved. The taxpayer had submitted the affirmation from the aunt of getting paid the cash in addition to the affirmation from the financial institution in regards to the remittance of the mentioned quantity.
The tax officer, ahead of the Tribunal, contended that the genuineness may just no longer be claimed to be proved when the cash was once gained indirectly from the aunt however the debtor, who in flip isn’t hooked up or associated with the taxpayer.
The Tribunal noticed that the taxpayer had no longer furnished unmarried proof or file to turn how this quantity has been gained from his aunt and no longer the debtor. Within the absence of any documentary proof for motion of quantity between the aunt and the debtor, the taxpayer had thus failed to determine the declare of the reward from his aunt. Because of this, the Tribunal showed the addition of Rs 8 lakhs to the taxpayer’s source of revenue for the mentioned 12 months.
Abstract
Presents of cash gained from near-relatives don’t seem to be taxable.
Close to-relatives come with partner, brother/sister, oldsters, grandparents, and many others.
The recipient of reward must be capable to end up that the reward has been gained from their kin.
The donor of the reward must be capable to show their monetary capacity to provide such items.
(The author is the Founding father of Arvind Rao and Mates, a tax and fiscal consulting company based totally in Mumbai)
Printed on: Sunday, March 13, 2022, 07:00 AM IST
