Biravelli Bhaskar, Karimnagar, ... vs Assessee

For Assessee : Mr. P. Raviseshagiri Rao For Revenue : Mr. Rajat Mitra

Date of Hearing : 12.06.2015 Date of Pronouncement : 17.06.2015

ORDER

This appeal by assessee is against the order of Ld. CIT(A)-II, Hyderabad dated 23rd January, 2015.

2. Briefly stated the facts are that assessee being an individual offered income from house property, interest and share incomes from firms and other sources. In the course of assessment, A.O. noticed that assessee has received an amount of Rs.2,50,000 as gift from HUF and also noticed that amount of Rs.90,000 was found credited to his loan account which is not reflected the firms accounts. Holding that HUF is not a 'relative' under section 56(2), A.O. treated the amount of Rs.2,50,000 as income of the assessee. Likewise, an amount of Rs.90,000 was also treated as income on the reason that the same was not reflected in the ledger account copy of the firm 2 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

M/s. Mahalaxmi Modern Rice Mill. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) and made detailed submissions. However, Ld. CIT(A) without extracting the submissions or considering them, simply by extracting the assessment order of the A.O., dismissed the appeal stating that he do not find any reason to interfere with the order of the Assessing Officer.

3. Ld. Counsel for the assessee, at the outset submitted that the issue of HUF being treated as 'Relative' so as to get exemption as per the provisions of section 50(2)(vi) has been considered by the Coordinate Bench of Rajkot Bench in the case of Vineetkumar Raghavjibhai Bhalodia vs. ITO (2011) 46 SOT 97 (Rajkot) wherein similar issue was considered. The Coordinate Bench while considering whether HUF can be considered as 'Relative' under the provisions of section 56(2) has held as under :

"11.1. An HUF is a person within the meaning of s. 2(31) of the IT Act and is a distinctively assessable unit under the Act. The IT Act does not define expression "HUF". It is well defined area under the Hindu law which has received recognition throughout. Therefore, the expression "HUF" must be construed in the sense in which it is understood under the Hindu law as has been in the case of Surjit Lal Chhabda vs. CIT 1976 CTR (SC) 140 : (1975) 101 ITR 776 (SC). Actually an "HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of "relative" as provided in Explanation to cl. (vi) of s. 56(2) of the Act. The observation of the CIT(A) that HUF is as good as 'a BOI' and cannot be termed as "relative" is not acceptable. Rather, an HUF 3 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

is 'a group of relatives'. Now having found that an HUF is 'a group of relatives', the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the 'group of relatives' from the HUF not exempt from taxation. To better appreciate and understand the situation, it would be appropriate to illustrate an example, thus--an employee amongst the staff members of an office retires and in token of their affection and affinity towards him, the secretary of the staff club on behalf of the members of the club presents the retiring employee with a gift; could that gift presented by the secretary of the staff club on behalf of the staff club be termed as a gift from the secretary of the staff club alone and not from all the members of the club, as such ? In our opinion answer to this quoted example would be that the gift presented by the secretary of the club represents the gift given by him on behalf of the members of the staff club and it is the collective gift from all the members of the club and not the secretary in his individual capacity. And if it is held otherwise, it will lead to an absurdity of interpretation which is not acceptable in interpretation of statutes as has been held by the Hon'ble apex Court in the case of K. Govindan & Sons vs. CIT (supra).

11.2. Further, from a plain reading of s. 56(2)(vi) along with the Explanation to that section and on understanding the intention of the legislature from the section, we find that a gift received from "relative", irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of s. 56(2)(vi) of the Act as a group of relatives also falls within the Explanation to s. 56(2)(vi) of the Act. It is not expressly defined in the Explanation that the word "relative" represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case before us. In the case before us the assessee received gift from his HUF. The word "HUF", though sounds singular unit in 4 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

its form and assessed as such for income-tax purposes, finally at the end a "HUF" is made up of "a group of relatives". Thus, in our opinion, a singular word/words could be read as plural also, according to the circumstance/situation. To quote an example, the phrase "a lot". Here, the phrase "a lot" remains as such, i.e. plural, in all circumstances and situations, where in the case of "one of the friends" or "one of the relatives", the phrase remains singular only as the phrase states so that one amongst the relatives and at no stretch of imagination it could mean as plural whereas in the phrase "a lot" the words "a" and "lot"

are inseparable and if split apart both give distinctive numbers, i.e. "a" singular and "lot" plural and whereas when read together, it can only read as plural in number unlike in the case of "one of the relatives" where "one" is always singular in number whereas "relatives" is always plural in number, but when read together it could read as singular in number. Applying this description with the case on hand, we have already found that though for taxation purpose, an HUF is considered as a single unit, rather, an HUF is "a group of relatives" as it is formed by the relatives. Therefore, in our considered view, the "relative" explained in Explanation to s. 56(2)(vi) of the Act includes "relatives" and as the assessee received gift from his "HUF", which is "a group of relatives", the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the "relatives" therefore the same is not taxable under s. 56(2)(vi) of the Act, we hold accordingly."

4. In view of the above, respectfully following the same, we hold that HUF can be treated as a 'relative' under the provisions of section 56(2) so as to exclude the amount received from HUF by the assessee-individual. Accordingly, we set aside the order of the Ld. CIT(A) and A.O. on this issue and direct the A.O. to treat the amount of Rs.2,25,000 received from the HUF as an amount 5 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

exempted under section 56(2). The addition is accordingly deleted.

5. The next issue for consideration is the addition of Rs.90,000. Disbelieving assessee's explanation that the amount was paid by the firm in which he is partner and was accounted by the firm. A.O. while computing the assessment however noted that there was a credit of Rs.90,000 in housing loan account of State Bank of Hyderabad, Sultanabad under the caption "single sided repayment by Mahalaxmi MRM". This payment of Rs.90,000 was made by the above firm on behalf of the assessee towards the repayment of housing loan. This fact was also accepted by the A.O. However, he noted that the ledger extract of M/s. Mahalaxmi Modern Rice Mill does not have any debit to his capital account. On that reason the payments made by the firm were treated as gift made to the assessee. Accordingly, he brought amount of Rs.90,000 to tax.

6. As briefly stated above, Ld. CIT(A) without even considering assessee's submissions confirmed the addition and dismissed the ground. It was submitted by the Ld. Counsel for the assessee that an amount of Rs.90,000 was directly transferred from the firm account to the bank account and this transaction was clearly reflected in the firms books of account i.e., ledger book Folio 45. It was further submitted that the accounting entries are quite in accordance with the accepted 6 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

accounting principles. It is further submitted that the said relevant ledger extracts are also submitted to the A.O. as well as to the Ld. CIT(A) who not only ignored the above but brought the amount to tax in spite of clear mention that the amounts were paid by the firm.

7. After considering the rival contentions and perusing the paper book, we are of the opinion that both the authorities have misled themselves in bringing the amount to tax. As seen from the ledger account furnished there was debit of Rs.90,000 on 15.03.2008 in the personal account of the assessee in the firms books, as well as amount of Rs.70,000 drawn on the same date. As far as the amount of Rs.90,000 is concerned, even A.O. acknowledges that the caption written in the bank account do indicate that it is a 'single sided repayment by Mahalaxmi MRM'. Not only that, the amount of Rs.70,000 withdrawn on 15.03.2008 also reflects in the bank account as a debit from the firm account. In spite of this clear evidence, we are surprised to note that neither the A.O. nor the Ld. CIT(A) has patience to examine the facts. When this was pointed out to the learned D.R. he fairly admitted that the A.O. must have seen assessee's personal ledger account, whereas ledger account copy furnished seems to be current account copy of the assessee. Therefore, he requested that the matter may be reexamined by the Assessing Officer.

7 ITA.No.398/Hyd/2015 Biravelli Bhaskar, Karimnagar

8. After considering the above, we are of the opinion that prima facie assessee has source for the above amount and this cannot be treated as a gift under the provisions of section 56(2). However, since A.O. did not examine the ledger account nor Ld. CIT(A) consider it in his order, we set aside the same to the A.O. to verify the ledger accounts of the firm and delete the same. With these directions, the issue is restored to the file of A.O. to do accordingly.

9. In the result, appeal of the assessee is treated as allowed for statistical purposes.

The order is pronounced in the open Court on 17.06.2015.

Sd/-

(B. RAMAKOTAIAH) ACCOUNTANT MEMBER

Hyderabad, Dated 17th June, 2015.

VBP/-

Copy to

1. Mr. Biravelli Bhaskar, Karimnagar C/o. Mr. S. Rama Rao, Advocate, Flat No.102, Shriya's Elegance, 3-6-643, Street No.9, Himayatnagar, Hyderabad - 500 029.

2. Income Tax Officer, Ward-4, Karimnagar.

3. CIT(A)-II, Hyderabad

4. CIT-2, Hyderabad

5. D.R. ITAT "SMC" Bench, Hyderabad.

6. Guard File