[Opinion] These New Relatives Can Give Gifts

Meenakshi Subramaniam – [2025] 173 taxmann.com 430 (Article)

Laurel and Hardy gave a gift to each other and on learning that relatives could escape taxation, said they were brothers. The case reached court, as the income tax officer refused to grant exemption. The tax authority argued as to how they could be brothers, as one was so fat and other so thin. Hardy, being cleverer said that he and Laurel were step brothers. The learned judge said if parents are different, one can be fat and other can be slim. The judger ruled the case in their favour.

The recent judgement in Rabin Arup Mukerjea v. ITO [2025] 172 taxmann.com 855 (Mum.-Trib.) has not tweaked Section 56 but turned it topsy-turvy, completely.

[2025] 172 taxmann.com 855 (Mumbai-Trib.)

Rabin Arup Mukerjea
v.
ITO

The brief background of the case is that a flat was gifted by a step sister to step brother and donor is the daughter of assessee’s mother from her husband, whereas, assessee is the first son of his stepfather with his first wife.

That is donor of gifted flat, Ms Vidhie is the daughter of Ms Indrani Mukerjea from her husband, Mr Sanjeev Khanna, whereas donee Mr Rabin Mukerjea is the first son of Mr Peter Mukerjea with his first wife Mrs Shabnam Singh. After the marriage of Ms Indrani Mukerjea with Mr Peter Mukerjea, Ms Vidhie Mukerjea and Mr Rabin Mukerjea became step sister and step brother due to alliance of marriage between their respective parents.

The donor gifted the entire flat (Flat No. 80, Marlow, 62B, Sir Pochkhanawala road, Worli, Mumbai – 400 025) to assessee, vide deed of gift dated 21-1-2016. In the gift deed, it was stated that the donor and donee are sister and brother respectively.

The assessee, being a non-resident Indian, who did not have any income or source from India was not filing any return of income.. The assessee made an application under section 197 for lower deduction of tax on account of sale of property. In the gift deed, it was stated that the donor and donee are sister and brother respectively.

It is from the application that, Assessing Officer came to the conclusion that donor was not the ”sister” and therefore, not a relative of the assessee The case was reopened under section 147 and notice under section 148 was issued. In response, assessee filed the return of income disclosing the exempt income of Rs. 7.50 crores i.e. the stamp value of the property gifted by donor to the assessee. AO argued that the property is chargeable to tax in the hands of the assessee and has escaped assessment. The stamp duty and registration fee have been paid, but their source also has to be verified. Therefore the aggregate amount of 7,88,99,345/-has escaped assessment. A family tree was drawn, by AO as under:

According to the Assessing Officer, the donor and donee were not relatives as per the meaning contained in section 56(2), and therefore, he had reason to believe that receipt of the property without consideration was chargeable to tax as income from other sources.

The ld. CIT(A) confirmed the action of the ld. AO and held that the definition 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. Therefore, relationship between Ms Vidhie Mukerjea and the assessee is not covered by these terminologies.

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