Significant Ruling by Mumbai ITAT: Non-resident Brother’s Gift of Rs 20 Lakh Not Taxable
In a landmark ruling, the Income-Tax Appellate Tribunal’s (ITAT) Mumbai bench has declared that a gift of Rs 20 lakh received by a taxpayer from his non-resident brother, based in the UAE, is exempt from taxation.
This ruling underscores the exemptions within Indian tax laws for certain types of gifts, particularly those received from close relatives. According to the Income-Tax Act, gifts exceeding Rs 50,000 are typically taxed as ‘income from other sources’ at the applicable slab rate in the hands of the recipient.
However, specific exemptions apply, such as gifts received from relatives, on the occasion of marriage, or through a will or inheritance.
The ITAT’s decision was based on Section 56(2)(x) of the I-T Act, which categorizes gifts from a brother as exempted. The case revolved around A Salam, the recipient of the substantial gift from his brother. Initially, the income-tax officer classified the gift as taxable income, a decision later supported by the income tax commissioner of appeals, citing concerns about the donor’s creditworthiness and the genuineness of the gift.
In response, A Salam provided comprehensive evidence in his defense, demonstrating his brother’s long-term residency in Dubai and extensive business engagement over 25 years. He substantiated the gift’s legitimacy through bank transactions, including three cheques from the Bank of Baroda and ICICI Bank, as well as his brother’s bank statements, passport, and investor class visa.
Additionally, A Salam presented a gift deed dated August 26, 2022, as evidence of the genuine nature of the gift. ITAT member Prashant Maharishi, presiding over the case, acknowledged the compelling evidence and noted the matching parental names of the donor and recipient, affirming their fraternal relationship.
Ultimately, the ITAT ruled in favor of A Salam, concluding that the Rs 20 lakh gift should not be classified as taxable income. As a result, the income tax official was directed to delete the addition made, setting a significant precedent in the realm of taxation on gifts from non-resident relatives.