Amount received through the Will of God-Mother is eligible for exemption u/s 56(2)(vii) – ITAT
Income from other sources, which is the last among the five heads of income sketched out in the Income Tax Act, is essentially a head of income that includes all receipts that cannot otherwise be classified under any of the other heads of income. According to section 56 of the Income Tax Act, the following 3 conditions need to be satisfied for a receipt to be categorized as income from other sources.
- There is an income.
- Such income is not exempted under any other provisions of the Income Tax Act.
- Such income cannot be charged as salary, income from house property, profits and gains from business or profession, or capital gains.
As per income tax act gifts received are taxable in the hands of recipient under the head of other Sources and there is no taxation for the donor. Here gift means any sum of money, Moveable property or immovable property which received without consideration or inadequate consideration.
If an individual/HUF receives from any person or persons any gift, exceeding Rs. 50000 in any previous year, as per income tax laws, the aggregate amount shall be taxable as Income from Other Sources in the hands of individual or HUF under section 56. As per the Income tax act, the sum of money received from any of your relatives are fully exempt from tax. Here the “relatives” term defines by the Income Tax act as follows:
- Spouse of the individual
- Brother or sister of the individual
- Brother or sister of the spouse of the individual
- Brother or sister of either of the parents of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse of the individual
- Spouses of the person referred above
- In case of a Hindu undivided family, any member thereof
Let us refer to the case of Cynthia Ramona Chellappa Vs. ITO (ITAT Chennai), where the issue under consideration is whether the amount received through the Will of God-Mother is eligible for exemption u/s 56(2)(vii)?
Facts of the Case:
- The assessee is a Swiss individual married to an Indian and residing in India.
- The assessee received a bequeathal (to bequeath means to dispose personal property or money by last will) through the Will of her God-Mother an amount of 50,000 Swiss Francs.
- Assessee submitted that she received the amount by way of Will and the Assessing Officer (AO) in the course of the assessment held that as per the provisions of Section 56(2)(vii) of the Income Tax Act, 1961 read with the Proviso thereunder was to be interpreted that the beneficiary had to be related within the meaning of explanation (e) to be a “relative” and not otherwise.
- As the God-mother who had bequeathed the amount to the assessee, was not a relative, the AO treated the said amount of 50,000 Swiss Francs received by the assessee as income from other sources.
- It was a submission that Section 56(2)(vii) and in the Fourth Proviso thereunder, clause (c) clearly held that the amount received through a Will was exempted.
- It was a submission that the CIT(A) did not consider the explanation of the assessee and had dismissed the assessee’s claim.
- In reply, the Departmental Representative supported the order of the AO and the CIT(A).
Observations of ITAT
- According to Section 56(2)(vii), any amount received by an individual without consideration where the aggregate value exceeded Rs 50,000, the whole of the aggregate value was liable to be treated as income under the head “income from other sources”.
- The Fourth Proviso thereunder provides for the exemptions.
- Clause (a) talks of any amount received from a relative
- Clause (c) talks of any amount under the Will or by way of inheritance.
- For the purpose of Clause (a) of the Fourth Proviso, “relative” has been defined in explanation (e) to the Proviso.
- A Will can be written by anybody. In a Will, anybody can be given a bequeathal. It need not be a relative alone.
- The fact that the Fourth Proviso refers to relative in Sub-clause (a), and refers to a Will or inheritance in Clause (c) clearly shows that the Will need not be a Will of a relative.
- Further, a Will is not given any restrictive meaning in the Explanation under the said Proviso either.
- Therefore, ITAT was of the view that the amount received by the assessee as a legacy through the Will of her Godmother of an amount of 50,000 Swiss Francs, could not be brought to tax under the head “income from other sources” as the same is exempted by Clause (c) of the Fourth Proviso to Section 56(2)(vii) of the Income Tax Act, 1961.
In conclusion, amount received through the Will of God-Mother is eligible for exemption u/s 56(2)(vii).