NRI’s Rupees 3 crores gift to his mother is
genuine, not taxable and cannot be treated as
unexplained cash credit under Section 68 of the
I-T Act – Held ITA Tribunal
NOT A CIRCULAR TRADING TRANSACTION
The Mumbai ITAT ruled in favor of a taxpayer who received a ₹3 crore gift
from her NRI son. The I-T department questioned the gift's legitimacy, alleging
a circular trading transaction, but the tribunal upheld the gift's validity due
to the son's proven financial capacity
and dismissed the circular trading claim by ITO.
The gift is from a NRI son, who is a prominent hedge fund operator based
in Hong Kong.
The IT officer sought to tax this sum in the hands of the mother.
GIFTS EXCEEDING RS 50,000 ARE TAXABLE
Under the I-T Act, gifts exceeding Rs 50,000—barring for events such as
marriage are generally taxed in the hands of the recipient at the applicable
slab rates under the head ‘Income from Other Sources'.
GIFTS MADE TO CLOSE RELATIVES ARE NOT TAXABLE IN THE HANDS OF THE
RECIPIENT
However , gifts made
to close relatives are not taxable in the hands of the recipient.
UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE I-T ACT
I-T officer treated the Rs 3 crore received by the mother as unexplained cash credit under Section 68 of the I-T Act and sought to tax it in her hands. Tax laws prescribe for a higher rate of 60% (plus cess and surcharge) on sums classified as unexplained cash credit.
This action by the I-T officer was dismissed by the commissioner
(appeals), but the I-T department went ahead and filed an appeal with the ITAT.
A COLOURABLE DEVICE
As per IT department a subsequent grant of an unsecured loan given by the mother to an Indian company was a colourable device to invest in the Indian security market—it was a circular trading transaction .
GIFT RECEIVED AND RETURNED BACK
The gift amount was received in 2010-11 and in 2012-13, this sum was
returned to her son.
ITAT viewed that "The actions of the recipient (mother) of investing
the gift amount in an Indian company and subsequently returning the funds to
her son are unrelated to the issue of addition under Section 68."
· This ruling follows a similar August 2024 decision, where the Mumbai ITAT held that a Rs 20 lakh gift from a UAE-based NRI to his sibling in India was not taxable.
· GIFT RECEIVED FROM NRI BROTHER CAN BE EXCLUDED FROM TAXATION AND NOT TAXABLE : INCOME TAX APPELLATE TRIBUNAL
https://rvseckarfema.blogspot.com/2024/08/gift-received-from-nri-brother-can-be.html
