By CA Surekha S Ahuja
The Kolkata Bench of the Income Tax Appellate Tribunal has delivered a crucial ruling in Deb Prasanna Choudhury vs ADIT/DCIT (International Taxation), decisively settling a recurring controversy in gift-related scrutiny assessments:
Does the Income Tax Act require a formal gift deed when a taxpayer receives money from a “relative”?
The Tribunal’s answer is unambiguous and legally robust:
No. A gift deed is not a statutory requirement under Section 56(2)(x) when the donor qualifies as a “relative”, the transaction is genuine, and the banking trail is established.
This ruling is a significant relief for taxpayers—especially those receiving genuine family gifts from in-laws, siblings, or NRIs—where absence of a “proper gift deed” is often incorrectly treated as a ground for additions.
Background: A Genuine High-Value Gift Challenged on a Non-Existent Legal Requirement
The assessee, a resident individual, received ~₹80 lakh from his sister’s husband (brother-in-law) through normal banking channels into his NRE account.
During scrutiny:
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The Assessing Officer questioned the genuineness solely because no gift deed was executed.
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The amount was taxed under Section 56(2)(vii)/(x) as “income from other sources”.
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The CIT(A) substantially upheld the addition, reiterating the absence of a formal deed despite complete banking and identity evidence.
Before the ITAT, the assessee produced:
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NRE bank statements showing the remittance,
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Identity and tax particulars of the donor, and
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Proof of familial relationship with the donor.
The Law: Section 56(2)(x) and the “Relative” Exclusion
Section 56(2)(x) taxes monetary gifts above ₹50,000 received without consideration, but simultaneously provides a clear carve-out:
Gifts from a “relative” are exempt, irrespective of value.
The Explanation to the provision defines “relative” for an individual to include:
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Brother or sister of the individual
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Brother or sister of the spouse
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Spouse of such brother or sister
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Lineal ascendants/descendants and their spouses
Accordingly, the husband of a real sister (brother-in-law) is explicitly covered within the definition of “relative”.
Thus, the exemption is statutory, automatic, and not conditional upon execution of any deed.
Tribunal’s Findings: Clear, Text-Driven, and Legally Sound
(a) Brother-in-law is a “relative”
The Tribunal held that the assessee’s sister’s husband is squarely covered within the statutory definition. No interpretative struggle arises.
(b) Section 56 does not require a gift deed
The ITAT held emphatically:
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There is no requirement under Section 56(2)(x) or any allied provision for a gift deed, registered or otherwise.
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Monetary gifts transferred through banking channels do not require formal documentation for exemption.
(c) Repeal of Gift Tax Act ends all formal-deed arguments
The Gift Tax Act, 1958 (where registered deeds were sometimes relevant) was repealed in 1998.
Therefore:
Imposing old Gift Tax formalities in today’s Section 56 regime is legally impermissible.
(d) Substance over form: Banking trail + identity + relationship = sufficient
When:
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Donor’s identity is proved,
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Relationship is established, and
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Funds flow through banking channels,
the genuineness of the gift cannot be doubted merely for absence of a deed.
(e) AO and CIT(A) adopted an incorrect legal test
The authorities insisted on a condition not present in the statute, instead of enquiring into the correct issues:
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Whether donor is a relative,
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Whether transaction is genuine, and
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Whether funds are explained.
The ITAT therefore deleted the entire addition.
Consistency with Higher Judicial Principles
The ruling reflects settled doctrines from Supreme Court and High Court jurisprudence:
Strict construction of charging provisions
Taxation must be based strictly on statutory language; no addition can be made by administrative interpretation.
No importing of words (no casus omissus)
If the legislature intended to require a “gift deed”, it would have explicitly provided for it.
Substance over form in family transfers
Courts prioritise genuine intent, identity and financial trail over documentation formalities.
Donee-based gift taxation
Post 1998, Parliament designed the anti-abuse framework to tax non-relative gifts, not genuine family transfers.
Legal Takeaways & Doctrinal Clarity
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If donor qualifies as a “relative”, Section 56(2)(x) does not apply—irrespective of quantum.
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The Act does not mandate a gift deed, notarised or otherwise, for monetary gifts.
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Formalities of the repealed Gift Tax Act cannot be reintroduced through scrutiny practice.
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Proper examination consists of:
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Is the donor a statutory relative?
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Is the gift genuine?
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Is the banking and identity trail clear?
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When these are satisfied, additions under Section 56 or Section 68 cannot survive.
Practical Guidance for Professionals and Taxpayers
This ruling reinforces the following best practices for handling family gifts, especially from NRIs:
(a) Keep a donor confirmation letter
A simple confirmation mentioning:
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Relationship,
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Amount,
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Voluntary nature of gift,
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Mode of transfer.
(Not a formal gift deed.)
(b) Ensure traceable banking transfers
(c) Maintain relationship proof
Such as marriage certificate, family tree, or IDs showing linkage.
(d) Preserve communication evidencing intention
Emails, WhatsApp messages, or letters—especially for high-value transfers.
(e) During assessments
Anchor arguments in:
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Statutory definition of “relative”,
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Wording of Section 56(2)(x),
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Judicial precedent such as Deb Prasanna Choudhury,
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Repeal of the Gift Tax Act.
Avoid letting the discussion drift into “deed requirements”.
Concluding Thoughts: Ruling Restores Legislative Intent and Administrative Fairness
The Kolkata ITAT has reaffirmed a principle that is central to the architecture of India’s gift-tax law:
When Parliament has chosen to exempt genuine gifts from relatives, the tax administration cannot impose procedural conditions that the statute does not require.
Gifts from covered relatives—such as a sister’s husband—backed by banking evidence and identity proof are outside the scope of Section 56(2)(x).
Insistence on a gift deed is beyond the law, contrary to the statutory scheme, and unsupported by judicial principles.
This ruling is a welcome corrective, equipping taxpayers and professionals with strong judicial support to defend bona fide family gifts against unwarranted additions.
