The Income Tax Appellate Tribunal, Mumbai Bench, in Rabin Arup Mukerjea v. Income-tax Officer (International Taxation) (ITA No. 5884/Mum/2024), examined the taxability under Section 56(2)(vii) of the Income-tax Act, 1961, of an immovable property received by an NRI assessee as a gift from his step sister, and the validity of reassessment proceedings initiated under Section 147.

The assessee, a non-resident individual, had received a residential flat situated in Mumbai by way of a registered gift deed dated 21.01.2016 from Ms. Vidhie Mukerjea, described in the deed as his sister. The Assessing Officer initiated reassessment proceedings on the ground that the donor and donee were not “relatives” within the meaning of Section 56(2)(vii), as they were step siblings and not biological brother and sister. The stamp duty value of the property amounting to ₹7,50,68,525 was accordingly brought to tax as income from other sources.

The Assessing Officer and the CIT(A) held that the term “brother and sister” under the Act refers only to blood relations and does not include step brother or step sister, and consequently upheld the addition.

On appeal, the Tribunal undertook a detailed analysis of the definition of “relative” under Section 56(2)(vii), dictionary meanings of the term, and the concept of relationship by affinity arising out of marriage. The Tribunal noted that the Income-tax Act does not restrict the expression “brother and sister” to biological relationships alone and does not expressly exclude step relationships.

The Tribunal held that step brother and step sister, who become related due to the marriage of their respective parents, are related by affinity and fall within the ordinary and legal meaning of “brother and sister”. In the absence of any restrictive definition under the Act, the expression must be interpreted in its common and contextual sense. The Tribunal further observed that other statutes, including the Companies Act and RBI Act, recognize step siblings as relatives, and such understanding supports a purposive interpretation.

Accordingly, the Tribunal held that the gift of immovable property received by the assessee from his step sister constituted a gift from a “relative” within the meaning of Section 56(2)(vii), and therefore could not be taxed as income from other sources. The addition made by the Assessing Officer was deleted. In view of the relief granted on merits, the challenge to the validity of reopening under Section 147 was held to be academic.

The appeal filed by the assessee was allowed.

Source- https://itat.gov.in/public/files/upload/1742548610-CAV6rB-1-TO.pdf

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