Rs 80 lakh gift from brother-in-law lands man in tax trouble; here’s how he won the case, ETCFO
On November 4, 2025, the Income Tax Appellate Tribunal (ITAT) Kolkata bench ruled in favour of Dr. Choudhury, a taxpayer living in UAE, observing that the Rs 80 lakh he received as a gift from his brother-in-law (sister’s husband) should not be counted as part of his income.
The ITAT Kolkata clarified that gifts from relatives are tax-exempt. They pointed out that a sister’s spouse falls under the definition of a relative according to the Section 56 (2)(vii) of Income Tax Act, 1961.
In short, this ruling came from a case filed by Dr. Choudhury against the income tax department. The situation unfolded when Dr. Choudhury filed his ITR showing a total income of Rs 20 lakh (20,28,740) and a tax payment of Rs 5.5 lakh, which led to summons under Section 131 by ADIT(Inv.), Asansol, for clarification on some large-value transactions.
Later on, Dr. Choudhury received a tax notice under Section 133(6), and he provided supporting documents for the flagged large value transactions flagged in his bank account. But then, his case was picked for re-assessment under Section 148, leading him to file another income tax return. He also got a Section 142(1) tax notice, which he responded to as well.
Despite this, the tax officer was not satisfied with Dr. Choudhury’s reply and issued an assessment order under Section 143(3) in conjunction with Section 147. The tax officer determined Dr. Choudhury’s total income at Rs 1.5 crore (1,50,28,740) and a tax demand of Rs 69 lakh (69,82,460) was also raised.
Aggrieved with the assessment order, Dr. Choudhury appealed to the CIT(A) who reviewed the evidence, the impugned orders, his submissions and the orders and the decisions he referenced, ultimately allowing his appeal in part while dismissing Ground no. 2 concerning a gift deed amounting to Rs 55 Lakh.
Dr. Choudhury then took his case to ITAT Kolkata, and on November 4, 2025, he won the case completely.
Also read: Mutation entry can’t override real ownership or inheritance rights, says Supreme Court
Chartered Accountant Suresh Surana said to ET Wealth Online: “In the case (ITA No. 2199/Kol/2024), the assessee is a non-resident Indian (NRI) residing in the UAE. He received a gift of Rs 80 lakh from his brother-in-law (spouse of his sister) through normal banking channels. The Assessing Officer (AO) treated this amount as taxable income under Section 56(2)(vii) of the Income-tax Act, 1961 , on the ground that the gift deed was executed in the USA, did not bear the signature of the recipient, and was made nine years after the transaction. The Commissioner (Appeals) [CIT(A)] upheld the addition of Rs. 55 lakh, reasoning that the source of funds for the donor’s transfer remained unexplained.”
According to Surana , the assessee contended before the ITAT that the transaction was a bona fide gift from a relative, duly supported by banking records and documentary evidence, and hence exempt under Section 56(2)(vii). He also argued that there is no statutory requirement of a gift deed under Section 56, and that the Gift Tax Act, 1958, has been repealed since 1 October 1998.
Surana explains the ITAT’s findings and case rationale. Surana says that the ITAT examined the facts and relevant provisions and held that the assessee’s brother-in-law squarely falls within the definition of a “relative” under Explanation (e)(i)(C) to Section 56(2)(vii). Accordingly, any sum received as a gift from such a relative cannot be included in the total income of the recipient.
Surana says that the ITAT clarified that for the purpose of exemption under Section 56(2)(vii), there is no requirement of a formal gift deed, as long as the identity of the donor, relationship between the parties, and genuineness of the transaction are established. The funds were transferred through normal banking channels, and the source of the payment was reflected in the donor’s NRE bank account, corroborating the genuineness of the transaction.
Surana says that the ITAT also observed that if there were any concerns about the source of funds, such verification should have been made in the hands of the donor, not the recipient. Since the gift was received from a relative and supported by proper documentation, the addition made under Section 56(2)(vii) was not justified.
According to Surana, the taxpayer won the case because the amount received from his brother-in-law qualified as a gift from a “relative” under the explicit provisions of Section 56(2)(vii) of the IT Act. The Tribunal found that:
- The relationship between the donor and the recipient was covered within the statutory definition of “relative”;
- The transfer of funds was made through legitimate banking channels, establishing identity, genuineness, and creditworthiness; and
- The absence of a gift deed or the fact that it was executed abroad did not invalidate the exemption, as such a document is not mandated under tax law.
Surana says: “Consequently, the ITAT deleted the addition of Rs 80 lakh, holding that the transaction was a genuine gift from a relative and could not be treated as taxable income under Section 56(2)(vii).”
Also read: Wife gets tax notice for purchasing Rs 51 lakh property but not filing ITR, she fights back and wins in ITAT Ahmedabad
Background details of the high value transactions
As per the ITAT Kolkata judgement, Dr. Choudhury is a person who got a gift through his State Bank of India NRE account from his sister’s spouse (his brother-in-law). The transfer was done through standard banking channels from one bank to another.
It was argued that the gift deed was created in the USA and according to the Transfer of Property Act, a gift deed is not necessary for movable property.
Also read: Wife hid her Rs 1 lakh monthly salary; Madras High Court cuts her maintenance payment from Rs 15,000 to Rs 10,000
However, the AO raised questions about the source of the funds received from the sister’s husband, and a response was properly submitted. Dr. Choudhury explained that since the money came from a relative through a banking channel, it shouldn’t be taxed as income from other sources due to the exemption for relatives mentioned in the law.
Also read: Even with criminal case pending, employee entitled to annual pay rise, says Punjab and Haryana High Court order
ITAT Kolkata said this about gift from brother-in-law
ITAT Kolkata in its judgement (I.T.A. No.: 2199/KOL/2024) dated November 4, 2025 said that as per Section 56 the spouse of the sister of the assessee is also covered as relative and since Dr. Choudhury has filed the copy of bank account evidencing the source of gift, the same is not liable to be added in his income.
ITAT Kolkata said that for the purpose of Section 56, there is no need or requirement of any gift deed and moreover, the Gift Tax Act is not in operation with effect from October 1, 1998.
ITAT Kolkata examines CIT (A) order
ITAT Kolkata said that though the CIT(A) partly allowed the appeal and deleted the addition of Rs 50 Lakh as the same related to transfer from one account to another however, as regards the gift received from the relative, he has mentioned in Ground no. 2 as under while deciding this issue:
- “In the instant case, the gift deed is not even made in India but in the USA and the deed also does not bear the signature of the recipient. It is also made 9 years after the transaction took place which raises the question of genuineness and validity of the gift deed.
- Perusal of self declaration of the donor reveals that the money acquired from selling of stocks through Indian stock exchanges but no details of stock transaction had been produced by the donor or the AR of the appellant.
- The gift deed also reveals that the gift was arranged from the donor’s NRE account maintained in State Bank of India. However, from perusal of SBI NRE bank statement, it is seen that there are two entries of deposit on December 14, 2011 and December 20, 2011 of amount Rs 23 lakh (23,41,630.36) and Rs 55 lakh respectively.
- The transaction happened on December 14, 2011 was due to the selling of HDFC Mutual Fund but the source of the fund amounting to Rs 55 lakh remains unexplained. Here it is pertinent to mention that to avoid tax liability, fulfillment of Section 56 is not enough, the recipient must also offer a satisfactory explanation about the nature and source of any sum credited in his account. In the above mentioned facts and circumstances, the claim of the appellant could not be established. Hence, the ground is dismissed.
The ITAT Kolkata said that it observed that the AO questioned the validity of the gift deed made in the USA without examining whether the source of the amount received from the relative was validly explained or not.
Also read: Fired employee returns company laptop only after criminal case filed; Delhi High Court rules against her for withholding office property
The CIT(A) also decided the appeal by relying upon the fact that the gift deed was not made in India but in the USA and the deed also does not bear the signature of the recipient.
ITAT Kolkata said that the SBI NRE bank statement showed that there are two entries of deposits on December 14 and December 20, 2011, of Rs 23 lakh (23,41,630) and Rs 55 Lakh, respectively. The funds for the transaction on December 14, 2011, arose out of selling of HDFC Mutual Fund units but the source of the money amounting to Rs 55 Lakh (on December 20, 2011) remained unexplained.
The tax department said that to avoid tax liability, fulfilling requirements of Section 56 of the Act is not enough, the recipient must also offer a satisfactory explanation about the nature and source of any sum credited in his account.
ITAT Kolkata said this about the gift deed executed in USA
ITAT Kolkata said that they have considered the submissions made and observed that the AO primarily was of the view that since no proper gift deed was made, the amount was liable to be assessed as ‘income from other sources’ and not exempt under Section 56.
ITAT Kolkata said that under Section 56, for exemption from assessing any sum received exceeding Rs 50,000, the law does not require a valid gift deed but is provided in the Section itself that if the amount is received from a relative as defined therein, it is not liable to be assessed under Section 56.
ITAT Kolkata said the source of the funds coming from the relative is not being questioned, the amount is not liable to be included in the total income of Dr. Choudhury. The AO did not make any comment in the remand report when the documents were forwarded to him by the Ld. CIT(A) vide letters dated November 17, 2022 and May 3, 2023.
Dr. Choudhury had submitted before the CIT(A) the gift deed as under:
“4. The Gift Deed was made on 4th August 2020 which was authenticated and Notarized by California Notary, USA [Annexure- 4A] for the purpose of clarification of Fund wherein of Rs. 80,00,000 was directly received/ Credited into his Kotak Mahindra Bank from his Brother-in-Law’s, Mr. Kundu SBI account, Relative as per U/s 56(2)(ii) (vii) through normal banking channels.”
ITAT Kolkata said that since in respect of the Rs 80 Lakh, the CIT(A) dismissed the appeal for the source of fund of Rs 55 Lakh from the sale of HDFC mutual fund remained unexplained, without mentioning in which year these mutual funds were bought, the addition if any, was liable to be made in the hands of the brother-in-law and not in the hands of Dr. Choudhury.
ITAT Kolkata said that Dr. Choudhury also relied upon the judicial pronouncement in Atul H. Patel v ITO [2022] 138 taxmann.com 454 (Ahmedabad Bench) and several other decisions in support of the claim that the amount received from the relative was exempt.
ITAT Kolkata said that since the necessary documentary evidence is submitted in support of the claim that the amount was received from the relative, there was no occasion to insist on a gift deed for excluding the amount received from the brother-in-law. The money has been received through banking channel.
ITAT Kolkata said: “The addition, if any, should be made in the hands of the relative of the assessee only and the exemption for the purpose of Section 56(2)(x) of the Act does not require any gift deed but only the sum being received from any relative which has not been disputed in the order.”
ITAT Kolkata judgement: “Therefore, the appeal is allowed and the addition upheld by the Ld. CIT(A) is hereby deleted. Accordingly, the grounds taken by the assessee in his appeal are allowed. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 4th November, 2025.”
Gift tax provisions
Surana says that this judgement provides a clear interpretation of how gift transactions are treated under the IT Act, especially after the repeal of the Gift Tax Act, 1958. Prior to 1 October 1998, gifts were governed by the Gift Tax Act, 1958, which levied a tax on the donor at specified rates.
Under the IT Act [refer Section 56(2)(vii) (now replaced by Section 56(2)(x)], the recipient of a gift may be taxed, depending on the nature, value, and relationship with the donor. In accordance with Section 56(2)(vii), any sum of money or property (including movable or immovable property) received by an individual or HUF without consideration is taxable as “income from other sources” if:
· The aggregate value of such gifts from non-relatives exceeds Rs. 50,000 during the financial year; and
· The transaction does not fall within any of the specified exemptions.
However, the law specifically exempts gifts received from “relatives”, as defined in Explanation (e) to the section. This includes gifts received from:
· Spouse of the individual;
· Brother or sister of the individual or of the spouse;
· Brother or sister of either parent of the individual;
· Any lineal ascendant or descendant of the individual or spouse; and
· Spouse of any of the persons referred to above.
