A recent ruling by the Income Tax Appellate Tribunal (ITAT) Mumbai Bench has clarified a significant point regarding the definition of “relatives” under the Income-tax Act, 1961. The tribunal ruled that gifts received from a step-sister are exempt from tax, as step-siblings fall within the definition of “relative” through affinity
The Dispute: Is a Step-Sister a “Relative”?
The case involved an individual (a non-resident Indian) who received a residential property in Mumbai as a gift from his step-sister via a registered gift deed.
- The Assessing Officer’s (AO) View: The AO argued that because the donor and donee were not biological siblings, they did not meet the definition of “relative” under Section 56(2). Consequently, the AO treated the property value (approx. ₹7.5 crore) as taxable “Income from Other Sources”.
- The Family Connection: The donor (Vidhie Mukerjea) was the daughter of Indrani Mukerjea from a previous marriage, while the assessee (Rabin Mukerjea) was the son of Peter Mukerjea from his first marriage. They became step-siblings when Indrani and Peter married.
The Tribunal’s Reasoning
The ITAT overturned the previous orders, citing several key legal interpretations:
1. Definition by Affinity
The tribunal noted that while the Income-tax Act does not explicitly define “step-brother” or “step-sister,” the term “relative” in common law and dictionaries (like Black’s Law Dictionary) includes persons connected by affinity—a connection created by marriage.
2. Comparison with Other Acts
The tribunal drew parallels from other Indian legislation where “step” relationships are recognized:
- Income-tax Act, Section 2(15B): Explicitly includes a “step-child” in the definition of a child.
- Companies Act, 2013: Includes step-siblings within the term “relative”.
- Reserve Bank of India Act, 1934: Also lists step-siblings as relatives.
3. Common Parlance
The ruling identified five types of sibling relationships: Uterine, Consanguine, Germane (biological), Step, and Adopted. It concluded that in the absence of a “negative covenant” in the Act specifically excluding them, “brother and sister” should naturally include step-siblings.
Key Takeaway for Taxpayers
The Verdict: A gift of property or money from a step-brother or step-sister is exempt from tax under Section 56(2)(vii), as they are to be treated as “brother and sister of the individual.
This decision provides much-needed relief and clarity for modern family structures, ensuring that “relative” is interpreted through the lens of both blood and legal affinity.
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