Income Tax Query 7: Whether Gifts received from Maternal Grandparents are Taxable / Exempt?

Amongst the various unsetteled controversies in Income Tax Laws of India, one is with respect to gifts / amounts received without consideration from Maternal Grand Parents (Nana, Nani).

There appears to be a general difference of opinion amongst tax professionals as to whether or not Maternal Grand Parents are covered in the definition of Relatives as contained in Explanation to section 56(2)(vii) / 56(2)(x) and accordingly whether gift received by a person from his/her Maternal Grandparents is chargeable to tax or exempt.

The controversy is amplified because notions of Hindu Law have been imported into “interpreting” the meaning of “lineal ascendant”.

Query: Whether Gifts received from Maternal Grandparents are Taxable or Exempt? that is to say, whether Maternal Grandparents (Nana, Nani) constitute as Lineal Ascendant of the Individual (Recepient of Gift).

Response:

In the matter of CIT, Delhi vs. Dhannalal Devilal, AIR1 956 RAJ 30, [1956] 29 ITR 165 (RAJ), para 8, observed: “Lineal consanguinity is when two persons are connected in one straight line, whether descending or ascending, drawn from the propositus. Where the line is descending, the persons are lineal descendants. Collateral consanguinity is when two persons are connected by a descending line which is not a straight line.”

“In this view of the matter, a son will be a lineal descendant of the mother as well as of his grand-mother Irrespective of whether the mother or the grand-mother can form a line of succession under the Hindu Law. These notions of Hindu Law have not, in our opinion, to be imported in interpreting the words ‘lineal descendant’.”

Further, reference can be drawn to the Mulla’s Hindu Law, wherein while dealing with the meaning of the term ‘sapinda’ in the context of Hindu Marriage Act, 1955, it is stated that lineal ascendants would include both male and female ascendants of father and mother.

Relying on the above, one may opine that judicial precedent as above has Held, Maternal Grandparents to be Lineal Ascendant. Further, Gifts received from Maternal Grandparents can be stated to be exempt from Income Tax being excluded by virtue of 56(2)(vii) / 56(2)(x) of the Income Tax Act, 1961.

It may be further submitted that a 21st Century Law cannot have medeival interpretations. As also stated by Justice R.C. Lahoti, C. in Kailash Chand v. Dharam Dass, (2005) 5 SCC 375, 13 “Life is not static and so the law cannot afford to be static.“