ITAT Kolkata Rules: Gifts from Brother-in-Law Are Tax-Free Under Income Tax Act
Tribunal says exemption applies even without a formal gift deed if banking records prove transfer
Decision offers relief to NRIs and families receiving money from abroad
By Our Legal Correspondent
New Delhi: November 10, 2025:
In a landmark ruling, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has held that gifts received from a brother-in-law are exempt from income tax under Section 56(2)(vii) of the Income Tax Act, 1961. The judgment, delivered on November 4, 2025, provides clarity on the tax treatment of family gifts and offers relief to taxpayers, especially NRIs and individuals receiving money from relatives abroad.
The tribunal emphasized that the law clearly defines “relative” for the purpose of gift exemptions, and this includes the brother or sister of the spouse of the individual. Therefore, gifts from a brother-in-law cannot be taxed as “income from other sources.”
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Background of the Case
The case involved Deb Prasanna Choudhury, an NRI, who received ₹80 lakhs in his NRE account from his brother-in-law. The gift deed was executed in the USA, and the funds were transferred through normal banking channels.
- The Assessing Officer (AO) treated the amount as taxable income under Section 56(2)(vii), arguing that the gift deed was not valid and that the source of funds was unexplained.
- The Commissioner of Income Tax (Appeals) partly upheld the AO’s order, confirming the addition of ₹55 lakhs.
- The assessee appealed to the ITAT, contending that the gift was exempt under the law since it was received from a relative.
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Tribunal’s Observations
The ITAT bench, comprising Shri George Mathan and Shri Rakesh Mishra, made several key observations:
- Definition of Relative: Section 56(2)(vii) explicitly exempts gifts received from relatives. The term “relative” includes the brother or sister of the spouse of the individual.
- Gift Deed Not Mandatory: The exemption does not depend on the existence of a formal gift deed. Bank records showing transfer of funds are sufficient proof.
- Source of Funds Irrelevant for Recipient: Any query about the source of funds pertains to the donor, not the recipient. The recipient cannot be taxed if the gift falls under the relative exemption.
- Error by AO and CIT(A): Both authorities misdirected themselves by focusing on procedural issues. The exemption is a substantive right under the Income Tax Act.
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Why This Ruling Matters
- Clarity for NRIs: Many NRIs receive financial support from relatives abroad. The judgment ensures such gifts are not wrongly taxed.
- Relief for Families: Families receiving money from close relatives can rely on the exemption without fear of litigation.
- Judicial Discipline: The ruling reinforces that tax authorities must apply the law as written, not create artificial hurdles.
Expert Opinions
- Chartered Accountants say the judgment will reduce unnecessary disputes and provide certainty in tax planning.
- Legal analysts note that the ITAT has correctly interpreted the law, preventing misuse of tax provisions.
- NRI associations have expressed relief, as many expatriates send money to family members in India.
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Broader Implications
- For Taxpayers: Gifts from defined relatives are safe from taxation. Documentation through banking channels is crucial.
- For Tax Authorities: Need to respect statutory exemptions and focus on genuine cases of tax evasion, not family gifts.
- For Judiciary: Reinforces consistency in interpreting tax laws and reduces burden of appeals on similar issues.
Historical Context
- ITAT Mumbai (2024) – held that gifts from an NRI brother are exempt.
- Delhi HC (2025) – emphasized that family gifts cannot be treated as unexplained income if banking records exist.
This latest judgment adds to the growing body of case law protecting family gifts from taxation.
Conclusion
The ITAT Kolkata’s ruling in the Deb Prasanna Choudhury case is a landmark in Indian tax jurisprudence. By holding that gifts from a brother-in-law are exempt from income tax, the tribunal has reinforced the principle that family support should not be penalized under tax laws.
For taxpayers, especially NRIs, the judgment provides clarity and relief. For tax authorities, it is a reminder to apply the law faithfully. And for the judiciary, it is another step toward ensuring fairness and consistency in tax administration.
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