Mumbai ITAT rules gifts from step-siblings are not taxable under Section 56(2)(vii)(b). Learn the case facts, tax impact, FAQs, and practical insights for Indian taxpayers.
🧾 Q1: What’s the core dispute in this case?
A: The heart of the matter was whether a gift of property worth ₹7.88 crore from a step-sister to her step-brother should be taxed under Section 56(2)(vii)(b) of the Income Tax Act.
👉 The Tax Department said: Step-siblings aren’t listed as “relatives” under the law — so the gift should be taxed as “income from other sources.”
👉 The taxpayer said: Step-siblings are family — just not by blood, but by marriage — so the gift shouldn’t be taxed.
🧾 Q2: How did the tax department even find out?
A: The case came to light in January 2021 when the step-brother applied for a lower TDS certificate to sell the gifted property.
During verification, the tax office saw the donor was a step-sister — not a biological one — triggering a notice. 📩
⚖️ Q3: What were the main legal arguments?
Taxpayer’s side quoted:
• Section 45S of the RBI Act
• Section 2(77) of the Companies Act
• Black’s Law Dictionary
👉 All recognizing step-siblings as relatives.
Tax Department’s side: Strict reading of Section 56 of the Income Tax Act — which does not list step-siblings.
🏛️ Q4: What did the ITAT decide?
✅ Ruling in favour of the step-brother, ITAT said:
Step-brothers and sisters are relatives in common sense, not just in strict legal terms.
The law already recognizes step-children, so step-siblings should also be covered.
Adopted a purposive and humane interpretation of family ties.
🧬 Q5: What kinds of sibling relationships did the ITAT recognize?
1. Uterine siblings – Same mother
2. Consanguine siblings – Same father
3. Germane siblings – Both parents same
4. Step-siblings – Related through parents’ marriage
5. Adopted siblings – Legal siblings via adoption
🧠 Q6: What is the Doctrine of Affinity?
The Doctrine of Affinity means family relationships created by marriage.
👉 ITAT applied this doctrine, holding that step-siblings are part of family ties by affinity, hence exempt from tax.
🌟 Q7: Why is this case important?
✅ First Indian precedent recognizing step-siblings as relatives for tax purposes
✅ Removes ambiguity in modern family structures
✅ Saves taxpayers from unfair tax on genuine gifts
🤔 Q8: What’s next?
The Income Tax Department may still appeal in High Court.
The Income Tax Act does not yet explicitly include step-siblings, so a law change is expected.
🧾 Practical Example
📌 If you receive a flat from your step-sister as a gift, as per this ruling, no tax applies under Section 56(2)(vii)(b) — provided documents prove the relationship.
📌 FAQs
Q1. Are gifts from siblings taxable in India?
No, gifts from siblings (including step-siblings as per this ITAT ruling) are not taxable under Section 56 of the Income Tax Act.
Q2. Are gifts from non-relatives taxable?
Yes, if the value exceeds ₹50,000 in a year, it is taxable as “Income from Other Sources.”
Q3. Does this ITAT ruling apply across India?
Not yet. Until the CBDT or a higher court confirms, it applies mainly as a precedent in Mumbai ITAT jurisdiction.
Q4. What documents should I keep for a step-sibling gift?
✓Gift deed
✓Proof of step-relationship (marriage certificate of parents, family tree affidavit)
✓Identity proofs of both parties
Confused about gift taxation and income tax notices?
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