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Mar 23, 2026
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Equity shares received by private trust for relatives' benefit are exempt from income tax, ITAT Chennai rules
On September 1, 2021, Mr Srinivasan had set up a private trust for his family. Throughout the year, the trust received shares worth Rs 15.78 crore as a contribution from Mr Srinivasan, and because of this, the trust treated this transaction as not taxable due to an exception in Section 56(2)(x) the Income Tax Act 1961.
From these shares, the trust earned a dividend of Rs 5,900 and reported this income in its income tax return (ITR) for AY 2022-23. However, the case was flagged for scrutiny with a tax notice issued under Section 143(2) dated June 1, 2023
The Income Tax officer, in the course of assessment, noted the shares received by the private trust through contribution from Mr Srinivasan and thereafter issued a show-cause notice on February 27, 2024, suggesting that the receipt of these assets should be classified as income from other sources' u/s 56(2)(x).
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