A recent Income Tax Appellate Tribunal’s [Rabin Arup Mukerjea Vs Income Tax Officer [TS-5211-ITAT-2025(Mumbai)-O] has triggered a debate on connotations of the expressions ‘brother or sister of an individual’- particularly given the tax exemption for gifts between relative, specified under Explanation (e)(B) to Section 56(2)(vii)- including ‘brother or sister of an individual’.

The legal controversy is set out in interesting facts, which are discernible from the ITAT judgment and also from the information in the public domain. In the last decade, all the characters in the transaction have been subjected to an unprecedented media glare because of the coverage of a sensational murder case known as the Sheena Bora Murder Case, which shook the country in 2015, and their relationship with the prime characters in this murder mystery.

The related material facts are as follows. In 2003, shortly after Peter Mukherjee, arguably one of the most successful executives in the history of the Indian television industry, married sixteen years younger and successful human resources professional Indrani Mukherjee, Peter gifted his new wife, Indrani, 50% of the share in a Worli flat. In 2011, Peter and Indrani, who were by now equal owners of this flat- 50% share of each of them, gifted the entire flat to Vidhie, Indrani’s daughter from an earlier marriage, who was living with the couple. In 2015, the Sheena Bora murder case came to light, in which Indrani and Peter were accused, both Indrani and Peter were arrested, and their relationship also turned sour, which ultimately came to an end with a divorce on 26/12/2019. During these challenging times, on 21/1/2016, and at the peak of this tragic saga when both her parents were behind bars, the Worli flat, which had come into Vidhie’s hands through a series of tax-neutral gifts, was gifted by her to her stepbrother Rabin, son of Peter from his earlier marriage, living thousands of miles away in the United Kingdom.

In the subject judgment, the point of dispute is confined to this gift transaction's income tax implications. It is important to remember that if this gift is not held to be a gift between ‘relatives’ as defined in Explanation (e) to Section 56(2)(vii) of the Income Tax Act, 1961, the entire value of this flat is to be treated as a taxable income in the hands of the recipient of the gift. The tax exemption of this gift thus hinges on Vidhie and Rabin being treated as ‘relative’ in terms of Section 56(2)(vii).

It is also important to note that in the normal course, stepchildren don't get the status of children unless the new couple adopts them. The couple may have divorced, but the biological father or mother of a child borne out of that wedlock continues to have the status as such. A child obviously cannot have two fathers or two mothers- both of lawful status as such, at the same time. Exception by legal adoption apart, the relationship between children from different marriages of the same person cannot, therefore, be of brothers or sisters- which is, except by a fiction of law, invariably a corollary to the same parentage. 

In all fairness, however, one can see a clearly discernible pattern in the scheme of the Income Tax Act so far as step relations are concerned. The Income Tax Act of 1961 allows the exception to the above rule and provides that the expression 'child' in relation to an individual includes a stepchild or adopted child. While the latter part of the definition is somewhat superfluous, as once a child is lawfully adopted by a fiction of law, all natural corollaries follow anyway. So far as the first segment of this definition is concerned, that is legally significant. It creates a situation in which even the stepchildren have the status of children of one of the parents and his/her present spouse, and that is a somewhat unique peculiarity of the income tax law. The peculiarity of the income tax law provisions is that even children of an individual's spouse, from an earlier marriage of such spouse, are treated as children of that individual under section 2(15B). Interestingly, however, when this fiction of law was introduced, Section 56(2)(vii) was not even in existence.

As a corollary to the stepchildren, i.e. children of an individual's spouse from earlier marriages, being treated at par with biological and adopted children on account of this fiction of law,  and as a logical extension of that principle, the biological and adopted children of an individual and children of his/her spouse from such spouse's earlier marriage(s), can indeed be treated as brothers or sisters. The reason is simple. Even the most conservative interpretation of the connotations of brothers and sisters will include children with common parentage. When a stepchild, by a fiction of law under section 2(15B), is required to be treated as the child of a person, who is not his parent by birth or by adoption, all the children of such parents are logically required to be treated as siblings.  To that extent, the legal position between the income tax law and other general law is quite at variance, and a valid school of thought thus does exists that the step sisters and brothers may also be included in the scope of ‘brother or sister of an individual’ under Section 56(2)(vii). Such an interpretation may be viewed as being in harmony with the scheme of Section 2(15B) read with Section Explanation (e)(B) to Section 56(2)(vii). 

Significantly, the gift took place on 21st January 2016, when Peter Indrani’s marriage subsisted, i.e. till 26th December 2019, and the inter-se relationship between Vidhie and Rubin continued to be of stepsiblings. With the end of the marriage between Peter and Indrani, even the status of stepsiblings between Rubin and Vidhie ceases to exist, and howsoever extended by the meaning of ‘brother or sister’, it would be stretching things a bit too far to include the children from earlier marriages of former step-parents. That, however, is not the case.

As the ITAT points out, the expression ‘brother or sister of an individual’ is an undefined expression under the Income Tax Act, 1961, and gives an erudite analysis in support of the proposition that the connotations of this expression must include stepsiblings as well. There could always be a different opinion on anything- including on the conclusions arrived at in this case or even reasoning adopted to come to this conclusion, but rare are the occasions when one sees so much effort and thoughtful and comprehensive analysis in a judicial decision-making process, as seen in this ITAT decision. Whether one agrees with the conclusions arrived at by the ITAT or not, it is a sheer delight to witness the elaborate, transparent and erudite judicial analysis in this case. It will be interesting to see the take of the Hon’ble Courts above on the ITAT’s painstaking analysis of this legal position.

The stand of the revenue authorities, however, may not really be entirely devoid of, what can be arguably termed as, legally sustainable merits either. For the sake of completeness, let us see things from their perspective as well.

The expression ‘relative” is defined explicitly in Explanation to Section 56(2)(vii) to include ‘brother or sister of the individual’ though it does not assign any extended meaning to that term, unlike, for example, the Companies Act or the Reserve Bank of India Act. Under Section 2(77) of the Companies Act 2013, read with rule 4 of the Companies (Specification of definitions details) Rules, 2014, the definition of brother and sister specifically includes ‘stepbrothers’ and ‘stepsisters’. Similarly, under Section 45S of the Reserve Bank of India Act, 1934, step brothers and step sisters are included explicitly in the definition of relatives. The first question, therefore, is whether the same meaning of ‘brother or sister’, as assigned under the Companies Act and Reserve Bank of India Act, could be assigned under the Income Tax Act. In both these enactments, the expressions of step brothers and step sisters were explicitly defined. That is not the case in the Income Tax Act.

Interestingly, in this case, the CIT(A)  himself has implicitly accepted that the half-siblings (i.e. step-siblings with one common biological parent) as entitled to be treated as covered by the scope of ‘brother or sister of an individual’, as it is observed that “it is essential that relationship of brother and sister to share the same parents or at least one of the parent should be common” but rejected the claim of the assessee on the ground that none of the biological parents of Vidhie or Rabin was common.  It will be interesting to see whether the revenue authorities accept the decision of the CIT(A) in principle on this point, which, in a way, relaxes the rigour of Explanation (e)(B) to Section 56(2)(vii) to a limited and, if I may so, reasonable extent.

Reading the words ‘including step brothers or step sisters’ in the definition under Section 56(2), even when such words are missing in the neatly defined definition, may be viewed as casus omissus- something not permissible in law by several judgments of the Hon’ble Supreme Court which has, in the case of Smt. Tarulata Shyam v. CIT [TS-14-SC-1977-O] at page 356, observed that "We have given anxious thought to the persuasive arguments...(which) if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections....is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be not to construe but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation”. A prima facie valid school of thought thus exists that the expression ‘brother or sister of an individual’ may not include step brothers or step sisters without a specific statutory provision to that effect.

The next point, from revenue’s perspective, is whether the connotations of the expression ‘relative’ need judicial analysis and interpretation. The expression ‘relative’ is statutorily defined under Explanation to Section 56(2)(vii), and once there is a specific definition of an expression, there can be no justification for the Tribunal to reject the statutory definition based on judicial perceptions of what ideally the definition of that expression should be.  It cannot be open to the Income Tax Appellate Tribunal, itself a creature of the Income Tax Act, to question the higher wisdom of legislature in assigning a particular, even if restricted- should that be so, meaning of the term ‘relative’ in Explanation to Section 57(2)(vii). That judicial scrutiny, if needed, can only be done by the Hon’ble High Courts or the Hon’ble Supreme Court.

Viewed thus, the entire discussion about what constitutes ‘relative’ in the legal literature and other enactments is relegated to a somewhat academic delight, except to the extent, as the ITAT itself puts in many words, deciphering the scope of an undefined expression, i.e. ‘brother or sister of an individual’, and whether step-siblings are covered by the same.  The question as to whether the step-siblings are includible in the scope of ‘brother or sister of an individual’ is a highly nuanced but pure question of law. The ITAT decision, thus, is not the end of the road because such a question can safely be claimed to be a ‘substantial question of law’ requiring adjudication by the Hon’ble High Court.

The bottom line, however, is the intent and purpose of Section 56(2)(vii) and the manner in which the judicial thought process is to be synchronised with the legislature's intent, as is always the inherent, though generally somewhat subliminal, thrust of the judicial process. Undoubtedly, the scheme of Section 56(2)(vii) unambiguously envisages tax exemption of bonafide gifts out of genuine love and affection. As much as there can be such genuine transactions between the biological siblings or half-siblings, there can also be such genuine transactions between the step-siblings.  Viewed thus, it may make sense to test the proposition that the contextual requirement of the definition under section 56(2)(vii) justifies the inclusion of genuine transactions between step-siblings as well.  

Inclusion of the children of former spouses of one of the parents in the scope of siblings does, at times, seem to be taking things a bit too far. Can such step-siblings have the same sibling affection as the hallmark of a typical sibling relationship with common parents or at least one common parent? If not,  can statutory tax exemption to intra-sibling transactions also be extended, apart from to the half-siblings as accepted by the CIT(A) in the present case,  by judicial interpretation and without specific statutory support to that effect,  to the step-siblings as well?

On a practical note, much really hinges on the bonafides of love and affection at the foundation of the transactions in question. As is said, one has to appeal to the judicial conscience first, and, more often than not and whether opposing lawyers like it or not, everything else falls into place as a corollary to a successful appeal to the judicial conscience. The bonafides in the gift transaction have not been called into question yet, and it will be very challenging, if not altogether impossible,  to do so now, even though, viewed simplistically, there are some red flags in the impugned gift transaction. Unless the Hon’ble judges show an extraordinary restraint in not being influenced by what may be perceived as a matter of common knowledge but is not discernible from the material on case record, which of late happens much more in theory than in actual practice, the Hon’ble judges may have nagging doubts about bonafides of this gift- a factor which can substantially, even though subliminally, affect the outcome of this case. 

Given the vast ramifications of legal issues in this case, a comprehensive courtroom battle on these nuances of law, and perhaps also on these peculiar facts, is waiting in the wings. This controversy has fascinating nuances, and all the stakeholders will be keenly watching the unfolding jurisprudence on the subject.

On a parting note, and as all of us prepare to watch the unfolding jurisprudence on these nuances, I would, rather than expressing any opinion on what seems correct law, leave you with all these propositions for and against the plea that step-siblings are covered by the scope of the expression ‘brother or sister of an individual’— the core issue in the appeal. While these propositions are certainly not exhaustive, and much more can be added either way- including on the possible impact of the Dayabhaga School of Hindu law on the relationships, these mutually competing propositions may perhaps give the uninitiated a sense of the complexity of the decision-making process even in taking seemingly simple judicial calls, and that is when glaring red flags in the transaction are not touched, howsoever tempting as it may be, even at the surface level.