Situs of bank debt controls gift-tax exemption for non-resident remittances through banking channels under the Gift-tax Act.

A gift remitted through banking channels by a non-resident donor was treated as movable property situated outside India because the underlying bank debt was located at the debtor's place of residence. Applying that situs principle, the Court held that the transfer made in Malaysia and remitted to the donee in India fell within the exemption under section 5(1)(ii) of the Gift-tax Act, 1958, and the assessee was entitled to exemption.

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Issues: Whether gifts made by a non-resident assessee through bank drafts purchased in Malaysia and remitted to India were exempt from gift-tax under section 5(1)(ii) of the Gift-tax Act, 1958.

Analysis: The gifts were made by purchasing drafts in Malaysia and sending them to the donee in India through banking channels. The determining factor was the situs of the property gifted at the time of transfer and acceptance. The Court applied the settled principle that the banker-customer relationship is contractual and that the debt represented by the bank deposit is situated at the place where the debtor is resident. On that basis, the movable property gifted was treated as situated outside India when the gift was made by a non-resident donor in Malaysia and remitted to the donee in India through the bank.

Conclusion: The assessee was entitled to exemption under section 5(1)(ii) of the Gift-tax Act, 1958, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: For purposes of section 5(1)(ii) of the Gift-tax Act, 1958, a gift remitted through a bank by a non-resident donor is exempt where the underlying debt is situated outside India at the time of transfer, because the situs of the debt follows the residence of the banker-debtor.

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