1997 (1) TMI 34 - HC - Income Tax

Bank draft encashment in India deemed taxable gift under Gift-tax Act despite foreign purchase

The High Court held that the encashment of bank drafts in India constituted gifts within Indian taxable territories under the Gift-tax Act, despite the ... Question Of Fact, Service Of Notice Issues:Interpretation of gift under the Gift-tax Act, 1958 - Whether purchasing a draft in the name of another person in America and encashing it in India constitutes a gift made abroad or in India for the purpose of the Gift-tax ActRs.Detailed Analysis:The case involved a question of law referred by the Tribunal under section 26 of the Gift-tax Act, 1958, regarding the nature of a transaction where the assessee sent money through bank drafts from a foreign country to his wife in India for the benefit of their children. The Gift-tax Officer contended that since the encashment of the drafts and subsequent gifting occurred in India, it constituted gifts within Indian taxable territories, thus attracting the provisions of the Gift-tax Act. However, the Appellate Assistant Commissioner and the Tribunal, in line with previous decisions, held that the gifts were made by the assessee abroad and were exempt from the Gift-tax Act, irrespective of whether the gifts were directly to the wife or indirectly to the children.The Appellate Assistant Commissioner's decision was based on the premise that the location of the gift's completion is crucial, and in this case, the delivery of possession occurred in India upon encashment of the drafts. The Tribunal supported this view by considering the bank as an agent of the donee in America, where the drafts were purchased. However, the Revenue argued that since the encashment took place in India, the gift was completed within Indian territory, making it taxable under the Gift-tax Act.The High Court, after careful consideration of the facts and legal precedents, disagreed with the Tribunal's decision. It emphasized that for a valid gift, delivery of possession is essential, and in this case, it occurred in India during the encashment of the drafts. Citing a previous judgment, the court held that as the gift was completed within Indian territory, gift-tax was leviable. The court rejected the Tribunal's reasoning and ruled in favor of the Department, answering the referred question in the negative.In conclusion, the judgment clarified the interpretation of gift transactions under the Gift-tax Act, highlighting the significance of the location of delivery in determining the taxability of gifts. The decision underscored that the completion of a gift within Indian territory renders it subject to gift-tax, even if the initial transaction occurred abroad.