Situs of debt controls gift-tax exemption for foreign demand drafts sent to non-resident donees.

Demand drafts purchased in foreign currency at Kuala Lumpur and issued in the names of the donees were treated as gifts of movable property situated outside India. The court applied the principle that an intangible movable debt is situated where the debtor is located, and held that the relevant property at the time of acceptance was the foreign bank's debt to the donees, not cash delivered in India. As the drafts represented only the right to realise money from the foreign bank, the gifts fell within the exemption for movable property outside India under section 5(1)(ii) of the Gift-tax Act, 1958.

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Issues: Whether demand drafts purchased in foreign currency in Kuala Lumpur and sent to the assessee's daughters constituted gifts of movable property situated outside India so as to qualify for exemption under section 5(1)(ii) of the Gift-tax Act, 1958.

Analysis: The drafts were purchased in the foreign country in the names of the donees and represented the bank's debt to the donees. Applying the principle that the situs of an intangible movable debt is where the debtor is situated, the relevant property at the time of acceptance of the gifts was the debt owed by the foreign bank. The banker-customer relationship being one of debtor and creditor, the drafts did not represent cash delivered in India, but only the right to realise the amount from the bank. The earlier decisions relied on by the Revenue did not consider this aspect of the situs of the debt and the legal character of the bank deposits.

Conclusion: The gifts were of movable property situated outside India, and the assessee, being a non-resident, was entitled to exemption under section 5(1)(ii) of the Gift-tax Act, 1958.

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