1997 (2) TMI 69 - HC - Income Tax

Court Denies Gift Tax Exemption for USD Gifts, Allows England Deposits Transfer

The court ruled against the assessee in T.C. Nos. 409 and 410 of 1984, denying exemption under section 5(1)(ii)(a) of the Gift-tax Act for gifts made in ... Burden Of Proof, Fixed Deposit, Gift Tax, Minor Child, Not Ordinarily Resident Issues Involved:1. Exemption under section 5(1)(ii)(a) of the Gift-tax Act, 1958.2. Determination of the location of movable property at the time of the gift.3. Validity of the acceptance of the gift under the Transfer of Property Act.Detailed Analysis:Issue 1: Exemption under section 5(1)(ii)(a) of the Gift-tax Act, 1958T.C. Nos. 409 and 410 of 1984:The primary question was whether the gifts made by the assessee in American dollars, which were encashed in India, were exempt under section 5(1)(ii)(a) of the Gift-tax Act. The Gift-tax Officer initially rejected the exemption, but the first appellate authority and the Appellate Tribunal granted it. The court referred to previous decisions, including CGT v. S. Raja Ramalingam and CGT v. K. A. Abdul Kader, which influenced the decision in favor of the Revenue.T.C. Nos. 361 and 362 of 1984:In this case, the assessee had fixed deposits in England and instructed the bank to transfer the proceeds to his daughters in India. The Tribunal found that the property in the fixed deposits passed from the assessee to the donees when the instructions were given in England. The court upheld the Tribunal's decision, granting the exemption under section 5(1)(ii)(a).Issue 2: Determination of the location of movable property at the time of the giftT.C. Nos. 409 and 410 of 1984:The court had to determine where the movable property (drafts) was situated at the time of the gift. The court concluded that the drafts were in India when the gifts were accepted by the donees, and thus, the gifts were taxable. The court emphasized that the burden of proving the location of the property at the time of the gift was on the assessee, which was not discharged.T.C. Nos. 361 and 362 of 1984:The Tribunal found that the property in the fixed deposits passed from the assessee to the donees when the instructions were given in England. Therefore, the movable property was situated outside India at the time of the gift, qualifying for the exemption.Issue 3: Validity of the acceptance of the gift under the Transfer of Property ActT.C. Nos. 409 and 410 of 1984:The court discussed the necessity of acceptance by the donee for a gift to be valid under the Transfer of Property Act. It concluded that the acceptance took place in India, making the gifts taxable. The court rejected the argument that the post office acted as the agent of the donee in the USA, as there was no evidence to support this claim.T.C. Nos. 361 and 362 of 1984:The Tribunal found that the instructions given by the assessee in England constituted acceptance of the gift on behalf of the minor donees. The court agreed with this finding, noting that the acceptance took place outside India, thus granting the exemption.Conclusion:T.C. Nos. 409 and 410 of 1984:The court answered the common question of law in the negative and in favor of the Revenue, holding that the assessee was not entitled to exemption under section 5(1)(ii)(a) of the Act for the assessment years in question.T.C. Nos. 361 and 362 of 1984:The court answered the question in the affirmative and against the Revenue, upholding the Tribunal's decision to grant the exemption under section 5(1)(ii)(a) of the Act.