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Issues: Whether the immunity provisions applicable to India Development Bonds barred the Income-tax Department from enquiring into the source and genuineness of the gift received by the assessee and from making the impugned addition.
Analysis: The bond-holding assessee had received India Development Bonds as gift, and the governing statute conferred immunities on the bond holder and the resident donee of such bonds. The scheme and the statutory language showed that persons receiving such bonds as gifts were protected from disclosure of the nature and source of the investment and from inquiry or investigation on that basis. The contemporaneous circular of the Central Board of Direct Taxes and the Government clarification reinforced that the recipient was not required to disclose the identity of the non-resident donor and that the tax authorities were not to make such enquiries. The Department was therefore not entitled to disregard the statutory protection and proceed with the addition on the basis of the source of the gifted bonds.
Conclusion: The immunity attached to the gifted India Development Bonds operated in favour of the assessee, and the impugned addition was not sustainable.
Ratio Decidendi: Where a statute granting immunity to India Development Bonds expressly protects the resident recipient of a gift from disclosure and enquiry as to the source and identity of the donor, the tax authority cannot investigate or make an addition on that basis.
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