1989 (4) TMI 28 - HC - Income Tax

Timing of Gifts under Gift-tax Act clarified by High Court emphasizing debt write-off over initial advances.

The High Court held that gifts under the Gift-tax Act were deemed to occur when the debt was abandoned, not when the amounts were initially advanced. ... Deemed Gift, Gift Tax Issues:Interpretation of section 26(3) of the Gift-tax Act, 1958 regarding the timing of gifts made by an individual to his son and the subsequent assessment of those gifts.Analysis:The judgment pertains to a case where the assessee was assessed for gift-tax on lands settled on his grandson, but the Gift-tax Officer noticed a sum forgone by the assessee in favor of his son, which was considered a gift. The main issue revolved around whether the gifts arose when the amounts were spent by the assessee on his son or when the entire debit balance was written off. The Appellate Assistant Commissioner held that expenses incurred for the son should be treated as gifts when expended, not when written off. The Tribunal upheld this view, leading to the question of law being referred to the High Court.The Revenue argued that the gifts should be deemed to arise only when the entire debit balance was written off, as per the entries in the accounts maintained by the assessee. On the other hand, the assessee contended that the advances to his son should be treated as gifts when made, considering the purpose behind the loans and the relationship between the parties. The High Court analyzed the treatment of advances in the accounts, emphasizing that they were recorded as loans and carried forward, indicating an intention of recovery. The Court referred to section 4(1)(c) of the Act, which deems the release or abandonment of debt as a gift, and concluded that the gifts occurred when the debt was written off, not when the amounts were advanced.The Court highlighted that the treatment of advances in the accounts and the subsequent writing off of the debt were crucial in determining the timing of the gifts. It dismissed the Tribunal's view that gifts arose when the amounts were advanced, emphasizing the significance of the writing off as indicative of the actual gifting intention. The Court rejected the reliance on post-event intentions and emphasized the contemporaneous treatment in the accounts. Ultimately, the High Court held that the gifts were made when the debt was abandoned, answering the referred question in favor of the Revenue.In conclusion, the judgment clarifies the timing of gifts under the Gift-tax Act, emphasizing the importance of contemporaneous treatment in accounts and the actual abandonment of debt in determining the occurrence of gifts. The decision provides clarity on the assessment of gifts and highlights the significance of accounting practices in establishing gifting intentions.