2015 (2) TMI 504 - HC - Income Tax

Foreign gift not taxable under Income Tax Act; Court upholds decision citing genuine transaction & lack of evidence

The High Court ruled that the gift amount received by the assessee from a foreign donor was not taxable under Section 68 of the Income Tax Act. The Court ... Taxability of Gift - Genuineness of gift - Held that:- This Court considered the factual matrix. The revenue does not dispute the present relationship between the donor (through Mr. Waney) and Mr. Ashwani Suri. It also does not dispute that the letter in terms of which the initial donation was made to Mr. Ashwani Suri, directed the disbursement of amounts in a particular proportion, which he did. The assessee is also related to Mr. Ashwani Suri. In these circumstances, the underlined transaction whereby the donor directed amounts to be disbursed by Mr. Ashwani Suri to specified or named individuals cannot be treated as unnatural. Both the authorities - the CIT(Appeals) and the ITAT took note of these facts and further noticed that all the gifts were rooted to normal banking transactions. While Section 68 certainly enables the AO to bring to tax amounts which are suspect, in a transaction of the present kind, where the identity and the relationship of the donor are known, the AO in our opinion ought not to have concluded that the transaction - by which the assessee received the amount of ₹ 1,84,860/- was ingenuine. - Decided in favour of assessee. Issues:1. Taxability of the amount received as a gift from a foreign donor.2. Application of Section 68 of the Income Tax Act to undisclosed income sources.3. Genuineness of the transaction and the burden of proof on the assessee.Issue 1: Taxability of the gift amount:The case involved a gift of US Dollars 16,000 received from a foreign donor, Mr. Arjun C. Waney, and the question was whether this amount was taxable in the hands of the recipient, Shri Ramesh Suri. The donor directed the distribution of the gift among various family members, including the assessee. The revenue sought to tax this amount under Section 68 as undisclosed income. However, the CIT(Appeals) reversed the AO's decision, holding that the link between the receipt of the amount by the donee and the assessee was established, and therefore, treating the amount as income from undisclosed sources was not justified.Issue 2: Application of Section 68:The AO added the amount of INR 1,84,860 (equivalent to USD 16,000) to the assessee's income under Section 68. The revenue contended that the genuineness of the transaction should be examined, including the identity, creditworthiness, and genuineness of the donor. The revenue relied on the Supreme Court's decision in CIT v. P. Mohanakala & Ors (2007) to argue that the assessee had to prove the genuineness of the transaction. However, the CIT(Appeals) and the ITAT upheld the genuineness of the transaction, emphasizing the known relationship between the donor and the donee, which was not disputed.Issue 3: Genuineness of the transaction and burden of proof:The revenue challenged the genuineness of the transaction, arguing that the assessee failed to prove the legitimacy of the gift received. The counsel for the assessee contended that the findings of the CIT(Appeals) and the ITAT, upholding the genuineness of the transaction, should not be questioned by the Court. The Court observed that the known relationship between the donor and the donee, coupled with normal banking transactions and the directions in the gift letter, supported the genuineness of the transaction. The Court rejected the revenue's claim, emphasizing the lack of dispute regarding the relationship between the donor and the donee.In conclusion, the High Court upheld the decision of the lower authorities, ruling that the gift amount received by the assessee was not taxable, as the transaction was found to be genuine based on the established relationship between the donor and the donee. The Court rejected the revenue's challenge, emphasizing the known relationship and the absence of evidence to suggest the transaction was not genuine.