NRE account withdrawals used for property purchase were not taxable gifts, and related tax additions also fell away.

Amounts withdrawn from NRE accounts and used to acquire immovable property were treated as eligible for exemption under section 5(1)(iib) of the Gift-tax Act because the payments had a direct nexus with the assessee's NRE funds and the cheques being issued to the vendors was only a technical point. The assessee, being a person resident outside India, was not regarded as having gifted a share in property before title passed under the sale deed. The balance amounts were traced to loans to the wife and son-in-law and to the assessee's own bank accounts, so they were not taxable gifts. The related income-tax and wealth-tax additions, being consequential, also failed.

---

---

Issues: Whether the assessee was entitled to exemption under section 5(1)(iib) of the Gift-tax Act for amounts drawn from NRE accounts and utilised for purchase of immovable property, and whether the corresponding income-tax and wealth-tax additions based on the gift-tax assessment were sustainable.

Analysis: The assessee was held to be a person resident outside India. On the facts, the payments of Rs. 15 lakhs made towards the purchase price of the Mangalore property were found to have a direct nexus with withdrawals from the assessee's NRE accounts, and the objection that the cheques were issued directly to the vendors was treated as hyper-technical. The co-owners acquired title simultaneously under the sale deed and the assessee could not be said to have gifted a share in property that he did not own prior to the conveyance. For the balance amount, the materials showed that Rs. 3 lakhs was advanced as loans to the wife and son-in-law, and the remaining amount was traceable to the assessee's own bank accounts; there was no basis to treat those sums as taxable gifts. The income-tax and wealth-tax additions were consequential to the gift-tax assessment and stood on the same footing.

Conclusion: The exemption under section 5(1)(iib) was correctly allowed, the alleged gifts were not chargeable to gift-tax, and the consequential income-tax and wealth-tax additions were also unsustainable.

---