Declared gift and notional interest: protective assessment in donor's hands failed, but gift-tax liability on the transfer remained.

A declared gift that was actually transferred to the donee could not be treated as a mere protective entry in the donor's hands; if the revenue believed the money belonged to someone else, it had to assess that person directly. On the facts found, the donor remained liable to gift-tax on the declared transfer, and protective gift-tax treatment was not accepted as a substitute for a substantive assessment. However, once the amount was treated as gifted away, notional interest on that sum could not be added to the donor's income unless the principal was first established as his own. The interest addition was therefore deleted.

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Issues: (i) Whether the sum declared by the assessee as a gift could be subjected to protective gift-tax assessment in his hands; (ii) whether the interest attributed to the alleged gifted amount could be added to the assessee's income.

Issue (i): Whether the sum declared by the assessee as a gift could be subjected to protective gift-tax assessment in his hands.

Analysis: The amount had been declared as a gift and was actually transferred to the donee. If the revenue considered that the money in truth belonged to another person, it was open to the assessing authority to establish and tax that amount in the hands of such other person. On the facts found, the alleged gift could not be treated as a mere camouflage so as to justify only a protective assessment against the assessee.

Conclusion: The assessee remained liable to gift-tax on the declared gift, and the protective assessment approach was not accepted as defeating that liability.

Issue (ii): Whether the interest attributed to the alleged gifted amount could be added to the assessee's income.

Analysis: Once the amount was treated as having been gifted away, there was no rational basis for taxing the notional interest on that amount in the assessee's hands unless the amount itself was regarded as his own. The interest addition was therefore inconsistent with the treatment of the principal amount.

Conclusion: The addition of interest to the assessee's income was deleted.

Final Conclusion: The appeal succeeded only to the extent of deleting the interest addition, while the gift-tax liability on the declared amount was maintained.

Ratio Decidendi: A declared and actually transferred gift cannot be treated as a mere protective entry against the donor, and notional income from that amount cannot be assessed in the donor's hands unless ownership of the principal sum is established against him.

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