2005 (8) TMI 41 - HC - Income Tax

NRI in Dubai wins tax dispute over gift transaction in Kashmir.

The High Court of BOMBAY ruled in favor of the non-resident Indian (NRI) in a tax dispute involving a gift transaction made in Kashmir. The court held ... Gift Tax Act, 1958 – Whether the transaction of gift of Rs. 1,00,000 made by the assessee in Kashmir in favour of Smt. Madhuri Joshi, r/o Pune, amounts to a colourable device to avoid tax - Gujarat High Court also in the case of CGT v. Dipak A. Sheth in an identical case has held that the Gift-tax Act extends to the whole of India except to the State of Jammu and Kashmir and if all the conditions necessary for claiming exemption under section 5(1)(ii) of the Act are fulfilled the assessee is entitled to get exemption. In the said case, the assessee who was not ordinarily resident in India had made a gift of cash amount of more than Rs. 1,00,000 in the State of Jammu and Kashmir and claimed exemption in respect of the said transaction. The High Court held that he was entitled to get the exemption and the gift was not taxable under the provisions of the Act. The ratio of this judgment in our view, is squarely applicable to the facts of the present case. In the result, the submissions made by Revenue cannot be accepted. The order passed by the Income-tax Appellate Tribunal and the Deputy Commissioner of Income-tax (Appeals) is, therefore, confirmed. The appeal is accordingly dismissed Issues:1. Whether the transaction of gift made in Kashmir amounts to a colourable device to avoid taxRs.Analysis:The High Court of BOMBAY heard an appeal filed by the Revenue challenging the judgment and order passed by the Income-tax Appellate Tribunal and the Assessing Officer. The case involved a non-resident Indian (NRI) making a gift of Rs. 1,00,000 to a resident of Pune, claiming exemption from gift-tax under section 5(1)(ii) of the Gift-tax Act, 1958. The Assessing Officer considered the transaction a colorable device to avoid tax, but the Deputy Commissioner of Income-tax and the Tribunal ruled in favor of the NRI, holding the transaction not to be colorable. The High Court admitted the appeal based on substantial questions of law regarding the nature of the gift transaction.The appellant contended that the gift transaction was a colorable device to avoid tax, citing a Supreme Court judgment and arguing that the lower authorities did not consider the transaction's true nature. The appellant highlighted that both the donor and the donee had no business or interest in Kashmir, implying the transaction was solely for tax avoidance.However, the High Court analyzed the relevant legal provisions, specifically section 5(1)(ii) of the Gift-tax Act, which exempts gifts made by non-resident Indians outside Indian territories. The court noted that the NRI donor, residing in Dubai, made the gift in Kashmir, falling outside the Act's purview. The court concluded that the transaction was not a colorable device to avoid tax, as the donor could have issued the gift from Dubai without tax liability, given the exemption in Dubai. The court also referenced a Supreme Court judgment that diluted the strict view on tax avoidance, emphasizing the legality of tax planning within the law.Additionally, the High Court referred to a Gujarat High Court judgment with a similar scenario, where the court upheld the exemption claim under section 5(1)(ii) for a gift made in Jammu and Kashmir. Drawing parallels, the High Court confirmed the orders of the lower authorities, dismissing the appeal and affirming that the gift transaction was not taxable under the Gift-tax Act.In conclusion, the High Court rejected the Revenue's arguments, citing legal provisions, precedents, and a softened stance on tax avoidance. The court upheld the decisions of the lower authorities, confirming that the gift transaction in question was not a colorable device to avoid tax and dismissing the appeal.