1997 (3) TMI 31

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....see is one M.A. Majeed who died on 29th Oct., 1989 and is represented by his legal representatives. He was assessed to gift-tax for the asst. yr. 1988-89. The facts leading to levy of gift tax are under: The assessee, during his lifetime, had won the first prize of Rs. 15 lakhs in 277th draw of the Tamil Nadu Government lottery held on 24th March, 1987, and after deducting a sum of Rs. 6 lakhs towards tax, he was given a sum of Rs. 9 lakhs. The assessee in the course of wealth tax proceedings for the asst. yr. 1987-88, disclosed a net wealth of Rs. 3 lakhs representing his share in the prize money on the ground that the lottery ticket was purchased on the basis of an agreement dt. 3rd Dec., 1986, and the agreement was executed between the a....

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....ssessee preferred an appeal before the CIT(A). The CIT(A) held that the agreement to share the prize winning amount was sham document and hence, the GTO was justified in levying the tax on the sum of Rs. 6,00,000 transferred in favour of his sons. The assessee preferred a further appeal before the Tribunal. The Tribunal held that the AO has held that the agreement dt. 3rd Dec., 1986 was a sham document, and once the agreement was ignored, it should be ignored for all purposes and it is not open to the AO to treat the amount transferred to the sons as if the transfer of Rupees six lakhs was a genuine one. The Tribunal also held that the transfer in favour of sons took place only on the basis of the agreement dt. 3rd Dec., 1986, and if the ag....

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....n the basis of the agreement dt. 3rd Dec., 1986, and in view of the categorical finding of the Tribunal that the agreement to share the prize winning amount was a sham document, the payment should also be regarded as sham payment. All transactions that flow from the sham document will have to be ignored for all purposes and the agreement has to be treated as if it has no legal effect in the eye of law for all intent and purposes. It is not permissible to treat the agreement as a sham document for one purpose and accept the same for other purpose. If the source of payment is a sham document, the money paid under the agreement should also be regarded as a sham payment. That is why the WTO levied wealth-tax on the entire amount of Rs. 9 lakhs ....