TaxTMI 
TaxTMI 
1994 (11) TMI 53
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....payable, in the computation of the taxable value of the gift. Her case was that after delivering the ornaments to the grand-daughter, she had addressed a letter to the donee informing her that the gift was subject to the condition that she should undertake to pay the gift-tax due, as the donor had no money with her. The donee assented and agreed to pay the gift-tax. The amount was, therefore, deductible. But the Gift-tax Officer did not accept the plea and completed the assessment on a taxable value of Rs. 3,36,000 with a gift-tax liability of Rs. 65,500. The Commissioner (Appeals), however, held that because of the exchange of contemporaneous correspondence between the donor and the donee, the liability of the donee to pay the gift-tax was....
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....asible if the condition was not satisfied. The gift became complete and absolute when the ornaments were delivered to the donee, the grand-daughter, on April 10, 1982. In the circumstances, the taxable value of the gift was the market value of the gifted jewels on the date of the gift. What the assessee claimed was deduction of the amount of the gift-tax in the computation of the taxable value. But none of the provisions of the Act provides for any such deduction. What was apparently claimed was that this liability for gift-tax undertaken by the donee should be taken into account in reckoning the taxable value of the gift. In CGT v. Bhoomiamma (K.) [1986] 158 ITR 615, the Karnataka High Court held that the gift-tax undertaken to be pa....
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....y to a prudent and willing seller, it was impossible to visualise a prudent buyer who will not take into account the liabilities with which a property was impressed, and make adequate deductions in the price in order to compensate for the existence of those liabilities. It was, therefore, held that the anterior liabilities must be taken into account in assessing the market value of the property, whether those liabilities were mentioned in the deed of gift or not. In CGT v. Biswanath Paul [1970] 76 ITR 39 (Cal), the donor stipulated that the three donees should each pay him Rs. 20,000 within three years. These documents were construed either as onerous gifts liable to be defeated by non-payment of Rs. 20,000 by each donee, or as an obliga....
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....The jewels were transferred by the assessee to the grand-daughter. The charge under the Gift-tax Act is on the market value of the assets, that is, what a willing buyer would pay to a willing seller. The fact that the donee had agreed to pay the gift-tax will not in any manner affect the value of the gifted movables, whose value in the market will continue to be the same irrespective of this liability. The Act by itself does not contain any provision for deduction of the liability in the computation of the value of the property gifted, as under the Wealth-tax Act. But the question of liability becomes relevant in the circumstances pointed out by this court in Kutty Sahib's case [1965] 55 ITR 146 (Ker). A prudent buyer would necessarily take....