TaxTMI 
TaxTMI 
2006 (5) TMI 119
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.... assessee with ABN Amro Bank, Chennai, there were two deposits of Rs. 50 lakhs each on 28th April, 1999 and 14th May, 1999, respectively. The AO was of the opinion that as the assessee was working as an employee of Shri G.K. Ramamurthy, in order to avoid income-tax, the employer Shri G.K. Ramamurthy paid Rs. 1 crore to the assessee and gave it the colour of gifts. The AO was of the further opinion that as there was a relationship of employer -employee between Shri G.K. Ramamurthy and the assessee, hence the amount received as the gifts was her income and liable to be taxed under s. 5(1) of the IT Act. The assessment of the assessee was completed vide order dt. 17th Feb., 2005 and the AO made the addition of Rs. 1 crore under the head "Income from other sources" in respect of the amount of "gifts" of Rs. 1 crore received from Shri G.K. Ramamurthy. 4. The assessee challenged the impugned order before the CIT(A). The CIT(A) held that since the assessee was an employee of Shri G.K. Ramamurthy, the "gifts" received by the assessee from her employer could be treated as her income and the said amount of gifts was assessee's income in lieu of or in addition to the salary as per the prov....
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.... liable to tax in the hands of employee and, therefore, above addition by the said AO on the ground that gift from employer to employee is liable to tax is not justified. Further, r. 3(7)(iv) has now been dated w.e.f. 1st April, 2005 and any gift made by a company, firm, AOP will be liable to payment of fringe benefit tax under s. 115WB(2)(o) which has come into force w.e.f. 1st April, 2005. Similarly, gift received by a person is not liable to tax under the IT Act, in asst. yr. 2000-01, is further supported by the fact that s. 56(1)(v) is inserted by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 to provide that any gift exceeding Rs. 25,000 received by an individual or HUF, on or after 1st Sept., 2004, will be treated as income from other sources and subjected to income-tax. This provision comes into force from asst. yr. 2005-06 only. Appellant has thus contended that above gifts are not her income. However, contentions of the appellant are not acceptable. Appellant was working. as office assistant in M/s Croslands Research Laboratories Ltd. and later on became secretary to Shri G.K. Ramamurthy, managing director and Shri Shankar, director and co-promoter of M/s Croslands R....
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....salary expenditure of Rs. 1,44,000 claimed by Shri G.K. Ramamurthy for the year 19992000 relevant to asst. yr. 2000-01 which exactly comes to Rs. 12,000 per month for a period of 12 months. Now once it is found that appellant is an employee of Shri G.K. Ramamurthy, gifts received by appellant from her employer can be treated as her income. In my opinion, aforesaid gifts can be treated as a13pellant's income in lieu of or in addition to salary as per provisions of s. 17(1)(iv) of the IT Act. In fact, CBDT Circular No. 158, dt. 27th Dec., 1974 clearly states that gifts of a purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation. Appellant has received the aforesaid gifts from her employer and, therefore, can be regarded as an addition to the salary and profits in lieu of salary. In view of above discussion, various contentions of the appellant are rejected and it is held that gifts of Rs. 1 crore represent appellant's income and, therefore, AO was right in treating the above gifts as appellant's income. Addition of Rs. 1 crore is, therefore, upheld." ....
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....ee is not sustainable and the same may be deleted. 6. On the other hand, the learned Departmental Representative vehemently submitted that when the gifts were made, at that G.K. Ramamurthy and the CIT(A) has rightly held that the gifts received by the assessee from Shri G.K. Ramamurthy is assessee's income in lieu or in addition to the salary as per the provisions of s. 17(1)(iv) of the Act and the CIT(A) has rightly sustained the said addition made by the AO. The learned Departmental Representative relied upon the following precedents: V. Narayanan Vs. Dy. CIT (2004) 89 TTJ (Chennai) 628 : (2004) 88 ITD 43 (Chennai). 7. We have heard the rival submissions of the parties. We have also perused the facts of this case as per record available with us. We have also considered the principles in the precedents relied on by the parties. It is not disputed in this case that the assessee was an employee of Shri G.K. Ramamurthy. It is also not disputed in this case that the AO has accepted the salary income declared by the assessee as per the salary/TDS certificate in Form No. 16 dt. 30th April, 2000. The assessee has filed the copy of the said certificate which is placed at p. 11 of....
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....s seen that the two amounts of Rs. 50lakhs each have been paid by Shri G.K. Ramamurthy to the assessee as the gifts where he has stated that the said gifts are made out of natural love and affection. Moreover, both the declarations are executed on the date on which the said gifts were given by Shri G.K. Ramamurthy to the assessee, i.e., 28th April, 1999 and 14th May, 1999, respectively. In the background of the above facts, we will have to examine whether the amount of Rs. 1 crore received by the assessee can be treated as "income" of the assessee. On going through the assessment order, more particularly the reasons recorded by the AO, we find that the AO has passed a cryptic order. The AO has given only the following reason for adding the amount of Rs. 1 crore for computing total income which the assessee received by way of two different gifts from Shri G.K. Ramamurthy: ".......The assessee is working as an employee of Shri G.K. Ramamurthy. It is obvious that in order to avoid the income-tax, the employer paid Rs. 1 crore to his employee and gave it the colour of gift. Since the amount is now in the hands of the assessee, and her relationship with Shri G.K. Ramamurthy is that o....
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....can be treated as her income for charging under the Act. From the documents tiled by the assessee, more particularly, TDS certificate in Form No. 16 issued by Shri G.K. Ramamurthy, as well as the declarations of the "gifts", nowhere it is found that the assessee has received the said amount having any nexus with her employment with Shri G.K. Ramamurthy. In the declarations given by the donor namely, Shri G.K. Ramamurthy, it is stated by him that he has made the said gifts out of love and affection and nowhere in the said declaration, it is said that he has made the said gifts to her merely because they are having employer-employee relationship. It appears from the assessment order that the said declarations were also before the AO but he had not taken any pains to discuss on the said two declarations. It is well-settled proposition of law that a gift in which the personal element is present, is not income at all. Merely because an assessee carries on a vocation, there is no presumption in law that any amount received by him/her is income subject to tax. The test in such cases is to find out if the sum is paid to the assessee in respect of his services and accrues to him by virtue o....