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Issues Involved:
1. Whether the demand drafts purchased in foreign currency in Kuala Lumpur and sent to the assessee's daughters are gifts exempt under section 5(1)(ii) of the Gift-tax Act, 1958. Issue-wise Detailed Analysis: 1. Exemption under Section 5(1)(ii) of the Gift-tax Act: The primary issue was whether the gifts made by the assessee to his daughters through demand drafts purchased in Malaysian dollars in Kuala Lumpur qualify for exemption under section 5(1)(ii) of the Gift-tax Act, 1958. Facts and Arguments: - The assessee, an individual not ordinarily resident during the relevant period, made gifts to his daughters using drafts purchased in Malaysian dollars at Kuala Lumpur. - The assessee contended that the gifts were movable properties situated in a foreign country and hence, exempt under section 5(1)(ii) of the Act. - The Gift-tax Officer rejected this contention, stating that the assessee did not prove the acceptance of the gifts in Kuala Lumpur, thus considering the gifts as having taken place in India and levying gift-tax. - On appeal, the Commissioner of Gift-tax (Appeals) ruled in favor of the assessee, recognizing the drafts purchased in Kuala Lumpur as movable properties situated in a foreign country, thereby granting the exemption. - The Revenue's appeal to the Income-tax Appellate Tribunal was dismissed, with the Tribunal affirming that the gifts were of movable properties outside India and thus exempt under section 5(1)(ii) of the Act. Legal Precedents: - The Revenue cited two decisions: CGT v. S. Raja Ramalingam [1997] 227 ITR 622 and CGT v. P. D. Kumaresan [1998] 230 ITR 605, arguing that similar facts in those cases led to the conclusion that the gifts were not exempt as the acceptance took place in India. - In S. Raja Ramalingam's case, it was held that the gift was complete in India where the donee accepted the gift, as the donor posted the draft without the donee's request, making the post office not an agent of the donee. - In P. D. Kumaresan's case, it was similarly held that acceptance took place in India when the draft was received by the donee's father, thus situating the subject-matter of the gift in India. Court's Analysis: - The court noted that, unlike the cited cases, the drafts in the present case were purchased in a foreign country in the names of the donees. Even if the donees did not instruct the donor to send the drafts by post, the crucial question was the location of the property at the time of acceptance of the gifts. - The court examined the relationship between the banker and customer, referencing authoritative texts and judicial precedents, establishing that the relationship is one of debtor and creditor. - The court concluded that the debt represented by the drafts was situated in the foreign country where the bank was located. Thus, at the time of acceptance of the gifts, the property (debt) was situated outside India. - The court distinguished the present case from the cited precedents by focusing on the location of the debt and the banking relationship, which were not considered in the earlier cases. Conclusion: The court held that since the drafts represented debts situated in a foreign country, the gifts were of movable properties located outside India. Therefore, the assessee, being not ordinarily resident, was entitled to the exemption under section 5(1)(ii) of the Gift-tax Act. The question of law was answered in the affirmative, in favor of the assessee, and against the Revenue. No costs were awarded.
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