1996 (4) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Determination of the assessee's residential status.
2. Eligibility for exemption under section 5(1)(ii)(a) of the Gift-tax Act, 1958.
3. Location and completion of the gift transaction.

Detailed Analysis:

1. Determination of the Assessee's Residential Status:
The Gift-tax Officer (GTO) held that the assessee, despite being in India from April 1, 1973, to March 31, 1974, and maintaining a dwelling place, was considered a resident but not ordinarily resident. This classification was crucial as it impacted the applicability of the Gift-tax Act provisions.

2. Eligibility for Exemption under Section 5(1)(ii)(a) of the Gift-tax Act, 1958:
The primary issue was whether the gifts totaling Rs. 2,50,077, made by the assessee by remitting money from America during the assessment year 1974-75, were exempt from tax under section 5(1)(ii)(a). The assessee argued that the gifts were of movable property situated outside India, thus qualifying for exemption. The GTO, however, contended that since the drafts were encashed in India, the gifts did not qualify for exemption.

3. Location and Completion of the Gift Transaction:
The Tribunal initially ruled in favor of the assessee, stating that the gift took place in American territories when the drafts were purchased, thus exempting them under section 5(1)(ii)(a). However, the Department argued that the gifts were completed in India upon encashment of the drafts, making them taxable.

Judgment Analysis:

Residential Status:
The court affirmed the assessee's status as a non-resident, which was not disputed. This status was significant for determining the applicability of section 5(1)(ii)(a) of the Gift-tax Act.

Exemption under Section 5(1)(ii)(a):
The court examined whether the gifts were of movable property situated outside India and whether the assessee, being a non-resident, satisfied the conditions for exemption. The assessee's argument hinged on the premise that the gifts were completed in the United States when the drafts were purchased. However, the court emphasized that for the exemption to apply, the delivery of the gift must occur outside India.

Location and Completion of Gift Transaction:
The court scrutinized the delivery mechanism of the drafts. It was noted that the drafts were sent by post to the donees in India. The court referenced the principle that the post office acts as the agent of the donor unless there is an express request from the donee to send the gift by post, making the post office the agent of the donee. In this case, no such request was made by the donees, implying that the post office acted as the donor's agent. Therefore, the gift was completed in India when the drafts were encashed.

The court also referred to previous judgments, including CGT v. K. A. Abdul Kader and CIT v. Kirloskar Bros. Ltd., to support its conclusion that the receipt of the gift occurs at the place of encashment if sent without the donee's request.

Conclusion:
The court concluded that the gifts were not exempt under section 5(1)(ii)(a) of the Gift-tax Act since the delivery and completion of the gift transaction occurred in India. The Tribunal's decision was overturned, and the question was answered in the negative, favoring the Department. The court held that the taxable gift amounted to Rs. 2,45,077, with a tax levy of Rs. 42,770. No costs were awarded.