1994 (11) TMI 53 - HC - Income Tax

Summary

Issues:
1. Whether the liability of the donee to pay gift-tax should be deducted from the taxable value of the gift.
2. Whether the liability for gift-tax should be considered in assessing the market value of the gifted property.
3. Whether the liability for gift-tax undertaken by the donee affects the value of the gifted movables.

Analysis:
1. The case involved a gift of jewels by the assessee to her grand-daughter, with the assessee claiming deduction of the gift-tax liability from the taxable value of the gift. The Commissioner (Appeals) held that the liability of the donee to pay gift-tax was part of the gift itself, but the Tribunal disagreed. The High Court stated that the liability to pay gift-tax arises only after the gift is made, and the gift became complete and absolute upon delivery of the jewels to the donee. The court held that no provision in the Gift-tax Act allows for deduction of gift-tax liability in the computation of the taxable value of the gift.

2. The court referred to previous judgments where it was held that the liability of the donee to pay gift-tax cannot be considered as part of the consideration for the gift. The court emphasized that the market value of the property gifted should be assessed without taking into account any post-gift liabilities, such as gift-tax. The court distinguished cases where anterior charges or liabilities existed on the property at the time of the gift, which could affect the market value, but clarified that in the present case of gifting jewels, the liability for gift-tax does not impact the market value of the gifted movables.

3. The court highlighted that the liability for gift-tax undertaken by the donee does not affect the value of the gifted movables, as the market value of the jewels remains the same regardless of the donee's agreement to pay the gift-tax. The court reiterated that the liability for gift-tax is a post-gift liability and is not relevant in assessing the value of the gifted property. The court upheld the Tribunal's decision, stating that the liability for gift-tax should not be deducted from the taxable value of the gift, as it does not impact the market value of the gifted jewels.

In conclusion, the High Court dismissed the petition, ruling that the liability of the donee to pay gift-tax should not be deducted from the taxable value of the gift, as it does not affect the market value of the gifted movables. The court emphasized that the gift became complete upon delivery of the jewels to the donee, and the liability for gift-tax is not a relevant factor in assessing the value of the gifted property.