2008 (12) TMI 410 - HC - Income Tax

Assessee declared value of types of gifts - (i) outright gift and (ii) revocable gift - regard to the revocable gift protective assessment was made - revocable gifts were void as the assessee avoided the liability under the Wealth-tax Act and also being against the provisions of section 126 of the Transfer of Property Act - Revenue made an application stating that if the gift was revoked bonus shares will revert back to the donor which aspect was not considered by the Tribunal - Tribunal rejected the said application on the ground that the said issue was not raised earlier - Held that - bonus shares or dividend income remained to be the income of the donee under section 6(2) of the Act the donor was liable to pay gift-tax on the value to be determined under the said tax Act - This aspect is not shown to have been raised at any earlier stage and merely on an oral prayer we cannot direct this question to be referred as the same does not arise from the order of the Tribunal. The petition is accordingly dismissed

Summary

Issues involved:
1. Validity of revocable gifts under the Gift-tax Act.
2. Treatment of revocable gifts for taxation purposes.
3. Applicability of section 6(2) of the Gift-tax Act on revocable gifts.

Analysis:

1. The judgment dealt with the issue of the validity of revocable gifts under the Gift-tax Act. The Revenue challenged the view taken by the Income-tax Appellate Tribunal regarding the revocable gifts made by the assessee during the assessment year. The Tribunal had accepted the plea of the assessee that the revocable gifts could not be held void as they were recognized under section 6(2) of the Gift-tax Act, which is a special law governing such gifts.

2. The treatment of revocable gifts for taxation purposes was a significant aspect of the judgment. The appellate authority affirmed that revocable gifts were void but set aside the protective assessment made by the Revenue. The Tribunal, however, held that revocable gifts could not be considered void under the Gift-tax Act and recognized them for taxation purposes. The Tribunal's decision was based on the provisions of the special law, namely section 6(2) of the Gift-tax Act, which allowed for the recognition of such gifts.

3. The applicability of section 6(2) of the Gift-tax Act on revocable gifts was also discussed in the judgment. The Revenue raised concerns about the treatment of bonus shares if the gift was revoked, arguing that the shares would revert back to the donor. However, the Tribunal rejected this application, stating that the issue was not raised earlier. The court referred to previous judgments upholding the view that revocable gifts, under the Gift-tax Act, were not void and that bonus shares continued to be the property of the donee even after revocation.

4. In conclusion, the court dismissed the petition filed by the Revenue, stating that no question of law arose from the Tribunal's order. The court emphasized that under section 6(2) of the Gift-tax Act, the donor was liable to pay gift-tax on the value determined under the Act, even if the bonus shares or dividend income remained with the donee. The judgment highlighted the distinction between general law principles and the specific provisions of the Gift-tax Act regarding revocable gifts and taxation implications.