2017 (8) TMI 921 - AT - Income Tax

Gift receipt - accessibility of income - unilateral gratuitous act without consideration out of natural love and affection or received by the assessee in exchange of brand endorsement / advertisement for the donor - revenue s main contention that the assessee has indulged in brand endorsement for the donor and in return, received the said Villa and therefore, taxable in the hands of the assessee, being arising out of exercise of profession - Held that - Upon perusal of chain of events leading to execution of gift as enumerated in Para 7.2, we have already reached an inevitable conclusion that all events /actions were interlinked and part and parcel of the same gift transaction and therefore, gift deed was executed by the Nakheel at the behest of Sultan only in view of the fact that ownership was vested with the company. Finally, it is well settled law that no addition could be made merely on the basis of mere suspicion, conjectures or surmises. The assessee has therefore, in our opinion, discharged the onus of proving the gift transaction being unilateral gratuitous act of the donor company and the onus was on revenue to establish the contrary, which, in our opinion, has remained undischarged. Lastly, so far as taxability of gift in kind is concerned, we find that the gift of immovable property on or after 01/10/2009 has been brought to tax by Finance Act, 2009 vide amendment to Section 56(2)(vii)(b). Before this amendment, any sum of money exceeding ₹ 50,000/- received by an individual / HUF without consideration could be brought to tax vide Section 56(2)(vii)(a). Since we are dealing with AY 2008-09 about taxability of an immovable property, the said amendment does not apply to the case of the assessee and therefore could not help the revenue in any manner. In view of the above we find that the contention / conduct of the assessee outweigh the revenue s contention. Therefore, we are inclined to hold that the said Villa was received in gift by the assessee and not out of exercise of profession and therefore, not taxable in assessee s hands - Decided in favour of assessee.

Issues Involved:
1. Taxability of Signature Villa received as a gift.
2. Nature of the gift - whether it was a gratuitous act or a professional receipt.
3. Valuation of the property for tax purposes.

Detailed Analysis:

1. Taxability of Signature Villa received as a gift:
The primary issue revolves around the taxability of the Signature Villa situated in Dubai, received by the assessee as a gift. The Assessing Officer (AO) assessed the value of the villa as professional receipts under Section 28(iv) of the Income Tax Act, 1961, arguing that it was not a genuine gift but a remuneration for utilizing the assessee's brand image and stage performance. The assessee contended that the villa was a unilateral gratuitous gift from Nakheel PJSC, a Dubai-based company, due to the personal friendship with its Executive Director, H.E. Sultan Ahmed Bin Sulayem, and not linked to any professional services.

2. Nature of the gift - whether it was a gratuitous act or a professional receipt:
The AO noted that the assessee, a renowned film actor, derived significant income from advertisements and stage shows and was regularly endorsing various brands. The AO gathered material from Nakheel PJSC's website showing the company using the assessee's brand image for endorsing its Palm Project since 2004. The AO concluded that the villa was given in exchange for the assessee's brand endorsement and stage performance, thus treating it as a professional receipt.

The assessee argued that the villa was gifted out of natural love and affection by Sultan, without any professional services rendered. The assessee's presence at Nakheel's Annual Day in 2007 was a gesture of personal friendship, not a commercial activity. The gift was offered in 2004, and the assessee sought RBI permission, which was granted in 2007, indicating no linkage to the 2007 Annual Day event.

The CIT(A) upheld the AO's decision, stating that the corporate entity could not have sentiments like natural love and affection and that the gift was a professional receipt. However, the CIT(A) agreed with the valuation report by Hamptons International, reducing the villa's value to ?14,69,92,845.

3. Valuation of the property for tax purposes:
The assessee contested the villa's valuation adopted by the AO, presenting a valuation report by Hamptons International, which valued the property at ?14,69,92,845 on the date of the gift (16/09/2007). The CIT(A) accepted this valuation, reducing the value from the AO's assessment of ?17,84,95,000.

Tribunal's Decision:
The Tribunal examined the genesis of the gift, starting with Sultan's letter dated 16/12/2004, expressing the desire to gift the villa to the assessee. The gift was accepted after obtaining RBI permission in 2007, and the deed of gift was executed on 16/09/2007. The Tribunal found that all events were interlinked and part of the same transaction aimed at fulfilling Sultan's wish to gift the villa.

The Tribunal noted that the material relied upon by the revenue, including photographs and news items on Nakheel's website, did not conclusively prove that the assessee undertook brand endorsement or advertisement for the donor. The Tribunal emphasized that no addition could be made based on mere suspicion, conjectures, or surmises. The assessee discharged the onus of proving the gift as a unilateral gratuitous act, and the revenue failed to establish the contrary.

Regarding the capacity of the corporate entity to make a gift, the Tribunal accepted the assessee's contention that in Dubai, companies could be under the exclusive control of individuals like Sultan, who had the ultimate control over Nakheel's affairs. The Tribunal also referred to the Mumbai Tribunal's decision in DCIT Vs. KDA Enterprises Private Limited, which held that companies are competent to make gifts.

Finally, the Tribunal noted that the gift of immovable property on or after 01/10/2009 was brought to tax by the Finance Act, 2009, but this amendment did not apply to the assessee's case for AY 2008-09. Therefore, the villa received as a gift was not taxable in the assessee's hands.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the villa was received as a gift and not out of the exercise of profession, thus not taxable. Consequently, the revenue's appeal on the valuation of the property became infructuous and was dismissed. The assessee's appeal was allowed, and the revenue's appeal was dismissed.

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