1979 (9) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether the endorsement of a cheque for Rs. 4 lakhs by the assessee to his daughter constituted a gift under the Gift-tax Act, 1958.
2. The beneficial interest of the assessee in the cheque amount.
3. The applicability of gift-tax on the transaction.

Issue-wise Detailed Analysis:

1. Whether the endorsement of a cheque for Rs. 4 lakhs by the assessee to his daughter constituted a gift under the Gift-tax Act, 1958.
The primary issue revolves around whether the act of the assessee endorsing a cheque for Rs. 4 lakhs in favor of his daughter, Princess Pratap Kumari, qualifies as a gift chargeable to gift-tax under the Gift-tax Act, 1958. The Tribunal concluded that the cheque was drawn in favor of the assessee by Shri Pratap Singh of Wankaner for and on behalf of his (assessee's) daughter only. The Tribunal's finding was that the assessee had no beneficial interest in the amount of the cheque, and thus, the endorsement did not constitute a gift.

2. The beneficial interest of the assessee in the cheque amount.
The Tribunal found that the cheque for Rs. 4 lakhs was intended for the benefit of Princess Pratap Kumari and not the assessee. The Tribunal accepted the affidavit submitted by the assessee, wherein he stated that he had no beneficial interest in the cheque amount and acted merely as a conduit pipe. The Tribunal noted that the agreement dated February 24, 1960, was executed to settle all claims and counterclaims between the parties, and the cheque was issued in the assessee's name only to indemnify the daughter's husband and father-in-law against any future claims she might make.

3. The applicability of gift-tax on the transaction.
The Tribunal held that since the cheque amount belonged to Princess Pratap Kumari and the assessee had no beneficial interest in it, the transaction did not constitute a gift under the Gift-tax Act, 1958. The Tribunal's decision was based on the finding that there was no conscious act by the assessee to transfer his assets voluntarily to his daughter. The Tribunal's conclusion was that the endorsement of the cheque by the assessee in favor of his daughter did not attract gift-tax as the amount did not belong to the assessee.

Judgment:
The High Court affirmed the Tribunal's decision, holding that the act of endorsing the cheque for Rs. 4 lakhs by the assessee in favor of his daughter did not constitute a gift chargeable to gift-tax under the Gift-tax Act, 1958. The court emphasized that the Tribunal's finding of fact, which is binding, indicated that the cheque amount was intended for the benefit of Princess Pratap Kumari and not the assessee. Consequently, the court answered the referred question in the affirmative, confirming that the endorsement did not constitute a taxable gift.