1991 (4) TMI 159 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 24(2) of the Gift-tax Act, 1958.
2. Applicability of exemption under section 5(1)(ii)(a) of the Gift-tax Act, 1958.
3. Jurisdiction of the Commissioner to make further inquiries.
4. Nature and situs of the gifted amount.
5. Interpretation of "ordinarily resident" under the Gift-tax Act, 1958.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 24(2) of the Gift-tax Act, 1958:
The assessee argued that the notice dated 11-3-1988 was invalid because it was based on facts gathered by the Commissioner through earlier notices and inquiries, which were not part of the original record before the Gift-tax Officer (GTO). The Tribunal rejected this argument, stating that the Commissioner is entitled to make necessary inquiries to determine whether the GTO's order was erroneous or prejudicial to the revenue. The Tribunal referenced the Gujarat High Court's decision in Addl. CIT v. Mukur Corpn., which supports the Commissioner's authority to conduct such inquiries.

2. Applicability of Exemption Under Section 5(1)(ii)(a) of the Gift-tax Act, 1958:
The assessee claimed exemption for gifts made in Jammu & Kashmir, arguing that the law allows such exemption for a resident but not ordinarily resident in India. The Tribunal noted that the GTO had accepted the assessee's claim based on pay-in-slips and counterfoils of cheques, concluding that the gifts were made in Jammu & Kashmir. However, the Tribunal found that the GTO failed to consider the surrounding circumstances, which indicated a potential device to evade taxes. The Tribunal upheld the Commissioner's decision to direct further inquiries to determine the genuineness of the gift transactions.

3. Jurisdiction of the Commissioner to Make Further Inquiries:
The Department argued that the Commissioner was entitled to make further inquiries and that the facts considered were relevant. The Tribunal agreed, stating that section 24(2) of the Gift-tax Act implicitly allows the Commissioner to conduct inquiries to determine if the GTO's order was erroneous or prejudicial to the revenue. The Tribunal emphasized that the peculiar facts of the case necessitated such inquiries.

4. Nature and Situs of the Gifted Amount:
The Tribunal observed that the amount of Rs. 32 lakhs was initially in Ahmedabad and was transferred to Srinagar only for a brief period before being transferred back to Ahmedabad. The Tribunal noted that the donees were discretionary trusts with trustees and beneficiaries closely related to the assessee. The Tribunal concluded that the GTO should have made further inquiries to determine whether the gift was genuine or a device to evade taxes. The Tribunal upheld the Commissioner's decision to set aside the GTO's assessment and direct a fresh assessment after further inquiries.

5. Interpretation of "Ordinarily Resident" Under the Gift-tax Act, 1958:
The Department contended that the term "ordinarily resident" in the Gift-tax Act should not be equated with "resident but not ordinarily resident" under the Income-tax Act. The Tribunal did not find it necessary to decide on this issue, as it had already upheld the Commissioner's order for further inquiries based on other grounds.

Conclusion:
The Tribunal confirmed the Commissioner's order setting aside the GTO's assessment and directing a fresh assessment after necessary inquiries. The appeal by the assessee was dismissed.