1988 (5) TMI 52 - AT - Income Tax

Summary

Issues:
1. Exemption under s. 5(1)(xii) of the GT Act for gifts made by HUF to minor daughters for education.
2. Reasonableness of the gifts made by the HUF to the minor daughters.

Analysis:
1. The assessee, an HUF, made gifts to minor daughters for their education, claiming exemption under s. 5(1)(xii) of the GT Act. The GTO rejected the claim citing reasons like the donees having substantial wealth and the gifts being unreasonable. The CIT(A) allowed the exemption, stating that the gifts were reasonable considering the parents' education and the absence of a son. The Tribunal considered precedent cases and held that the exemption was applicable as the gifts were made in the capacity of an individual.

2. The reasonableness of the gifts was further analyzed based on the daughters' educational plans and existing wealth. One daughter had significant wealth and no plans for further studies abroad, while the other intended to pursue higher education in the U.S., necessitating more funds. The Tribunal partially allowed the appeal, holding that the exemption applied to the gift for the daughter with future education plans abroad but not for the other daughter with sufficient wealth and no such plans.

3. A difference of opinion arose among the Tribunal members regarding the reasonableness of the gift to one daughter. The Judicial Member found the gift unreasonable due to the daughter's existing wealth and educational stage, while the Accountant Member deemed a portion of the gift reasonable considering equal expenses for both daughters and the family's tradition of high education. The matter was referred to the President for a Third Member's opinion under s. 23(11) of the GT Act.

4. The Third Member considered the family's educational background, the daughters' future education plans, and the reasonableness of the provision made by the father. Emphasizing the need for adequate provision for higher education, especially abroad, the Third Member agreed with the Accountant Member that a portion of the gift should be considered reasonable and exempt under s. 5(1)(xii) of the Act. Precedent cases supporting reasonable provisions for daughters' education were cited, leading to the decision that the provision made by the HUF was justified.

In conclusion, the Tribunal upheld the exemption for the gift made to one daughter based on the reasonableness of the provision for her higher education needs, while the gift to the other daughter was deemed unreasonable due to her existing wealth and educational stage. The decision highlighted the importance of considering individual circumstances and educational plans while determining the reasonableness of gifts for minor daughters' education.