2006 (5) TMI 119 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 1 crore received by the assessee as two gifts of Rs. 50 lakhs each from Shri G.K. Ramamurthy is assessable as the assessee's income for the assessment year 2000-01.

Issue-Wise Detailed Analysis:

1. Nature of the Gifts Received:
The primary issue in this case is whether the gifts totaling Rs. 1 crore received by the assessee from Shri G.K. Ramamurthy can be considered as income. The assessee argued that the gifts were personal and made out of natural love and affection, supported by notarized gift declarations. The AO, however, treated the gifts as income, suspecting that the employer paid the amount to avoid income tax and gave it the color of gifts. The CIT(A) upheld this view, treating the gifts as income in lieu of or in addition to salary under Section 17(1)(iv) of the IT Act.

2. Relationship Between the Assessee and the Donor:
The assessee contended that she was not employed by Shri G.K. Ramamurthy at the time the gifts were received (28th April 1999 and 14th May 1999) and was appointed as a secretary only from 1st June 1999. The AO and CIT(A) believed that the assessee was in continuous employment of Shri G.K. Ramamurthy, based on salary expenditure records and the nature of her duties.

3. Character of the Receipt:
The Tribunal emphasized that not every receipt is income; it must bear the characteristic of income. The declarations by Shri G.K. Ramamurthy stated that the gifts were made out of natural love and affection, with no mention of any employment-related consideration. The Tribunal noted that gifts with a personal element are not considered income, even if there is an employer-employee relationship.

4. Interpretation of Section 17(1)(iv) of the IT Act:
The CIT(A) treated the gifts as income in lieu of or in addition to salary under Section 17(1)(iv). The Tribunal disagreed, stating that for a receipt to be included as salary, it must be in return for services rendered. In this case, the gifts were personal and unrelated to any services rendered by the assessee.

5. Legal Precedents and Principles:
The Tribunal referred to established legal principles, including those laid down by the Court of Appeals in Moorhouse vs. Dooland, which distinguish between personal gifts and income. The Tribunal concluded that the gifts received by the assessee were personal and not related to her employment, thus not assessable as income.

Conclusion:
The Tribunal found that the gifts received by the assessee from Shri G.K. Ramamurthy were personal and not related to her employment. Therefore, the addition of Rs. 1 crore made by the AO to the income of the assessee was deleted, and the order of the CIT(A) was set aside. The assessee's appeal was allowed.