2008 (1) TMI 466 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee is entitled to exemption u/s 5(1)(iib) of the Gift Tax Act.
2. Determination of the residential status of the assessee under the Foreign Exchange Regulation Act (FERA) and Income-tax Act.

Summary:

Issue 1: Exemption u/s 5(1)(iib) of the Gift Tax Act
The assessee claimed exemption from gift tax u/s 5(1)(iib) of the Gift Tax Act, arguing that the gifts were made out of NRE accounts while the assessee was an NRI. The Assessing Officer rejected this claim, stating that the assessee was a resident in India as per section 2(p)(ii)(c) of FERA, thus not qualifying for the exemption.

Issue 2: Determination of Residential Status
The assessee contended that his NRI status should be determined based on section 6 of the Income-tax Act, which defines a resident as someone who stays in India for 182 days or more in a previous year. The assessee had been in India for less than 182 days before making the gifts. However, the department argued that the definition of "resident" should be confined to FERA, specifically section 2(p), which includes various conditions under which a person is considered a resident in India.

Judgment:
The Tribunal upheld the decisions of the Assessing Officer and the Commissioner of Gift Tax (Appeals), confirming that the assessee was a resident in India under section 2(p) of FERA. The Tribunal referred to the Supreme Court decision in K. Rammullan v. CIT, which emphasized that the definition of "resident" should be derived from FERA and not the Income-tax Act. The Tribunal concluded that the assessee, having stayed in India for personal reasons from 6-6-1997 onwards, was a resident in India and thus not entitled to the exemption u/s 5(1)(iib) of the Gift Tax Act.

Conclusion:
The appeal filed by the assessee was dismissed, confirming that the assessee is not entitled to exemption u/s 5(1)(iib) of the Gift Tax Act due to his residential status in India as per FERA.