1980 (5) TMI 75 - AT - Income Tax

Summary

Issues:
1. Whether the write-off of a debt by the assessee to his son constitutes a deemed gift under the Gift Tax Act.
2. Whether the abandonment of the debt was for a bona fide reason.
3. Whether the unilateral act of writing off the debt in the books of account constitutes abandonment of the debt.
4. Whether the debt was still shown in the wealth-tax return of the assessee's son.

Analysis:

1. The Appellate Tribunal (ITAT Madras-A) considered the case where the assessee had written off a debt of Rs. 50,000 due from his son, which was treated as a gift by the Gift Tax Officer (GTO) under section 4(1)(c) of the Gift Tax Act. The AAC initially held that the amount was not taxable, but the Tribunal set aside this decision and remanded the matter to consider various aspects, including the reason for the debt abandonment and its treatment in the son's wealth-tax return.

2. The successor AAC noted that although the debt was time-barred, both the assessee and his son continued to show it in their wealth-tax returns, indicating a mutual understanding to treat it as a live debt. The AAC concluded that the abandonment was due to filial affection and fell within the ambit of section 4(1)(c) of the Gift Tax Act. The AAC inferred that the abandonment occurred in the relevant accounting year 1972-73.

3. The assessee's counsel argued that the debt was written off due to its irrecoverability after the limitation period had expired, without any consultation between the parties. Reference was made to relevant High Court decisions supporting the position that such write-offs do not constitute gifts under the Gift Tax Act.

4. The Department Representative contended that the debt abandonment was influenced by family ties and the political status of the assessee's son. However, the Tribunal, citing a precedent, held that even if the write-off amounted to abandonment, it did not qualify as a gift under section 4(1)(c) of the Gift Tax Act. The Tribunal accepted the assessee's reasons for the write-off and allowed the appeal, emphasizing the lack of doubt regarding the bona fide nature of the write-off.