2005 (8) TMI 52 - HC - Income Tax

Gift Tax Act, 1958 - Revenue is challenging the judgment and order passed by Tribunal which has confirmed the order passed by the Deputy Commissioner of Income-tax (Appeals) and has held that respondent No. 1 was not liable to pay gift-tax and her case was exempted u/s 5(1)(ii). - Whether the gifts made in Kashmir by the assessee a nonresident of India, out of the money transferred from other part of the country, is exempted from tax under the Gift-tax Act, 1958? - Both the lower authorities in our view, have not committed any error in coming to the conclusion that both the transactions were exempted under the provisions of the Gift-tax Act.

Summary

Issues:
Challenge to judgment confirming exemption from gift-tax under section 5(1)(ii) for gifts made in Kashmir by a nonresident of India.

Analysis:
The High Court of BOMBAY delivered a judgment on a case where the Revenue challenged a decision confirming exemption from gift-tax for gifts made in Kashmir by a nonresident individual. The court framed a substantial question of law regarding the exemption under section 5(1)(ii) of the Gift-tax Act, 1958. The case involved transactions related to the deposit of funds, issuance of demand drafts, opening of bank accounts, gift-giving to trusts, sale of equity shares, and transfer of funds between different locations in India.

The Revenue argued that the gift transactions were colorable devices aimed at tax avoidance, citing a Supreme Court judgment in McDowell and Co. Ltd. v. CTO. The appellant contended that the lower authorities did not consider whether the transactions were genuine or intended to evade tax liability. The respondent, on the other hand, argued that the question of colorable device is a matter of fact, and since there was a concurrent finding by the lower authorities, the High Court should not interfere.

The court examined the provisions of section 5(1)(ii) of the Gift-tax Act, which exempts gifts made by nonresident individuals outside the territories to which the Act extends. It was noted that the respondent was a nonresident Indian permanently residing in Dubai, and the gifts were made in Kashmir. The court rejected the Revenue's argument that the transactions were colorable devices, emphasizing that the transactions fell within the exemption provided by the Act.

The court also referred to the Supreme Court's decision in Union of India v. Azadi Bachao Andolan, which watered down the principles laid down in McDowell's case regarding tax planning and colorable devices. Additionally, the court cited a judgment by the Calcutta High Court regarding the completion of gift transactions involving shares, further supporting the exemption under section 5(1)(ii).

Ultimately, the High Court dismissed the appeal, upholding the decisions of the lower authorities that the transactions in question were exempted under the provisions of the Gift-tax Act. The court found no reason to interfere with the concurrent findings of fact and ruled in favor of the respondent, affirming the exemption from gift-tax for the gifts made in Kashmir by the nonresident individual.