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TMI Blog2001 (4) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: The late assessee was a resident of Malaysia who had have his family living in Kerala, an age-old practice followed by the Muslims of Malabar area. He had maintained non-resident external accounts (NRE accounts) in various banks. The late assessee negotiated for a property known as K.R. Commercial Complex at Mangalore, Karnataka State, for himself and his family members. Finally, the said property was purchased by the late assessee and his family members, all of them as co-owners. The co-owners included the late assessee himself, his wife, six children and his son-in-law, all put together nine persons. The property was purchased by virtue of the sale deed executed on 4th Aug., 1984. At the time of the said purchase, two of the assessee's children were minors and they were represented by his wife. The property was purchased for a consideration of Rs. 25 lakhs. According to the assessee, the registration expenditure was incurred to the extent of Rs. 2 lakhs and both put together, the cost of the said property at Mangalore was Rs. 27 lakhs. 4. When asked for the source for acquiring the said property, the co-owners relied on the remittances made by the late assessee through h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to claim the exemption under s. 5(1)(iib) and also on the quantum of the gifts made by the assessee. According to the GTO, the value of the gifts made by the late assessee worked out to Rs. 24,30,000, after giving deduction for the share of the assessee in the property. Accordingly, against a gift of Rs. 15 lakhs returned by the late assessee, the AO determined the value of gifts at Rs. 24,30,000. Out of this amount of gifts determined by the AO, he was not able to allow exemption to the extent of Rs. 15 lakhs as claimed by the late assessee. Normally, as it is obvious, any gift made by a person residing outside India in the form of money out of his NRE accounts to another person is exempt from the levy of gift-tax. But the GTO did not extend this benefit of exemption to the late assessee for the following two reasons: (i) The resident or non-resident status of the assessee for the purpose of exemption under s. 5(1)(iib) is determined under the provisions of the Foreign Exchange Regulation Act, then prevailing in force. The expression "person resident outside India" is defined in cl. (q) of s. 2 of the Foreign Exchange Regulation Act. The GTO found that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed to have been made by the assessee amounting to Rs. 15 lakhs. Regarding the balance addition of Rs. 9,30,000 the CIT(A) found that the said amount was covered by the loan payable to Corporation Bank, Mangalore, taken over at the time of registration of the property and the amounts of loans given by the late assessee to his wife and son-in-law. Therefore, the CIT(A) deleted the addition of Rs. 5,30,000 and virtually allowed the appeal filed by the late assessee. As far as the addition in the income-tax assessment was concerned, the CIT(A) relied on the order of the CIT(A) in the corresponding wealth-tax appeals. The clubbing of shares in the Mangalore property was deleted in the corresponding wealth-tax appeals and following that line, the clubbing of income was also deleted. As far as the wealth-tax assessments were concerned, the CIT(A) again relied on the order of the Tribunal (Cochin Bench). 7. The Revenue is aggrieved by the orders of the CIT(A) as stated above, and therefore, the second appeals are filed before us. 8. As the leading case, we may first consider the gift-tax appeal filed by the Revenue. The relevant ground raised by the Revenue in the gift-tax app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly paid to the sellers of Mangalore property by way of cheques and demand drafts. By paying money to the sellers of Mangalore property, the late assessee purchased the said property and got it registered in his name as well as in the names of his wife and children and son-in-law as co-owners. If the consequences of these facts are closely examined, the Departmental Representative submitted that one could find that what the late assessee had gifted to his relatives is not the money standing to his credit in his NRE account but a share in the property in K.R. Commercial Complex at Mangalore. The assessee had actually gifted shares in the immovable property purchased by him and such gifts were not exempt from the levy of gift-tax, and therefore, the assessee was not entitled to claim exemption provided in s. (5)(1)(iib) of the GT Act. The learned Departmental Representative submitted that exemption from the levy of gift-tax would be available only when a person resident outside India makes any gift out of the money standing to his credit in an NRE account in any bank in India. Here in this case, even though the assessee could be considered as a person resident outside India, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the payment of a sum of Rs. 15 lakhs made to the vendors of the Mangalore property is out of the NRE accounts maintained by the late assessee. We find that the entire amount of Rs. 15 lakhs covered by the gift-tax return filed by the late assessee was paid by the respective co-owners to the vendors of Mangalore property by cheques or drafts. Those payments have been directly linked to the NRE accounts maintained by the late assessee. It follows that the assessee had gifted that much amount to the respective co-owners from his NRE accounts and in turn those co-owners paid that sum to the vendors of Mangalore property. The only technical objection that could be raised on this point is that those cheques and drafts were directly issued to the vendors of Mangalore property instead of first giving to the co-owners and then the co-owners making the payments to the vendors of the Mangalore property. We find that this is a hyper-technical objection. Each and every payment made to the Mangalore party was traceable directly to the NRE accounts maintained by the late assessee. There is very clear and apparent nexus between the withdrawals of funds from the NRE accounts maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Bank at Mangalore. That amount could not be considered as gift. The balance leftover is Rs. 3,90,000. The assessee has already stated that though the sum of Rs. 3 lakhs was paid by his wife and son-in-law for acquiring their shares in the Mangalore party, the said sum of Rs. 3 lakhs was paid by the late assessee to his wife and son-in-law by way of loan. The AO treated this amount of Rs. 3 lakhs as gifts. We do not find any basis for the finding of the GTO on this point. The assessee who was the lender as well as the assessee's wife and son-in-law who were the borrowers confirmed that the amounts were paid as loans. The late assessee, his wife and his son-in-law are the parties to decide the exact nature of the transaction entered into between them. They categorically stated before the AO that the sum of Rs. 3 lakhs was availed as loan. When the parties to such a transaction confirmed that the amount was handed over as loan, the AO cannot make any different inference unless he was having any evidence against the proposition made by the parties to the contract or to the transaction. We do not find any such evidence against them. Not only that, the parties who entered into these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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