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TMI Blog1997 (12) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------- The above gifts were made by way of drafts purchased in Malaysian dollars at Kuala Lumpur in the name of the donees. According to the assessee, the gifts took place at Kuala Lumpur and the gifts were accepted on behalf of his daughters in Kuala Lumpur itself and the assessee purchased the drafts thereafter. The assessee, therefore, contended that the gifts were movable properties situated in foreign country and the assessee being not ordinarily a resident, is entitled to exemption under section 5(1)(ii) of the Gift-tax Act (hereinafter to be referred to as "the Act"). The Gift-tax Officer, however, did not accept the contentions urged on behalf of the assessee and held that the assessee had not proved the acceptance of the gifts at Kuala Lumpur. He, therefore, held that the gifts took place in India and levied the gift-tax. The assessee preferred an appeal to the Commissioner of Gift-tax (Appeals) against the order of the Gift-tax Officer. The Commissioner (Appeals) held that the purchase of drafts at Kuala Lumpur would amount to movable properties situated in a foreign country and the assessee was eligible for exemption under section 5(1)(ii) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration before this court in CGT v. S. Raja Ramalingam [1997] 227 ITR 622. He further submitted that at least the facts in one of the transactions in S. Raja Ramalingam's case [1997] 227 ITR 622 are similar to the facts in the present case and thus, he submitted, that since in that case this court held that the gift took place in India, following the same logic, the gifts in the instant case were not exempt under section 5(1)(ii) of the Act. Notice was served on the assessee, but there was no representation on behalf of the assessee. We have carefully considered the submissions of learned counsel for the Revenue and also perused the records. The facts in Raja Ramalingam's case [1997] 227 ITR 622 (Mad) are as under : "The assessee is a non-resident. On May 11, 1973, he purchased a draft from the State Bank of India, New York branch, drawn in favour of this father, V. S. D. Sundararaja Chettiar, on the State Bank of India, Salem, for Rs. 89,552.24. That was despatched by post to his father at Salem on May 14, 1973, along with a covering letter wherein he requested his father to encash the draft and hand over the money as a gift to his brother. So also on February 8, 1974, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to send the drafts by post and the post office in India acted as an agent of the donor at the time of delivery of the drafts in favour of the donees, still the question that arises is where the property was situate at the time of receipt of the drafts by the donees and acceptance of the gifts by the donee. It is already seen that the assessee had deposited the money in the foreign country and purchased the drafts in the names of the donees and as soon as the drafts were purchased in the names of the donees, we have to see what is the exact relationship between the bank and the donees. The relationship between banker and customer is one of a contract. The true relationship between the parties is explained in Sheldon's Practice and Law of Banking (Tenth edition), at page 186, as under : "The true relationship between the two parties was admirably described by Lord Cottenham in Foley v. Hill [1848] 2 HL Cas 28. 'Money', said his Lordship, 'when paid into a bank, ceased altogether to be the money of the principal ; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iffe [1918] 2 KB 833 at 840. Moreover, the view that the banker's debt was of this nature was justified by the opinion of Lord Lyndhurst in the earlier stages of Foley v. Hill [1848] 2 HL Cas 28 and by the judgments in Pott v. Clegg [1847] 16 M W 321 and Re Tidd, Tidd v. Overell [1893] 3 Ch 154, which recognised the banker's debt as being subject to the statutes of limitation (as they were then called), and so, indirectly, at all times immediately due and recoverable. But it was common knowledge that there were debts which were really not payable except on demand, nor enforceable till after demand. The distinction is drawn in Walton v. Mascall [1844] 13 M W 452 at 455. 'It is quite clear that a request for the payment of a debt is quite immaterial unless the parties to the contract have stipulated that it shall be made ; if they have not, the law requires no notice or request, but the debtor is bound to seek out the creditor and pay him when the debt is due'." The Supreme Court in Delhi Cloth and General Mills Co. Ltd. v. Harnam Singh, AIR 1955 SC 590 ; [1955] 2 SCR 402, has held that in banking transactions the following rules are now settled (page 598 of AIR 1955 SC) : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that it was open to the petitioner to institute a suit in Simla, but it was on the ground that there was a branch office of the United Commercial Bank at Simla. But, that principle where the suit would be instituted is not of much relevance in deciding the question where the property is situate or located at the time of acceptance of the gift. In Cheshire and North's Private International Law (Eleventh edition), the learned author has observed that there is very little authority on transfer of movables by gift inter vivos, but it is suggested that the validity of such transfer of property should be governed by the lex situs. The learned author referred to an interesting American decision in Morson v. Second National Bank of Boston [1940] 306 Mass 589 : 29 NE 2d 19 and observed as under : "The donor, whilst travelling in Italy with the donee, handed her an envelop containing shares in a Massachusetts company, thus purporting to transfer to her the title to the shares ; later, the donor, whilst still in Italy, signed and delivered the stock certificate to the donee. This was adequate under Massachusetts law, but not under Italian law, to effect transfer of legal title to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor resides only in one country, it is there alone that the debt is situated notwithstanding that it may be expressly or implicitly payable elsewhere." Therefore, applying the principles laid down in the above case, it is clear that at the time of acceptance of the gift, the money was situate in the foreign country as the money was deposited in a foreign bank, and the foreign bank was obliged to pay the same to the donee. No doubt, it is true that the donee by depositing the draft in a bank in India can realise the amount and can get the payment in India, but, the subsequent act of realisation of the money by the donee would be after the acceptance of the donee of the gift and for realisation of the donee's money and as soon as the gift is accepted by the donee, the foreign bank becomes the debtor to the donee as the draft was standing in the name of the donee and at that precise point of time, the debt is situate in a foreign country. The bank, under the terms of the contract was obliged to pay money and it is not necessary for the donees to go to the foreign country for the encashment of the drafts and it is open to them to encash the drafts by placing the drafts in the don ..... X X X X Extracts X X X X X X X X Extracts X X X X
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