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TMI Blog2017 (1) TMI 1836X X X X Extracts X X X X X X X X Extracts X X X X ..... the source of the expenditure, incurred for the current year, remains unproved. The estimate of the total expenditure incurred over the years, i.e., during the currency of the illness, which shall have to precede this exercise, is to be an informed estimate, based on medical history, reports, prescriptions, bills, etc. a matter of record. A similar estimate in respect of the medical treatment and nursing of the donor s aunt may also be made, to the same effect and in the same manner. Further, where (and to the extent) the total expenditure falls short of the gift amount the same is surely a gift for the love, care and affection bestowed by the assessee on the donor and his aunt. The same would though, for the reasons afore-stated, not be a gift/s in contemplation of death, and assessable u/s. 56(2)(vii). True, the burden of proof in case of the deeming provision of s. 69C, as for others, viz. 69, 69A, 69B, et. al., is on the Revenue, so that it is only where the factum of the assessee being the owner of any property, investment, etc., or of having incurred expenditure is established by the Revenue, that the assessee can be called upon to explain the nature and source thereof, fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in the instant case. There is no excess of the legislative intent or abuse of the judicial process in the instant case. We decide accordingly, and the assessee fails. - SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant by : Shri M.P.Senthil Kumar, Advocate For The Respondent : Shri M.Shiva Srinivas, Jt. CIT ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals)-3, Chennai ( CIT(A) for short) dated 30.06.2016, dismissing the assessee s appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 ( the Act hereinafter) dated 30.03.2015 for the assessment year (AY) 2012-13. 2. The appeal raises three issues, each of which we shall take up in seriatim. The first issue relates to the deeming of a gift/s received by the assessee during the relevant year, i.e., financial year 2011-12, as income u/s. 56(2)(vii) of the Act. The gift admittedly is from a person who does not fall within the definition of relative as given in the section (vide Explanation (e) thereto). The assessee s case, however, which did not find favour with the Revenue, is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expectation of death, puts aside certain articles in separate parcels and marks upon the parcels respectively the names of B and C. The parcels are not delivered during the life of A. A dies of the illness during which he sets aside the parcels. B and C are not entitled to the contents of the parcels. [emphasis, by italics, ours] The Apex Court in CGT v. Abdul Karim Mohd. [1991] 191 ITR 317 (SC), relied upon by the assessee, referring to s. 191 supra, explained that it does not introduce anything further to the constituent elements of a valid donatio mortio causa . The gift must firstly be given in contemplation, not necessarily in expectation, of death. Further, to constitute a gift in contemplation of death two other conditions must be satisfied; (i) there must be delivery of possession of the gifted movables to the done and, (ii) the gift is entitled to take effect only in the event of the donor's death and if the donor recovers from the illness, the property should revert to him (pg. 321). That a gift given in contemplation of death, therefore, takes effect only on the death of the donor , i.e., the person making the gift, is not in dispute. Such a gift, or any gift for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the circumstances change, as, for example, where the donor recovers from the illness, i.e., the condition under which the disposition was made. That is, is conditional and, two, takes place on the death of the donor , so that it assumes the nature of a Will . A will, however, is not required by law to be registered. It may require being witnessed, which requirement is again towards establishing its authenticity and/or genuineness. The same shall assume significance only on it being challenged, which is apparently not so in the instant case, even as affidavit is also witnessed. 3.3 This leaves us with the Revenue s principal objection, i.e., of the gift having taken effect much prior to the date of death, with the moneys having been in fact utilized by the assessee for investment in immovable properties as well as in his business. The affidavit (gift statement) reads as under: AFFIDAVIT (free English translation) I, Amaloresamy, son of Late Thiru Mariadass, aged about 65 years, residing at No. 4, Ramachandra Road, Mylapore, Chennai - 600 004, do hereby solemnly affirm and willfully out of my own volition execute this Affidavit in favour of Thiru F. Susai Raju, S/o. Francis Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is apart from the amount delivered in cash, both the dates and the corresponding amounts of which remain unspecified. The gifts or the gift amounts have been given piece meal, or does one say, systematically , starting at least (inasmuch as the dates of the cash transactions are not known) 8 months prior to the date of the affidavit, which is itself 8 months prior to the date of death, i.e., commence at least 16 months prior to the date of death and continue up to 8 months prior thereto . Surely, this is not the manner in which one, critically ill, is expected to and would, therefore, make his parting gift, or record his final testamentary declaration. He having arrived at a decision to, in view of his illness, gift the amount to a near one, as the assessee, a relative , and who has been taking care of him, would do so per one or (may be) two transactions, i.e., giving allowance for revision - upon reflection, putting the same in writing, preferably immediately thereafter. This is as the donor, as claimed, apprehending death, does not know how long thereafter he may survive. The transactions have taken place over a period of eight months (6/7/2011 to 15/3/2012), if not more, and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any case be regarded as a gift, much less one in contemplation of death. In fact, the document (affidavit) is explicit on this, so that it is to be regarded as bearing two limbs; one toward the costs incurred (as well as likely to be incurred in future), and the balance, if any, as gift. The latter, however, would not be for the foregoing reasons, a gift in contemplation of death, but a gift simpliciter, i.e., out of love, affection and care bestowed by the asssessee on them, or, complete and absolute at its inception. Further, being in consideration of the expenditure incurred, the same would not to that extent, be a gift, so as to attract s. 56(2)(vii) of the Act. The assessee would however have to, for its exclusion, establish the expenditure incurred, as well as the source of the expenditure incurred for the current year. This is as to the extent the source remains unproved, the same would stand to be brought to tax as deemed income u/s. 69C and, therefore, of little consequence to the assessee, i.e., whether deemed as income u/s. 56(2)(vii) or u/s. 69-C. The source may not be required to be exhibited for the expenditure incurred for other years as the same could not in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated that the settlor as well as his children showed anxiety and haste in the matter of registration on account of the serious nature of the illness. At that time, according to the Sub-Registrar, the settlor was in his proper senses, but, soon after the execution of the deed, further complications set in and his power of speech and movements became impaired . Dr. V. B. Mohamed who was treating him has certified that on June 4, 1964, the patient was unable to recognise the surroundings properly and that his mental condition was impaired to a great degree. On June 9, 1964, i.e., within about six weeks from the date of the settlement, he died. In these circumstances, I am satisfied that the donor, an aged gentleman who was seriously ill at the time of the Settlement entertained no hope of recovery, and that it was in such a state of mind, that he made the settlement. Hence, the gifts must be taken to have been made in contemplation of death. It was in view of these undisputed factual findings that the Hon ble Court observed as under: (refer pgs. 323-324 of the decision) The gift was made when the donor was seriously ill and in apprehension of his death. The donor died within s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a certainty, was not eminent at the time of gift, which itself continues over a period of eight months, through a series of cash and bank transfers . The predominant objective of the disposition, even as stated in the affidavit itself, was to compensate the assessee for the provision of medical and other related costs being incurred by him in respect of the donor a man of means, and his aunt, ostensibly dependent on him, and which also explains the manner of disposition . No wonder there was no element of its return back and, sure enough, was quickly appropriated by the assessee for his purposes. Reference in this regard may be made to para 3.3 of this order. Merely because the gift is given at the time of illness, or occasioned by the donor undergoing its treatment, would not by itself make it a gift in contemplation of death a certain phenomenon and which has therefore to in any case occur, which is a legally defined concept, so that its attributes are to be satisfied if it is to qualify as one. Surely, the same could not be regarded as gift , much less as a gift in contemplation of death. The said decision would thus be of little assistance to the assessee. Decision 4. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly he who can therefore furnish information in its respect, furthering his case in the matter. That s. 69C may have applicability where the source of the expenditure, incurred during the current year, is not proven, is a different matter altogether. At the same time, in the absence of the assessee showing the factum of the expenditure incurred by him, i.e., failing to exhibit the same, its mention in the deposition by the donor is merely a surreptitious mention, to therefore no legal effect. We have already clarified that where the expenditure is to a part extent, the balance shall operate to be a gift, qualifying as such, which though would not be a gift in contemplation of death. We decide accordingly. 5. The next disallowance agitated per the instant appeal is for Rs. 46,82,000/- in respect of purchases in cash, u/s. 40A(3) of the Act. The purchases are admittedly in cash, i.e., other than per the prescribed modes of account payee cheque or account payee bank draft (in the name of the payee), of immovable property, which though constitutes the assessee s - in real estate business, stock-in-trade, from four persons, as under: S.No. Name of the party Amount of purchase (Rs.) Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upees, no deduction shall be allowed in respect of such expenditure. (3A) . Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Provided further (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by 67 an account payee cheque drawn on a bank or account payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal consequence shall follow. Again, the assessee s plea of the impugned payments being advance payments - found incorrect by the AO, is of no moment in law. Even if therefore it were to be factually so, which we find it as not, it matters little if the payments made in contravention of the law is the first or the last or any between the two, where the liability qua an expenditure, deduction in respect of which in computing business income is being claimed, is discharged in more than one installment. We are therefore unable to appreciate the argument. What all is relevant in the matter is if the expenditure falls in the revenue field and stands incurred for business purposes, so that deduction in its respect is being rightly claimed. Where so, it will, where violative of the non obstante provision of s. 40A(1) r/w s.40(A)(3)/(3A) r/w s. 40A(4), disqualify itself for deduction in computing the income for the current year or, as the case may be, be deemed as income for a subsequent year. Clearly the restriction and the corresponding disallowance, which is with reference to the mode of payment, is not of the entire expenditure, but only to the extent paid in violation of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business expenditure. If it is made in respect of any such expenditure, then the further question is whether the payment is made by cash or by crossed cheque or bank draft. If it is by cash, then, unless special circumstances are pleaded and established by the assessee in terms of the appropriate saving provisions of the statutory rules, the expenditure will be disallowed on the ground that the payment has not been made by a crossed bank draft or crossed cheque . Even if the payment is made by crossed cheque or bank draft, the expenditure may run the risk of being disallowed for various other reasons which may be germane for purposes of the statutory computation of business income. (pgs. 602-603) [emphasis, ours] As would be apparent, there is no scope for arguments such as bona fide payments, etc., i.e., except where and to the extent shown as falling within the scope of the provision r/w r. 6DD, in-as-much as the savings from the provision are built into therein, even as also noted by the Apex Court in Attar Singh Gurmukh Singh (supra). The upholding of its constitutionality implies that the provision is not arbitrary, including in its application, nor constitutes and unfair rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by crossed cheque or bank draft is fulfilled, the expenditure will be disallowed for no other reason than that the payment is made in cash . The Tribunal's approach to s. 40A(3) of the Act tends to render the inquiry into the payment purposeless, for, according to the Tribunal's method, the size of each item of expenditure under a purchase invoice must be determinant, whereas the statutory inquiry is about the manner of payment as related to the size of the payment . We disapprove of the Tribunal's reading of the purchase invoices in this case in a selective fashion. Such a reading distorts the invoice. The proper way is to read the entries in a wholesome fashion. (pgs. 603-604) [emphasis, ours] Coming to the decision in R.P Real Estate (P.) Ltd . (supra), we extract the findings by the Hon ble Court as under: The Tribunal has interpreted the aforesaid to hold that cash payments above twenty thousand rupees could be accepted if the conditions prescribed in the rules were fulfilled to the satisfaction of the authority concerned . The reasoning of the Tribunal and the interpretation by it of Section 40A(3) and Rule 6DD(g) supported by judicial precedents have not been as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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