9911796707
TMI Blog2017 (1) TMI 1836X X X X Extracts X X X X X X X X Extracts X X X X ..... not find favour with the Revenue, is that it is a gift in contemplation of death and, thus, excluded under sub-clause (c) of the second proviso thereto. The reason for its non-acceptance is that the assessee had received the gifts not only much earlier to the date of death (18/11/2012), but had also appropriated and utilized the gift amounts, investing the same in immovable property and business. The gift had attained finality, become inter vivos and absolute, and could not therefore be regarded as a gift/s in contemplation of death. 3. We have heard both the parties, and perused the material on record. Findings 3.1 A gift in contemplation of death is defined u/s. 191 of the Indian Succession Act, 1925, which reads as under: "191. Property transferable by gift made in contemplation of death - (1) A man may dispose, by gift made in contemplation of death of any movable property which he could dispose of by will, (2) A gift is said to be made in contemplation of death where a man who is ill and expects to die shortly of his illness delivers to another the possession of any movable property to keep as a gift in case the donor shall die of that illness. (3) Such a gift may be res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person making the gift, is not in dispute. Such a gift, or any gift for that matter, could be given only prior to the death. In the present case, it is eight months in advance. Though it does raise some doubts as to whether it is indeed given in contemplation of death, the matter in our view is to be considered in view of the attending circumstances; rather, the totality of the facts and circumstances. If the person was, as claimed, sick, with little hope of recovery at the time of gift/s, it would matter little that he survived for 8 months thereafter. Though there is no finding in the matter, nor any material on record (except the affidavit by the donor stating that he is being treated for the kidney failure), it is inferable from the circumstances that he was ill at the relevant time. Yes, he may have recovered in-as-much he is not shown to be suffering from an incurable illness (or one at a critical stage), i.e., which is not manageable and generally results in death, yet his condition was serious, which could have and, as it appears, led to his death. Again, we presume it to be from same illness in-as-much as there is no reference to this aspect as well in the assessee's conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own volition execute this Affidavit in favour of Thiru F. Susai Raju, S/o. Francis Arockiam, residing at Flat No. C3, Krishnamansi, 3rd Floor, No.96, First Main Road, Gandhi Nagar, Adyar, Chennai - 600020 on this the 12th day of March, 2012 [12.03.2012]. I am not keeping good health. I don't have any legal heirs as on date and you have been taking care of me and rendering all the necessary service to all the needs. You are my maternal uncle's son and paternal aunt's son. In order to provide for your future and out of natural love and affection, I am swearing this affidavit. I am being treated for kidney failure and dialysis is going on. You are taking care of all the hospital expenditure for treatment. You have engaged necessary assistant nurses to facilitate to do the assistance to serve me. Further you are taking care of my aunt Thirumati Theresa Ammaiyar including medical assistance and engaging servant maid to take care of her. In consideration of all the above and out of natural love and affection, without any compulsion from anyone whomsoever, I hereby gift you the following by way of Cheque and Cash: 1. Rs. 3,00,000/- vide Cheque no. 40103 dated 06.07.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have taken place over a period of eight months (6/7/2011 to 15/3/2012), if not more, and without any document. Why? Clearly, there is no obligation to return. Why, one may ask, would one keep on giving? Is it that as his health or condition deteriorated he needed to transfer more and more funds to the assessee? Couple this with the fact that the amounts given stand employed by the assessee in his business and/or for purchase of immovable properties, both entailing market/business risk, besides representing an illiquid avenue of investment, and it is clear that the same were never intended to be returned. In fact, it is clear from the language of the affidavit that the gift is not conditional to the donor's death, but unequivocal, so that it takes effect immediately. No doubt the assessee-donee has felt free to appropriate the amounts, using them for his various interests, requirements. Then there is the question of the donor-payer, despite being a man of means, even as the gift amount (Rs.154.10 lacs), and which may not exhaust all his assets, suggests, does not spend his money but allows his nephew (assessee) to do so. Why, he even does not even spend 'his' money for his own aun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be required to be exhibited for the expenditure incurred for other years as the same could not in any case be brought to tax for the current year, the year of receipt of consideration of the unexplained (or explained) expenditure incurred. This is as the same may stand to be assessed as income u/s. 69C only for those years and not the current year, in which the assessee has received the consideration. To the extent therefore the assessee is able to exhibit the expenditure incurred for any year, the same shall get excluded as income for the current year u/s. 2(24)(xv) r/w s.56(2). Needless to add, the expenditure incurred, to the extent it is unable to be satisfactorily explained (to the AO) as regards its source, is liable to be deemed as income u/s. 69C for that year, i.e., the year of incurring the expenditure. 3.4 We may before concluding this matter, consider the assessee's reliance on the decision in Abdul Karim Mohd. (supra), which we have carefully perused. The issue in that case - under the Gift Tax Act, 1958, insofar as we are concerned, was whether the gift was in contemplation of death or a gift pure and simple, as opined by the Tribunal, inasmuch as there was no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'The gift was made when the donor was seriously ill and in apprehension of his death. The donor died within six weeks after the execution of the deed. The possession of the property gifted has been delivered to the donee before the death. But it is said that there is nothing to show in the document expressly or impliedly that the gift was made under such circumstances that the thing was to revert to the donor in case he should recover. Dr. Gauri Shankar, learned counsel for the Revenue, contends ....... It seems to us that the recitals in the deed of gift are not conclusive to determine the nature and validity of the gift. The party may produce evidence aliunde to prove that the donor gifted the property when he was seriously ill and contemplating his death with no hope of recovery. These factors in conjunction with the factum of death of the donor, may be sufficient to infer that the gift was made in contemplation of death. It is implicit in such circumstances that the donee becomes the owner of the gifted property only if the donor dies of the illness and if the donor recovers from the illness, the recovery itself operates as a revocation of the gift. It is not necessary to st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch less as a gift in contemplation of death. The said decision would thus be of little assistance to the assessee. Decision 4. In view of the foregoing, we restore the matter back to the file of theAssessing Officer (AO), to enable the assessee an opportunity to establish his case with reference to our findings. The AO has not examined this aspect, and both the expenditure and, consequently, the amount of gift, if any, is indeterminate. Where and to the extent the assessee is able to prove the expenditure incurred - whether by himself or by the donor (who may also incurred a part of the expenditure), the same would stand excluded as a gift and, thus, as a gift assessable u/s. 56(2)(vii), though is liable to be assessed u/s. 69C to the extent 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutes 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 of payment 1. Egabathamoorthy 27,48,000 25.10.2011 2. Gayathri Devi 15,00,000 25.07.2011 3. Giridhar 2,39,500 27.03.2012 4. Manimegalai 1,94,500 15.12.2011 Total 46,82,000 The assessee's case is that in all cases the payments were for business expediency; the sellers' insisting on the same, so that in case of non-payment thus, he would stand to loose business. The payments in cash were made under such critical circumstances, and in fact represent advance payments, so that the balance purchase cost was remitted through bank draft only. The AO, however, found the same as incorrect. The payments, in all cases, were not advance payments, made to secure the transaction/contract. In fact, the amounts represented the total consideration, except in the case of Shri Giridhar, where it was for the balance (of the total consideration of Rs. 13.395 lacs), the advance of Rs. 11 lacs having been rather paid earlier by cheque on 17.12.2011. None of the exempted clauses of r. 6DD (of the Income Tax Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was not made or tendered in cash or in any other manner.' The section is cast in near absolute terms, with the excepting categories provided for under proviso to s. 40A(3A), stating the consideration of, inter alia, business expediency, per r. 6DD. The assessing authority has clearly stated that none of these excepting circumstances, which are exhaustive, are applicable in the facts and circumstances of the case, with the ld. CIT(A) finding no reason to, in view of the undisputed facts, differ with him. There is no estoppel against law. The terms of a contract must therefore yield to the law, made explicit per s. 40A(4). Rather, any contract which is inconsistent with the public policy or the express provision of law is not valid in law. The plea that the sellers insisted on cash payment - itself unproved, is thus not a legally valid argument, even as pointed out by the AO with reference to s. 40A(4). In fact, even if the bar of s. 40A(4), which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provision, irrespective of its time, i.e., preceding or succeeding payment/s that per other modes. For example, if a payment of Rs. 50,000/- (out of total of Rs. 3 lac) is paid in cash (on a single day), it is only Rs. 50,000/-, irrespective of its scheduling in the discharge of Rs. 3 lacs, that shall attract the disallowance u/s. 40A(1) r/w s. 40A(3). The plea of business expediency cannot be a ruse. The law has been in place since 01/4/1969, with r. 6DD undergoing several changes over time, reflecting the extant concerns obtaining for time to time, chiefly being the extent of the banking facilities in the relevant area and business expediency, which stand clearly enumerated there-under. Banking facilities are by now ubiquitous, so that the former translates into transactions where the banking services stand suspended on the day on which the payment is to be made. Allowance is made for transactions in the unorganized sector, more so in the agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 restraint on trade. In fact, as noted earlier, r. 6DD has itself undergone changes from time to time in the legislative bid to admit and thus to exclude from the ambit of the provision circumstances regarded as not practicable from the stand point of a trader or inconsistent with the trade customs, which also explains in part the exclusion of the transactions involving payments of agriculturists, even as the banking sector has deeply penetrated the rural sector as well. In fact, only an expenditure otherwise allowable would be hit by s. 40A(3); an expenditure which is not genuine cannot be regarded as admissible for deduction (as, say, u/s. 37(1)) in the first place. True, the section was conceived to help mitigate tax evasion by providing a manner for verifying the trail of expenditure deduction in respect of which is being claimed as business expenditure. However, once a provision is legislated, it is the statutory language alone that would be determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions 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 assailed in this appeal and no submission has been made before us with regard to the same. We are satisfied that the appeal ought not to have filed and raises no substantial question of law for determination under Section 260A of the Act.' It is the ratio decidendi of a decision that is binding or has precedent value. We find nothing therein or stands held by the Hon'ble Court as in contradiction or as inconsistent with what is stated by us in this order, drawing support from the law laid down by the Apex Court and the Hon'ble jurisdictional Hon'ble Court. Rather, we find it as supportive inasmuch as it emphasizes the satisfaction of the conditions prescribed in the rules (r. 6DD) for the allowance of the expenditure. The said decision shall therefore be of no assistance to the assessee. In view of the foregoing, we, therefore, find no infirmity in the invocation of the provision by the Revenue in the instant case. There is no excess of the legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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