JUDGEMENT
G. Santhanam, Accountant Member -
(1.)THE assessee is a non-resident individual. He purchased bank drafts in foreign currency in favour of his two sons and sent them by post. THE drafts were encashed through Bank of India, Ernakulam, and Bank of Cochin Ltd. THE amounts exchanged in foreign currency were intended as gifts to his children for purpose of education. THE details of the gifts are as follows:-
1. Sri S. Narayanan - Draft in foreign currency viz. U.S. $ 2000 - (Rs. 17,200) in September, 1977.
(2.)Sri S. Ananthakrishnan - U.S. $ 5500 (Rs. 47,000)
Sri S. Subramanian - Gift out of cheque from local account in India - Rs, 35,000.
The Gift-tax Officer brought to tax the entire amount after allowing an exemption of Rs. 35,000 under Section 5(l)(xii) of the G.T. Act. On appeal, the first appellate authority enhanced the exemption to Rs. 45,000. He negatived the contention of the assessee that the gifts made in favour of S/Sri Narayanan and Ananthakrishnan in foreign currency were not taxable under the provisions of Section 5(l)(ii) of the G.T. Act. The assessee is on further appeal before us.
2. We have heard rival submissions. The revenue relies on the Board's Circular No. 302 dated 2-5-1981 reported in 131 ITR (Statutes) 63. The relevant part Of the circular is as follows:
5. The situation which requires some clarification, however, is where a non-resident donor makes a gift in foreign exchange or foreign currency to a person in India and the bank draft or cheque representing the gift is sent by the donor by post to the address of the donee in India at the request of the donee. The Board clarify that there will be no liability to gift-tax in respect of these transactions. That is because in such a case the gift can be said to have been received by the banks/post office as an agent of the donee outside India. This inference is based on the decision in the case of Rajkumar Mills Ltd. v. CIT [1976] 103 ITR 92 (Bom.), 99, 100 wherein their Lordships of the Bombay High Court on a review of the relevant principles laid down by the Supreme Court quoted as under:
If the cheque is sent by post, the receipt would be at the place where the cheque is posted provided the mode of sending it by post is adopted at the express or implied request of the addressee, in such cases the post office being the agent of the addressee; otherwise the receipt would be at the place where the cheque is delivered by the post office to the addressee.
We have considered this circular of the Board of Direct Taxes. It deals with remittances by cheque sent by post at the request of the addressee or without the request of the assessee. The circular is based on the observations of the Bombay High Court in the case of Raj Kumar Mills Ltd. (supra). The case before the Bombay High Court was an Income-tax case. The issue was whether the income arose in British India or in the native State. The issue depended upon the terms of contract between the supplier and the purchaser. We are confronted not with the accrual or receipt of income but with a totally different situation namely, the situs of gift. With regard to the first two donees the assessee had purchased drafts in foreign currency, namely, U.S. Dollars. Thus the movable property was located outside the taxable territories. It was not case of gift by cheque but a case of gift through demand draft. Therefore, when the non-resident individual purchases draft in a foreign country in a foreign bank reducing his balance in the bank account, or by reducing his balance in his personal savings, there is a gift of movable property in a foreign country. The income-tax cases decided by the Bombay High Court and also the Supreme Court in CIT v. Ogale Glass Works Ltd. [1954] 25 ITR 529, Shri Jagdish Mills Ltd. v.CIT [1959] 37 ITR 114 and Azamjahi Mills Ltd. v. CIT [1976] 103 ITR 449 were all based on the place of receipt of income in regard to transactions between the debtor and the creditor or supplier and the purchaser etc., vis-a-vis the terms of contract. It was in the facts of those cases having regard to the contract between the parties as to the mode of payment etc. the principles referred to in the Board's Circular cited supra were laid down. But in the case of a gift it is a voluntary act on the part of the donor in which the donee has no say in the matter. Of course the donee can certainly repudiate the gift but so long as the gift is not repudiated the gift becomes a fait accompli. Therefore, in a case of non-resident donor living in a foreign country, with donees living in home countries and the donor having decided to gift certain movable properties in favour of the donees the only mode of doing it in the case of money is to purchase a draft in foreign countries in favour of the donees and send them by post. This is a permissible mode open to the assessees to effectuate the gift. The situs of the property which in this case is a movable property, is located in the foreign country. The decision to make the gifts was taken in the foreign country. Steps to give effect to the decision were also taken in the foreign country by purchasing a draft in favour of the donees. Therefore, it cannot be held that the gift was made in the taxable territories. The decisions rendered by the High Courts and the Higher Courts in the realm of income-tax cannot be made applicable to the concept of gift as the meaning and ingredients of income and gift are totally different. The G.T.O. denied exemption under Section 5(l)(ii) on the ground that the assessee could not produce any evidence to prove that the bank drafts were sent by the donor at the request of the donees. The assessee's main grievance is that he is the head of the family and on an implicit understanding with the family members he had sent the drafts by post and therefore, even if Board's circular is made applicable, these gifts are not taxable. Taking a pragmatic view of the matter, we are satisfied that there can be an implicit understanding between the donor and the donee and the remittances were made by drafts. Thus the gifts are exempt under Section 5(l)(ii) even in terms of Board's circular cited supra. Hence we delete the levy of gift-tax on the gifts made to Shri S. Narayanan and S. Ananthakrishnan as they are totally exempt under Section 5(l)(ii). As far as the gift made to Shri Subramanian is concerned, we notice that it was made out of a cheque from local bank in India and the gift-tax is attracted.
3. There is another related issue. The assessee is aggrieved that only a sum of Rs. 45,000 was allowed as exempt under Section 5(l)(xii). A few particulars would be relevant in this context. Shri Narayanan at the time of gift was a student in the Final Year of B .Sc. Later he took his post graduation in Aurangabad. Now he is doing research in Calicut University. Shri Subramanian was then a student in Engineering college at the time of gift. Ananthakrishnan was in the 8th Standard and a Pre-Degree student at the time of assessment. The G.T.O. allowed Rs. 6,000, Rs. 9,000 and Rs. 20,000 respectively under Section 5(l)(xii). The A.A.C. gave some marginal increase. The question is whether the exemption allowed by the assessing authorities for the educational needs of the assessee's sons was enough. In CGT v. Smt. Letitia S. Fernandez, their Lordships of the Kerala High Court dealing with Section 5(l)(xii) held that the intention of the donor-assessee is very relevant and when intention of the donor in making the gift was for education of his children, the manner of utilisation of that amount, in whatever form or manner, will not in any way derogate from the purpose of the gift and entitlement to exemption. The education as envisaged in Section 5(l)(xii) cannot be given a restricted meaning. Education is never ending process or as has been rightly contended it is an on-going process. The Legislature has not put any monetary ceiling. Exemption should be worked out with regard to the intention of the donor, the opportunities available to the donees for further studies, the possibility of diversification etc. Having regard to these factors, we hold that even if all the gifts are held to be taxable, the entire amount was for purpose of education and represented the reasonable amount for the educational needs of the donees. In this view of the matter also we delete the addition sustained by the first appellate authority.
(3.)IN the result, the appeal is allowed.
Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.