Case Note & Summary
The Revenue appealed against the order of the Income Tax Appellate Tribunal which had allowed the assessee's claim for exemption from Gift Tax under Section 5(ii) of the Gift Tax Act, 1958. The respondent, Mrs. Sarita P. Shirke, a Non-Resident Indian (NRI) permanently resident in Dubai, made a gift of Rs. 1,00,000 to Mrs. Madhuri D. Joshi, a resident of Pune, by cheque drawn at Srinagar. The Assessing Officer held the transaction colourable and directed payment of Gift Tax. The Deputy Commissioner of Income Tax set aside that order, holding that the gift was made in Srinagar where Section 5(ii) of the Gift Tax Act exempted gifts, and thus no tax was payable. The Tribunal upheld that view. The High Court reversed, holding that the exemption under Section 5(ii) applies only to persons who are resident in Jammu and Kashmir, not to NRIs making gifts there. The court found the transaction colourable and allowed the Revenue's appeal, restoring the Assessing Officer's order.
Headnote
A) Gift Tax - Exemption under Section 5(ii) - Territorial Application - The exemption under Section 5(ii) of the Gift Tax Act, 1958 applies only to gifts made by a person who is resident in the State of Jammu and Kashmir, not to gifts made by a non-resident Indian in that State. The court held that the gift was a colourable transaction to avoid tax. (Paras 2-3)
Issue of Consideration
Whether a gift made by a Non-Resident Indian (NRI) in Srinagar, Jammu and Kashmir, is exempt from Gift Tax under Section 5(ii) of the Gift Tax Act, 1958, and whether the transaction was colourable.
Final Decision
Appeal allowed. Order of the Income Tax Appellate Tribunal set aside. Order of the Assessing Officer restored.
Law Points
- Gift Tax Act
- 1958
- Section 5(ii) exemption applies only to gifts made by a person who is resident in the State of Jammu and Kashmir
- not to gifts made by a non-resident Indian in that State
- colourable transaction to avoid tax
Case Details
2005 LawText (BOM) (08) 150
TAX APPEAL NO. 30 OF 2002
S. S. Parkar, V. M. Kanade
Mr. S. R. Rivonkar for Appellant, Mr. R. Srinivasan with Mr. Sudin Usgaonkar for Respondent No.1
The Commissioner of Income Tax
1. Mrs. Sarita P. Shirke, 2. The Income Tax Appellate Tribunal
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Nature of Litigation
Tax appeal by Revenue against order of Income Tax Appellate Tribunal allowing exemption from Gift Tax.
Remedy Sought
Revenue sought to set aside the order of the Tribunal and restore the Assessing Officer's order demanding Gift Tax.
Filing Reason
Revenue challenged the Tribunal's order holding that gift made by NRI in Srinagar was exempt under Section 5(ii) of Gift Tax Act.
Previous Decisions
Assessing Officer held transaction colourable and directed payment of Gift Tax; Deputy Commissioner of Income Tax set aside that order; Income Tax Appellate Tribunal upheld the Deputy Commissioner's order.
Issues
Whether the gift made by a Non-Resident Indian in Srinagar is exempt from Gift Tax under Section 5(ii) of the Gift Tax Act, 1958?
Whether the transaction was a colourable device to avoid Gift Tax?
Submissions/Arguments
Revenue argued that the exemption under Section 5(ii) applies only to persons resident in Jammu and Kashmir, not to NRIs.
Respondent argued that the gift was made in Srinagar where the Gift Tax Act was not applicable.
Ratio Decidendi
The exemption under Section 5(ii) of the Gift Tax Act, 1958 applies only to gifts made by a person who is resident in the State of Jammu and Kashmir, and not to gifts made by a non-resident Indian in that State. The transaction was a colourable device to avoid tax.
Judgment Excerpts
The exemption under Section 5(ii) of the Gift Tax Act, 1958 applies only to gifts made by a person who is resident in the State of Jammu and Kashmir.
The whole exercise of making a gift by issuing a cheque through State Bank of India, Srinagar was a colourable transaction for avoiding Gift Tax.
Procedural History
Assessing Officer held gift taxable; Deputy Commissioner of Income Tax reversed; Income Tax Appellate Tribunal upheld Deputy Commissioner; Revenue appealed to High Court under Section 260A of Income Tax Act.
Acts & Sections
- Gift Tax Act, 1958: Section 5(ii), Section 5(A)(ii)
- Income Tax Act, 1961: Section 260A
