Kerala High Court
A.J. Gomes vs Commissioner Of Gift-Tax on 12 December, 1989
Equivalent citations: [1991]187ITR320(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of a person assessed to gift-tax (the applicant), the Income-tax Appellate Tribunal has referred the following two questions of law for the decision of this court:
"(a) Was the Appellate Tribunal justified in law in holding that the gifts in the instant case and tax levied thereon, was with reference to the deposits made in the relevant previous year, in the names of the sons and wife of the assessee and not with reference to the remittance made by the assessee by way of drafts from the foreign country ? Are the gifts exigible to tax ?
(b) Is the assessee entitled to the benefit of Section 5(1)(ii) of the Gift-tax Act, 1958?"
2. The respondent is the Revenue. We are concerned with the assessment years 1976-77, 1977-78, 1979-80 and 1980-81. The short question that arises for consideration in these cases is whether the gifts are exempted under Section 5(1)(ii) of the Gift-tax Act ?
3. Section 5(1)(ii) of the Gift-tax Act is as follows :
"5. Exemption in respect of certain gifts. -- (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person -- ...
(ii) of movable property situate outside the said territories unless the person -
(a) being an individual, is a citizen of India and is ordinarily resident in the said territories, or
(b) not being an individual, is resident in the said territories during the previous year in which the gift is made."
4. The applicant (assessee) is a non-resident in the relevant previous years for the above assessment years. He had been remitting amounts to his wife, who was in India, through banks. The said amounts were deposited in the names of two minor sons and the wife in various banks in fixed deposits. The representative who appeared for the assessee, by a letter dated February 16, 1981, is seen to have offered these amounts for assessment to gift-tax for various assessment years. Later, at the time of hearing, another counsel who appeared before the Gift-tax Officer represented that, at the time of filing of the returns, the assessee had overlooked the provisions of Section 5(1)(ii) of the Gift-tax Act. It was done solely due to inadvertence or mistake and the gifts were exempted under Section 5(1)(ii) of the Act since the gifts were completely outside India. This plea was rejected by the Gift-tax Officer. He passed orders dated August 29, 1981, to that effect for all the years. In appeal, the Appellate Assistant Commissioner took a different view. He held that the drafts for Indian currency were purchased abroad and posted there and the gift was complete when the envelopes were posted in the post box and were beyond the reach of the donor. The post office was only an agent of the donee. Considered in the context of the relationship of husband and wife, between the donor and donee, the Appellate Assistant Commissioner further observed that the remittances as well as the mode of remittances are according to the previous understanding between the husband and wife. On these premises, he held that the gifts had taken place outside India and are exempt under Section 5(1)(ii) of the Act. In the appeals filed by the Revenue, the Appellate Tribunal passed a common order dated December 16, 1984. Solely relying upon the communication sent by the representative, who appeared originally, dated February 16, 1981, the Tribunal held that it is crystal clear that the taxability of the gifts related to the deposits made in the names of the sons and wife by the assessee during the previous years relevant to the above assessment years and they were not with reference to the remittances made by the assessee and that there was no material before them to show that the remittances were made at the request of the wife and sons ; and, in this view, the gifts made by the assessee in the previous years were rightly brought to tax by the Gift-tax Officer as Section 5(1)(ii) of the Act would not apply. Thereafter, at the instance of the applicant (assessee), the Income-tax Appellate Tribunal has referred the questions of law, formulated hereinabove, for the decision of this court.
5. We heard counsel for the assessee, Mr. Jose Joseph, and also counsel for the Revenue, Mr. N.R.K. Nair. We are afraid that the Appellate Tribunal overstressed and erroneously treated the initial communication sent by the assessee's representative dated February 16, 1981, as nearly conclusive. We are of the opinion that the taxability or otherwise of a transaction depends not upon the method or manner in which the accounts are kept or returns are filed or even admissions are made by the assessee. Even treating the communication of the assessee's representative dated February 16, 1981, as an admission, it is open to the assessee to show under what circumstances it was made or whether it was made under a mistake. He pleaded so. No reason is alleged or stated to overlook the plea of the assessee that the communication sent by the assessee's representative in the first instance dated February 16, 1981, was due to oversight or a mistake. The Appellate Tribunal erred in overemphasising the said communication and treating it as nearly conclusive. A proper order of assessment should be made only on the basis of the facts and circumstances disclosed during the assessment proceedings and on a correct application of the relevant provisions of law. -- See CIT v. A.P. Parukutty Mooppilamma [1984] 149 ITR 131(Ker).
6. Turning to the facts of this case, the admitted facts are the following : The assessee is, admittedly, a non-resident during the relevant previous years. He was making remittances through banks to his wife who was a resident in India. The remittances were deposited in the names of the minor sons and the wife in various banks in the form of fixed deposits. Law is fairly clear that if a cheque or draft is sent by post, the receipt would be at the place where the cheque or draft is posted, provided the mode of sending it by post is adopted at the express or implied request of the assessee. In such cases, the post office becomes 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. (See Rajkumar Mills Ltd. v. CIT [1976] 103 ITR 92, 99 (Bom)). Here, in this case, the relationship between the donor and the donee is very crucial. They were husband and wife. The Appellate Assistant Commissioner found that the remittances as well as the mode of the remittances were according to the prior understanding between the husband and wife. This aspect was neither adverted to, nor assailed or departed from, in the order of the Appellate Tribunal. We are of the view that just as in a case where the cheque or draft is sent by post, the receipt would be at the place where the cheque or draft is posted, provided the mode of sending it by post was adopted at the express or implied request of the assessee, similar consequences will follow, even if the remittances were made according to the prior understanding between the persons who are closely related to each other as husband and wife, etc. The gift was complete when the remittances were made, in view of the close relationship between the donor and the donee. The Appellate Tribunal should have, in accordance with the express finding of the Appellate Assistant Commissioner, that the remittances as well as the mode of the remittances were according to the prior understanding between the husband and wife and so effected by draft, found that as soon as the drafts "were purchased and posted abroad, the gifts were complete when the envelopes were posted in the post office and were beyond the reach of the donor. The post office is only an agent of the donee--the wife--in the circumstances. In this perspective, the gifts were of movable property situate outside India. The donor was at all times not a citizen of India. He was a non-resident. For the above reasons, the Appellate Tribunal was in error in holding that the gifts made by the assessee in the previous years relevant to the assessment years were properly taxed by the Gift-tax Officer.
7. The Appellate Tribunal should have held that the gifts were made with reference to the remittances made by the assessee by way of drafts from the foreign country and such gifts are not exigible to tax. Question No. (a) is answered in the negative, in favour of the assessee and against the Revenue.
8. The assessee is entitled to the benefit of Section 5(1)(ii) of the Gift-tax Act. We answer question No. (b) in the affirmative, in favour of the assessee and against the Revenue.