Commissioner of Gift Tax vs K.A. Abdul Kader

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following common question for the asst. yrs. 1974-75 and

1976-77 for the opinion of this Court under s. 26(1) of the GT Act, 1958 (hereinafter referred to as ""the Act"") :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no liability to gift-tax in respect of

the gifts made by the assessee, as the gifts are exempt under s. 5(1)(ii) of the GT Act, 1958 ?

The assessee, Abdul Kader, is a non-resident within the meaning of the IT Act, 1961. He is also a non-citizen of India. During the asst. yr.

1974-75, he made a gift of Rs. 43,000 by purchasing a draft from a bank in Malaysia in the name of Thirumathi Nachia, who is his wife, and

sending the same to India through the authorised channels of transmission of money. Nachia, wife of the assessee, received the draft and then

distributed the money between herself and her son. So also for the asst. yr. 1976-77, a similar draft for Rs. 40,000 was purchased by the assessee

and sent to Nachi, who is resident in India as in 1974-75.

The assessee claimed exemption in respect of the abovesaid two amounts from gift-tax under s. 5(1)(ii) of the Act. According to the said

provision, gift-tax shall not be charged under the Act in respect of the gifts made by any person of movable property situate outside the territories

unless the person being an individual, is a citizen of India and is ordinarily residing in the said territories. The GTO refused to accept the contention

put forward by the assessee. According to the GTO, the gift was not completed in India as per s. 125 of the Transfer of Property Act. The GTO

pointed out that when the gift was completed in India, the property was situated in India and not outside the territory of India. The GTO further

pointed out that the drafts received in bank have reached the donee as per the desire of the assessee and not as per the desire of his wife. Further,

the gift has not taken place outside the territories as contended by the assessee. For these reasons, the GTO held that the exemption under s. 5(1)

(ii) of the Act would not be available to the assessee. However, on appeal, the AAC, following certain earlier decisions of the Tribunal on this

point, held that the amount gifted by the assessee by means of draft to his wife purchased abroad is exempt from gift-tax. Aggrieved, the

Department filed a second appeal before the Tribunal. The Tribunal confirmed the order passed by the AAC.

Learned standing counsel appearing for the Department, submitted that though the draft was purchased in Malaysia in the name of the wife of

the donor, it was accepted by the donee only in India. Therefore, the gift was completed in India as per the provisions of s. 125 of the Transfer of

Property Act. Learned standing counsel further submitted that when the gift was completed, the movable property was situated in India and,

therefore, exemption under s. 5(1)(ii) of the Act is not possible in the case of the assessee. Learned standing counsel further submitted that the gift

was sent according to the desire of the donor and not according to the desire expressed by the donee. It was further pointed out that there is no

evidence on record to show that the donee either expressly or impliedly requested the donor to send the gift by draft through the post office.

Therefore, in the present case, it cannot be said that the post office acted as agent on behalf of the donee so as to contend that the gift took place

outside India. For all these reasons, it was submitted that the Tribunal was not correct in granting exemption under s. 5(1)(ii) of the Act in the case

of the assessee. On the other hand, none was present on behalf of the assessee. We have heard learned standing counsel. for the Department and

perused the records carefully.

The fact remains that sums of Rs. 43,000 and Rs. 40,000 were sent from Malaysia by way of draft in the name of the wife of the assessee in the

asst. yrs. 1974-75 and 1976-77. The assessee claimed exemption under s. 5(1)(ii) of the Act. According to the assessee, the gift took place

outside India in Malaysia when the draft was sent by post. Since no gift took place in India and the movable property was also in existence outside

India, exemption under s. 5(1)(ii) of the Act is possible. On the facts available on record, the point for consideration is whether the draft sent by

the donor to the donee from Malaysia through the post office would constitute a gift that took place outside India. If there was any request or

desire expressed by the donee to the donor, to send the gifted amount through the post office, then, it can be said that the post office acted as an

agent of the donee. In such a case, the gift would have been completed in Malaysia.

In the case of Rajkumar Mills Ltd. Vs. Commissioner of Income Tax, Central, Bombay, , the Bombay High Court while considering the provisions

of s. 4(1) (a) and s. 10(5) (b) of the Indian IT Act, 1922, adumbrated the following principles for granting exemption with regard to the gifts made

from outside India :

The principles which govern cases where payment is received by cheques, demand drafts or hundies are well settled in view of the decisions of

the Supreme Court in COMMISSIONER OF Income Tax, BOMBAY SOUTH, BOMBAY Vs. OGALE GLASS WORKS LTD., ; Commr. of

Income Tax, Bombay South, Bombay Vs. Kirloskar Bros. Ltd., and Jagdish Mills Ltd. Vs. The Commissioner of Income Tax, Bombay North,

Kutch and Saurashtra, Ahmedabad, . The Supreme Court has laid down the following propositions :

When payment is received by cheque the receipt is at the time when the cheque is delivered and not when it is encashed.

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 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.

Having regard to business, a request to make payment by cheque may in itself imply a request to send it by post, while a request to remit the

amount would be tantamount to an express request to send it by post.

A similar question came up for consideration before the Kerala High Court in A.J. Gomes Vs. Commissioner of Gift-tax, . According to the facts

arising in that case the AAC found that the remittances as well as the mode of remittances were, according to the prior understanding between the

husband and the wife and this aspect was neither adverted to, nor asserted or departed from, in the order of the Tribunal. Therefore, while

answering the questions ""whether the Tribunal was justified in law in holding that the gifts in the instant case and the 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

remittances made by the assessee by way of drafts from the foreign country ? are the gifts exigible to tax ? "", the Kerala High Court held that in

view of the abovesaid finding of the AAC, the assessee is entitled to exemption under s. 5(1)(ii) of the Act of the gift made by the husband to his

wife by way of sending money through drafts from foreign country.

According to the facts arising in this case, there is no evidence on record to show whether there was any prior contract between the husband

and the wife expressly or impliedly to send amounts from Malaysia by way of draft through the post office. If that is so, the post office would be an

agent acting on behalf of the donee and the gift would be said to have been completed outside India in Malaysia. But, in the present case, there is

no material on record to suggest that there was any desire or intention on the part of the donee expressed to the donor to send the draft from

Malaysia through the post office. In the absence of such a finding we are unable to answer the question referred to us in one way or the other.

Under such circumstances, we direct the Tribunal to ascertain this aspect and decide the issue arising in this reference on the merits in accordance

with law after giving an opportunity of being heard to the parties concerned. In that view of the matter, we are returning the question unanswered.

There will be no order as to costs.