Commissioner of Income Tax vs Gautam Balasaheb Ladkat and Others

In these appeals filed by the Revenue, the challenge is to the order dt. 30th July, 2012 of the Tribunal. The impugned order dismisses the Revenue''s appeal relating to asst. yr. 2004-05 in respect of the addition made by invoking s. 68 of the IT Act, 1961 (Act) with regard to maturity proceeds of Resurgent India Bonds (RIB) received as gift. The common question which has been pressed by the Revenue before us in all the appeals is as under:

Whether on the facts and circumstances of the case the Tribunal has erred in holding that the amount of Rs. 2,00,88,783 credited in the account of the respondent-assessee has been received as maturity proceeds of RIB shown as gifts from unrelated non-resident Indian was satisfactorily explained with regard to its nature and source?

Briefly, the facts leading to the present dispute are that the respondents-assessee in this case had in the subject assessment year credited maturity proceeds of RIB which had been received as gifts by them from a NRI living in Dubai, UAE. The bonds were issued in 1998 by State Bank of India for subscription carrying interest at 7.75 per cent per annum with a maturity period of 5 years.

During the subject assessment year the respondent-assessee had credited in its books the amount of maturity proceeds of RIB which it had received as gifts in an earlier assessment year. The AO invoked s. 68 of the Act and credited the entire proceeds on maturity of the RIB to the income of the respondent-assessee. The AO held that the financial capacity and identity of the donor as to make such gift as well as its genuineness were not established. This inspite of the fact that the respondent-assessee had submitted fixed deposit receipts of the NRI donor from various banks as well as bank statements concerning the period in which the subscription to RIB was made by the NRI donor. So far as the identity of the donor is concerned, the AO ignored the affidavit in support of the gift and the copy of the passport. This was on the ground that the donor was not produced before him during the assessment proceedings. So far as the genuineness of the gift is concerned, the AO held on the basis of the test of human probabilities that the genuineness of the gift was not acceptable.

In appeal, the CIT(A) made a detailed analysis of the facts and inter alia rendered a finding that the financial capacity of the donor was established on having produced bank statement and fixed deposit receipt in the name of the donor. It also found that during the assessment proceedings, the respondents assessee had explained the gift by relying on the affidavit of the donor that he had gifted the RIB to the respondents-assessee and also a letter from State Bank of India, confirming the transfer of RIB to the name of respondent assessee donee. Besides, the notarized letter written by the donor to the respondents-assessee and the declaration of the gifts by donor along with the sworn affidavit of the donor before the Consulate General of Dubai confirming the gift to the respondent assessee. On the analysis of the above facts, the CIT(A) concluded that the respondents-assessee had submitted all basic documents which would establish the gift of RIB. Besides, reliance was placed upon the decision of Allahabad High Court in the case of Kanchan Singh Vs. Commissioner of Income Tax, , wherein in similar circumstances, the concerned gift of RIB was held to be valid.

On further appeal, the Tribunal by common impugned order upheld the finding of fact arrived at by the CIT(A). This by holding that the identity of the donor was established by copy of the passport of the donor, sworn affidavit executed before the Consulate General of India in Dubai as well as declaration of the gift before the Notary and the transfer document jointly addressed by the donor and the respondent-assessee to the State Bank of India. So far as the capacity of the donor to make a gift to the assessee is concerned, the respondent assessee had produced fixed deposit certificates of the donor with various banks and bank statement at the time of the subscription to the RIB stood established. So far as the genuineness of the gift is concerned, it held the same stood established by the fact that the RIB were subscribed to by NRI donor in foreign currency, the transfer of the RIB by the donor to the respondent assessee was recorded in State Bank of India which was also produced. The impugned order holds that mere non-production of the donor before the AO will not be sufficient to doubt its genuineness. Besides, after the amendment to the GT Act the requirement of the donor and the donee being related by blood is not required. Besides reliance was placed upon the decision in Kanchan Singh (supra) to state that one has to examine the source and the capacity of the donor keeping in view the year of subscription to the RIB. The Tribunal also records the fact that it is settled position of law in the context of s. 68 of the Act, that the assessee is not required to prove the source of its source of income. Moreover, the impugned order records that the AO sought information about the donor''s capacity not with regard to the time when RIB were purchased but the capacity of the donor in the previous year relevant to the assessment year under consideration. This itself indicates that the AO was applying an incorrect test. In any case, in the case of Kanchan Singh (supra) since the Allahabad High Court has held that capacity to make the gift and its genuineness have to be judged having regard to the year in which RIB were purchased and not at the time when the donor credits the proceeds of its maturity to its account. On the aforesaid facts, the Tribunal upheld the finding of the CIT(A).

Mr. Tejveer Singh, learned counsel for the Revenue submits that the order of the CIT(A) is perverse in as much as the documents filed by the respondent assessee do not establish the capacity of the donor. Besides, the documents sought for, namely, balance sheet, P&L a/c and IT return for the previous year relevant to the subject assessment year were not produced by the respondent assessee. Thus, the findings of both the CIT(A) and the Tribunal are perverse. Further, it is his submission that the decision of the Allahabad High Court in Kanchan Singh (supra) would have no application to the facts of the present case. It is pertinent to note that Mr. Singh made no submissions with regard to the identity of the donor and genuineness of the gift. The challenge is limited before us only to the capacity of the donor.

We find that the respondent-assessees had led evidence to establish the capacity of the donor. This was evident from the fixed deposit certificates as well as bank statements pertaining to the period when subscription was made to RIB by the donor. Insistence on the part of the Revenue seeking to examine the financial capacity of the donor in the previous year relevant to the subject assessment year is in the present facts uncalled for. This is so as his present capacity will not determine his capacity at the time of purchase of the RIB. Two authorities have come to a concurrent finding of fact that the capacity of the donor to make the gift stands established on the basis of the documents which were placed before the AO. This finding of fact with regard to capacity of the donor has not been shown to be perverse. It is pointed out by Mr. Mistri, learned senior counsel for the respondents that the Revenue could not dispute the concurrent finding of the two authorities that the gift was received from an NRI who had originally subscribed to the RIB. These bonds were transferable and in fact transferred to the respondent assessee by making a necessary declaration in that regard with the State Bank of India.

So far as the other objection of the Revenue is concerned that the decision of the Allahabad High Court would have no application to the facts of the present case is not acceptable. The decision in Kanchan Singh (supra) also dealt with gift made of RIB and it was held therein that capacity of the donor has to be examined with reference to the time when the donor subscribed to RIB and not its capacity at the time of the maturity of the RIB.

In view of the above discussion, we are of the view that the issue arising for our consideration is essentially a question of fact. Two authorities have reached a concurrent finding of fact on the basis of evidence produced before them that the amount of proceeds on the maturity of RIB was not hit by s. 68 of the Act. This view is reasonable and possible on the basis of the evidence on record. Accordingly, no substantial question of law arises for our consideration in the above appeals. Accordingly, appeals are dismissed with no order as to costs.