Commissioner of Income Tax vs K.M. Khaja Moideen

K. Gnanaprakasam, J.—The assessee, namely, Khaja Moideen, was a citizen of Malaysia and a non-resident during the relevant

assessment years 1975-76 and 1976-77. In the said assessment years, the assessee made gifts of Malaysian dollars to his mother, Tmt. K.M.

Fathima Ghani, who is in India and the rupee equivalent of such gifts amounted to Rs. 35,242 for the assessment year 1975-76 and Rs. 52,728 for

the assessment year 1976-77. The gifts were made by purchasing rupee drafts from banks in Kuala Lumpur. As the gift drafts were purchased in

Kuala Lumpur and given to the mother of the assessee in India, exemption was claimed in respect of these gifts u/s 5(1)(ii) of the Gift-tax Act,

1958.

The Gift-tax Officer denied the exemption claimed. But, on appeal, the Appellate Assistant Commissioner of Income Tax accepted the

assessee''s contention that the gifts were complete as soon as the foreign money was deposited with the foreign bank with the intention of donating

it to the donee in India and that under the Foreign Exchange Regulation, he had no other option but to make the gift through banking channels by

entrus-ing the foreign money to the bank and instructing it to remit it to the credit of the donee. Aggrieved by the order of the Appellate Assistant

Commissioner of Income Tax, the Department preferred an appeal before the Appellate Tribunal and the Tribunal, while upholding the order of the

Appellate Assistant Commissioner, rejected the objections of the Department and dismissed the appeal.

In the abovesaid circumstances, the Commissioner of Gift-tax Department, Madras, secured a reference to this court as per the provisions of

Section 26(1) of the Gift-tax Act, 1958, and raised the following question : ""Whether, on the facts and in the circumstances of the case, the

assessee was not liable to gift-tax in view of the exemption provided to the gifts made by him u/s 5(1)(ii) of the Gift-tax Act, 1958, for the

assessment years 1975-76 and 1976-77 ?

The learned advocate appearing for the Revenue has fairly brought to the notice of this court that a similar question had been answered in the

case of Commissioner of Gift-tax Vs. K.M. Ziauddin, . In that case, similar facts were involved and identical questions were raised for the

determination of the court. In the said case also, the gifts were made by an individual, who was an assessee not ordinarily a resident of India,

during the relevant assessment year. He had purchased gifts by way of drafts in Malaysia at Kuala Lumpur in the name of the donee in India.

According to the assessee, the gifts took place at Kuala Lumpur and the gifts were accepted on behalf of the daughter in Kuala Lumpur itself and

the assessee purchased the draft thereafter, The assessee, therefore, contended that the gifts were movable properties situated in a foreign country

and the assessee being not ordinarily a resident, was entitled to exemption u/s 5(1)(ii) of the Gift-tax Act, 1958.

On an earlier occasion, this court in the case of Commissioner of Gift Tax Vs. S. Raja Ramalingam W/f., , had considered whether there was a

request made by the donee to the donor in a foreign country to send the gift by draft and by post. This court, in the absence of any request by the

donee to the donor to send the draft by post, came to the conclusion that the gift was complete in India where the donee accepted the gift as the

donor posted the draft without the express request of the donee and the post office cannot be regarded as an agent of the donee and rejected the

claim of the assessee. The very same view was taken in the case of Commissioner of Gift Tax Vs. P.D. Kumaresan (Cgt V.S. Rajaramalingam), ,

where also the court held that the acceptance took place after the draft came to India by post and was received by the assessee''s father and,

therefore, the subject-matter of the gift was in India at the time of the acceptance of the gift and at the time when the transfer was made, the

subject-matter of the gift was in India and denied the exemption to the assessee.

But, in those cases, the court had not taken into consideration the exact relationship between the banker and the customer and the nature of

money deposited in the bank and the location of the money deposited in the bank. In the said circumstances, it was held on the basis that in the

absence of the specific instruction from the donee to send the money by post, the post office cannot be regarded as an agent of the donor when the

postal authorities delivered the draft in India. But, the court had no occasion to consider the further aspect of the question that even if the gift is

complete in India, where the property is situate and what is the location of the property in respect of the banking laws and the exact relationship

between the bank and the customer and those aspects were considered in the case of Commissioner of Gift-tax Vs. K.M. Ziauddin, and it was

held : ""Considering the relationship between the banker and the customer and the location of the debt at the time of acceptance of the gifts, the

assessee is entitled to the exemption as provided u/s 5(1)(ii) of the Act.

In the instant case, the gifts were made by the donor at Malaysia and the assessee is a citizen of Malaysia and a non-resident and the said gifts

have got to be considered as the movable properties sent to the donee in India through the banker and the relationship between the bank and the

donor is one of a contract and the bank under the terms of a contract was obliged to pay the money and it is not necessary for the donee to go to

the foreign country for the encashment of the draft and it is open to them to encash the same by placing the same at a branch office and to demand

payment. It is well settled that the debts, whether secured or unsecured and whether by way of registered documents or not, are situated at the

place where the debtor is residing, In the said view of the matter, as the donor is at Malaysia and the donee a resident in India and the amount was

sent through the bank, the assessee is entitled to the exemption as provided u/s 5(1)(ii) of the Act.

In the result, the question referred is answered in favour of the assessee and against the Revenue. No order as to costs.