Commissioner of Income Tax vs Smt. Usha Omer

Dr. Satish Chandra, J.—The present appeal is filed by the Revenue against the judgment and order dated September 18, 2003, passed by the income tax Appellate Tribunal, Lucknow, in I. T. A. No. 163/Luck/2000.

This court, vide its order dated February 11, 2004, admitted the appeal on the following substantial questions of law :

Whether the learned income tax Appellate Tribunal was right in law in holding that the assessee and his family members have received the gifts of the India Development Bonds, ignoring the evidence on record ?

Whether the learned income tax Appellate Tribunal was right in law in holding that the assessee is entitled to the immunity under sections 6 and 7 of the Remittances of Foreign Exchange and Investment, in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991, even though it was clearly proved that the assessee has not received the India Development Bonds as gifts ?

Whether the learned income tax Appellate Tribunal was right in law in holding that the assessee in fact has disclosed the receipt of the India Development Bonds during the course of filing of the return of income for the assessment year 1997-98, therefore, the query regarding the possession of the India Development Bonds falls outside the purview of the block assessment especially since this argument was taken for the first time before the learned Tribunal and does not form a part of the order of the Assessing Officer and that of the Commissioner of income tax (Appeals) ?

The brief facts of the case are that on August 21, 1998, a search and seizure operation was conducted at the residential and business premises of the group for which the assessee is a member. During the course of search, the books of account and other incriminating material were seized including FDRs in the name of the assessee who is the wife of Sri R. K. Gupta, a group member. She stated that she received these India Development Bonds (IDB) of U. S. dollars of 10,000 each by way of gift on November 14, 1994, and February 21, 1995. The amount of Rs. 5,69,884 after maturity of the India Development Bonds was credited in her savings bank account with the Chartered Bank, Kanpur, on March 3, 1997, and out of this amount, the said FDRs of Rs. 33,75,000 were obtained. The Assessing Officer has made an addition of this amount which was deleted by the Commissioner of income tax (Appeals). Not being satisfied, the Department has filed the second appeal before the Tribunal who upheld the order of the first appellate authority. Being not satisfied, the Department has filed the present appeal.

With this background Sri D. D. Chopra, learned counsel for the Department, submits that the assessee in her statement recorded u/s 132(4) stated that one Sita Ram Majitha of Jawahar Nagar, Kanpur, who was residing in Dubai and maintaining his office at Singapore had gifted the India Development Bonds to the assessee and other members of her family but the name of Sri Majitha was not mentioned in the transferred documents. So none of the India Development Bonds has been gifted by Sri Majitha to the assessee as per the seized documents. He also submits that in sections 6 and 7 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991, the immunity was provided to the bond holder and not to the donor but the first appellate authority as well as the Tribunal have overlooked the fact. The intention of the Legislature was quite clear that a person who receives the bonds as gifts is entitled to the immunities therein, but the genuineness of the gift can be examined. If the intention of the Legislature was otherwise, the Legislature could have easily provided that the holder of the India Development Bonds would be entitled to the said immunities. Once this is not so, the said Act of 1991 has to be interpreted by giving the natural meaning of the words used therein. The donor was unknown person and not blood relative to the assessee, there was no natural love and affection between them. So the said gifts are not genuine. Lastly, he justified the addition made by the Assessing Officer.

On the other hand, Sri S. K. Garg, assisted by Sri Amit Shukla, learned counsel for the assessee, relied on the order of the Tribunal as well as of the first appellate authority. To support his argument he relied on the ratio of the law laid down in the following cases :

(1) Commissioner of Income Tax Vs. J.K. Corporation Ltd., wherein it was observed that (headnote) :

... the date of effect of the scheme was the date as mentioned therein. The Tribunal was correct in law in holding that the sanctioned scheme shall be conclusive evidence of fulfilling of requirements regarding consent of the Central Government/CBDT Circular No. 683, dated June 8, 1994. The assessee was exempted from fulfilling the provision of sections 80 and 139 of the 1961 Act, in view of the BIFR''s order dated March 17, 1994, and it must be held that the revised return of loss filed by the assessee should be treated to have been validly filed.

(2) Commissioner of Income Tax Vs. Vinod Danchand Ghodawat, wherein it was held that (headnote) :

... Chapter XIV-B of the income tax Act, 1961, had no application to the facts of the case and the addition made by the Department on the ground of undisclosed income was erroneous.

(3) Commissioner of Income Tax, Delhi-II Vs. Ravi Kant Jain, , wherein it was observed that (headnote) :

... admittedly, the undisclosed income was not determined on the basis of any search material and the Assessing Officer was proceeding within the scope of the assessment and not within the scope of exercising jurisdiction under Chapter XIV-B and section 158BA. Therefore, section 158BA of the Act had no application to the facts of the case.

Lastly, he pressed for the dismissal of the appeal. 7. We have heard both the parties at length and gone through the material available on record.

It is an undisputed fact that the assessee was holding the India Development Bonds of U. S. dollar which were received by her as gift. The bonds were issued as per the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991. Sections 6 and 7 of the Act provides immunities to the bond holder. The said provisions are as under (see [1991] 191 ITR (St.) 308, 311) :

Immunities.--(1) Notwithstanding anything contained in the Wealth-tax Act, 1957 (27 of 1957), the Gift-tax Act, 1958 (18 of 1958), the income tax Act, 1961 (43 of 1961), the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Foreign Contribution (Regulation) Act, 1976 (49 of 1976),--

(a) no non-resident Indian or overseas corporate body who or which owns the Foreign Exchange Bonds or any person resident in India to whom a gift of such Bonds has been made by such nonresident Indian or overseas corporate body, shall be required to disclose, for any purpose whatsoever, the nature and source of the investment in such Bonds;

(b) no inquiry or investigation shall be commenced against any of the persons referred to in clause (a) under any of the said Acts on the ground that such person owns such Bonds;

(c) the fact that any of the persons referred to in clause (a) owns such Bonds shall not be taken into account and shall be inadmissible as evidence in any proceedings relating to any offence or the imposition of any penalty under any of the said Acts.

(2) Nothing in sub-section (1) shall apply to foreign exchange which is required to be brought into India under any of the provisions of--

(i) the Foreign Exchange Regulation Act, 1973 (46 of 1973); or (ii) the income tax Act, 1961 (43 of 1961) read with the Foreign Exchange Regulation Act, 1973 (46 of 1973).

The relevant provisions of the Act, as briefly explained above, make it very clear that the Assessing Officers, in any proceedings under the direct tax laws, will not make any enquiry with regard to remittances in foreign exchange received under the Remittances in Foreign Exchange (Immunities) Scheme, 1991, or gift of any India Development Bond from a nonresident Indian/overseas corporates body. There should, therefore, be no apprehension of any prejudice against the persons in receipt of remittances under the scheme or donees of the India Development Bonds. There should also be no fear of any harassment by the tax authorities.

From the above, it appears that no inquiry can be made from the bond holder regarding the source. The immunities are absolute.

Apart from the abovementioned immunities, the very intention of the Legislature in which the above referred Act was brought into existence was also clarified by the Central Board of Direct Taxes as there was an apprehension expressed in some quarters that the income tax Department would prejudicially view the remittances received under the Scheme framed under the Act. The Central Board of Direct Taxes, vide its Circular No. 611, dated September 30, 1991, removed all such apprehensions and the relevant portion thereof are as under (see [1991] 191 ITR (St.) 319) :

In the speech while presenting the Union Budget for 1991-92, the Finance Minister had, inter alia, announced introduction of two schemes to attract larger inflow of foreign exchange. For this purpose, the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Bill, 1991, was introduced in Parliament during the just concluded Budget session. The Bill, as passed by both Houses of Parliament, received the assent of the President on September 18, 1991, and has since been enacted as Act No. 41 of 1991. The two schemes, viz., the Remittances in Foreign Exchange (Immunities) Scheme, 1991, and the India Development Bonds Scheme, 1991, have also been notified by the Reserve Bank of India and published in the Gazette of India, Extraordinary, Part II, Section 3, sub-section (i), dated September 20, 1991, and September 21, 1991, respectively.

Apprehension has been expressed in some quarters that the income tax Department would prejudicially view the remittances received under the Remittances in Foreign Exchange (Immunities) Scheme, 1991, and the gifts of the India Development Bonds from an overseas subscriber/holder. Fears have been expressed of hardship to recipient of remittances and donees of the India Development Bonds at the hands of the Assessing Officers during the course of assessment for the assessment year 1992-93 and subsequent years.

Sub-section (1) of section 3 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991, (the Act) provides that notwithstanding anything contained in any law for the time being in force,--

(i) no recipient of remittance of foreign exchange from a person resident outside India, and claiming immunity under that Act will be required to disclose for any purpose whatsoever, the nature and source of the remittance,

(ii) no inquiry or investigation will be commenced against the recipient under any law on the ground that he has received such remittance, and

(iii) the fact that the recipient has received a remittance will not be taken into account and will be inadmissible as evidence in any proceedings relating to any offence or the imposition of any penalty under any such law.

Section 4 of the said Act further provides that any remittance of the nature referred to above will not be taken into account for the purpose of any proceeding under the income tax Act, 1961.

Similar immunities and exemptions are provided under sections 6 and 7 of the Act in relation to non-resident Indians or overseas corporate bodies owning the foreign exchange bonds and persons resident in India to whom the said bonds have been gifted by nonresident Indians or overseas corporate bodies.

Further a Press Note was issued by the Government of India, Ministry of Finance, Department of Economic Affairs on October 1, 1991, and that also was to clear the apprehension and doubts regarding the interpretation of the Act and the two Schemes framed thereunder and Government of India, Ministry of Finance, clarified all such queries made and made it known and question No. 5 and its reply is important (see [1991] 191 ITR (St.) 322, 324) :

Question No. 5 : It is provided that the Foreign Exchange Bonds (India Development Bonds) may be held by banks acting in a fiduciary capacity on behalf of non-resident Indian/overseas corporate bodies, but when such bonds are gifted to a person resident in India, is it necessary that the identity of such non-resident Indian/overseas corporate body is disclosed before any authority ?

Answer : No, the identity of the NRI/OCB would not be required to be disclosed at all, and, in fact, must not be disclosed.

From the above, it is very clear that the Legislature was interested to seek the inflow of the foreign exchange to the country and for that very purpose, they have given blanket permission to NRIs to send foreign exchange under the provisions of these two Schemes framed under the Act. The Government of India as well as the Central Board of Direct Taxes clarified that identity of the NRIs/OCBs would not be required to be disclosed at all and even emphasized that it must not be disclosed. If these are the facts and the Government of India had cleared doubts in the mind of general public that the recipient of the India Development Bonds will not be expected to disclose the identity from whom the India Development Bonds were received by them under the Scheme, then the Department of income tax cannot be permitted to violate the said provisions. Further, the Central Board of Direct Taxes itself has also made it clear that the Assessing Officer will not be making any inquiry with regard to remittances in the India Development Bonds received by any person from NRIs. The Central Board of Direct Taxes circular is binding on the authorities working under the Act.

In view of the above discussion and by considering the totality of the facts and circumstances of the case, it is crystal clear that no investigation can be allowed to be held pertaining to the India Development Bonds which were received from NRIs/overseas corporate bodies as gift. When it is so, then we find no reason to interfere in the impugned order passed by the Tribunal.

The answer to the legal questions is affirmative, in favour of the assessee and against the Revenue.

The appeal filed by the Department is dismissed.

No costs.