SMT. MAMTABEN GOPALDAS AGRAWAL vs. INCOME TAX OFFICER

Facts

The assessee received a gift of Rs. 2,00,000/- from a non-resident Indian, Mr. Chinubhai Gangadas Thakkar, residing in the UK, via a cheque drawn from his Non Resident External Account. The gift was also evidenced by a Gift Deed. The Assessing Officer treated the gift as unexplained income under Section 68 or 69 of the Income Tax Act, 1961, adding it to the assessee's income due to the alleged lack of proof of the donor's financial capacity. The CIT (Appeals) allowed the assessee's appeal. However, the Income Tax Appellate Tribunal (Tribunal), on appeal by the revenue, reversed the CIT(A)'s order, holding that Section 69 would apply if Section 68 did not, and that the creditworthiness of the donor had to be proven, which a bank account alone could not establish. The assessees then filed these Tax Appeals before the High Court.

Held

The High Court allowed the appeals in favour of the assessees. The Court found the facts of the present case to be akin to the decision in Murlidhar Lahorimal (supra). The Court reiterated the principle that an assessee cannot be asked to prove the source of the source. It was noted that the assessees had produced complete details of the donor's identity, a Gift Deed, and a cheque from the donor's NRE account, which was credited to the assessee's account. The revenue did not dispute these facts. The Court held that the Tribunal had adopted an approach unwarranted in law by questioning the donor's motivation or creditworthiness beyond what was required under Section 68, especially when the identity and genuineness of the transaction were established. The Court also noted that the Gift Tax Act does not stipulate that a gift from someone not creditworthy is invalid. Therefore, the question raised was answered in the negative, in favour of the assessees.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in treating the gift of Rs. 2,00,000/- as unexplained income of the assessee under Section 68 or section 69 of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that the Tribunal erred in holding that the donor's creditworthiness was not proven, despite the gift being from the donor's NRE Account, supported by a cheque and a Gift Deed. They relied on Gujarat High Court decisions in Murlidhar Lahorimal vs. CIT, CIT-II vs. Harishbhai Raojibhai Patel HUF, and CIT-VI vs. Heena Sharma. Revenue's Contention: The revenue supported the Tribunal's order, submitting that the assessee failed to prove the identity, genuineness, and creditworthiness of the donor under Sections 68 & 69. They cited Delhi High Court's decision in CIT vs. Shri Anil Kumar and Punjab & Haryana High Court's decision in Tirath Ram Gupta vs. CIT.