THE COMMISSIONER OF INCOME TAX vs. MRS.SARITA P.SHIRKE and ANR.

The   brief   facts   which   are   necessary  for   deciding  this Appeal are as under:­ The   Respondent   No.1   is   admittedly   a   Non­Resident Indian(NRI) and is a permanent resident in Dubai.   She made a gift of Rs.1,00,000/­ to Mrs. Madhuri D. Joshi who is a resident of   Pune.   This   gift   was   made   by   cheque   at   Srinagar   and   the amount was transferred from Vasco Bank to State Bank of India at Srinagar.   The Assessee claimed the exemption from payment of Gift­Tax in view of Section 5(A)(ii) of the Gift­Tax Act, 1958. The   Assessing   Officer   however   held   that   the   whole   exercise   of making a gift  by issuing a cheque through State Bank of India, Srinagar was a colourable  transaction for avoiding Gift­Tax and, therefore, directed Respondent No.1 to pay Gift­Tax on the said transaction. The Deputy Commissioner of Income Tax, however, by   his   Order   dated   12­3­1991   set   aside   the   Order   of   the Assessing   Officer   and   held   that   the   said   transaction   was   not   a colourable   transaction.   He   further   held   that   Respondent   No.1

Against the aforesaid two Orders, the present Appeal has been filed which was admitted by this Court on 24­6­2002 on the following substantial questions of law:­ "B   ­   Whether   on   the   facts   and in the circumstances of the case,   the   transaction   of   gift   of Rs.1,00,000/­   made   by   the assessee   in   Kashmir   in   favour of   Smt.   Madhuri   Joshi,   r/o Pune, amounts to as colourable device to avoid tax?"

The   learned   Counsel   appearing   on   behalf   of   the Appellant submitted that the aforesaid transaction of gift was a colourable transaction which had been resorted to solely for the purpose of avoiding tax.   He submitted that it was open for the 4 Court   to   gather   from   the   circumstances   the   real   nature   of   the transaction and to draw inference whether the said transaction was made with an intention to escape tax liability. He relied on a Judgment of the Supreme Court in the case of  McDowell And Co.   Limited    v.    Commercial   Tax   Office  reported   in   154   ITR

He invited our attention to the observation made by Justice Chinnappa   Reddy   J   who   had   given   a   separate   concurring Judgment   and   submitted   that   in   view   of   the   aforesaid observation it was the duty of the Court to   examine whether a legal device had been used to avoid tax. He submitted that both the lower authorities had not taken into consideration the ratio of   the   said   Judgment   and   had   not   examined   whether   the transaction   was   in   fact   a   colourable   device   to   escape   tax liability. He submitted that in the present case Respondent No.1 though   is   admittedly   a   Non­Resident   Indian   she   was   also   not residing in Kashmir and had no business or interest whatsoever in   Kashmir   and   on   the   contrary   had   interest   only   in   Goa.   The Respondent No.1 had made a gift by issuing a cheque on State Bank   of   India,   Srinagar   and   this   amount   was   transferred   from Bank balance from Vasco to Kashmir. He further submitted that the     donee     Mrs.   Madhuri   Joshi   is   a   resident   of   Pune   and   she also had no  business or other interest in Kashmir. He, therefore,

Mr.  R.  Srinivasan,  the  learned  Counsel appearing  on behalf   of   Respondent   No.1   submitted   that   the   question   of   law which   was   framed   was   not   a   substantial   question   of   law.   He submitted   that   whether   a   transaction   amounts   to   a   colourable device   or   not   is   a   question   of   fact   and   since   there   was   a concurrent finding given by the two lower authorities it was not open for the High Court to interfere with the concurrent finding of   fact   while   exercising   its   jurisdiction   under   Section   260A   of the  Income Tax  Act. He relied  on 3  Judgments of the Supreme Court   in   support   of   the   said   submission.   He   further   submitted that the Judgment in the case of  McDowell And Co. Limited  v. Commercial   Tax   Office(supra)   had   been   overruled   by   the Supreme   Court   in   the   case   of  Union   of   India   and   another  v. Azadi   Bachao   Andolan   and   another  reported   in   Income   Tax Reports Vol.263 page 706. He also submitted that this case was also   further   directly   covered   by   the   Judgment   of   the   Gujarat High Court in the case of Commissioner of Gift­Tax v. Dipak A. Sheth  reported   in   Income   Tax   Reports   Vol.254   page   236. He also relied on a Judgment of the Delhi High Court in the case of 6 Commissioner   of   Income­Tax  v.  Antartica   Investement   Pvt. Ltd. reported in Income Tax Reports Vol.262 page 494. 6. In   our   view,   it   is   not   possible   to   accept   the submission made by the learned Counsel appearing on behalf of the Appellant.  Section 5(ii) reads as under:­ "S.

Exemption in respect of certain gifts.­­(I) Gift­tax shall not   be   charged   under   this   Act in respect of gifts made by any person­­ (i) of immovable property situate  outside     the territories     to   which this  Act  extends; (ii) of     movable   property situate   outside     the said territories unless the  person­­ (a) being            an individual,    is a citizen   of   India and  is ordinarily resident     in   the said   territories, or (b) not  being     an individual,     is resident     in   the said   territories, during             the previous         year

The Section clearly contemplates grant of exemption to   individuals   who   are   not   ordinarily   residing   in   India   and secondly where movable property is given by way of gift outside the   territory   in   India.   A   gift,   therefore,   which   is   made   in Kashmir would therefore fall outside the purview of Section 3 of the Gif­Tax Act as it is specifically exempted by Section 5(ii).

In   the   present   case,   it   is   an   admitted   position   that Respondent  No.1  is  a  Non­Resident  Indian  who  is  permanently residing in Dubai. She had come to Kashmir and there she had issued a cheque in favour of Mrs. Madhuri Joshi for an amount of Rs.1,00,000/­. Section 5, Sub­Clause (ii) clearly contemplates a   situation   where   a   movable   property   situate   outside  Indian territory if it is gifted by a person who is not ordinarily residing in India is exempted from gift­tax.   In our  view, it  cannot be  said that the said transaction is a colourable device for the purpose of avoiding Gift­Tax. Respondent No.1 being a resident of India could very well issue a cheque from Dubai and still she would not be liable to pay Gift­Tax and there is an exemption from payment of tax in Dubai.  In the present case, the admitted position is that Respondent No. 1 had come directly to Kashmir from Dubai

The Supreme Court, therefore, by the said Judgment has clearly watered down the view taken by Chinnappa Reddy J. in McDowell And Co. Limited v. Commercial Tax Office(supra).  The submission of the learned Counsel appearing on behalf of the Revenue that the ratio of McDowell And Co. Limited  v.  Commercial Tax Office(supra) is applicable to the facts of the present case therefore cannot be accepted.

The Gujarat High Court  also in the case of Commissioner of Gift­Tax   v.   Dipak A. Sheth(supra) in an identical case has held that the Gift­Tax Act extends to the whole of India except to the State of Jammu and Kashmir and if all the conditions necessary for claiming exemption under Section   5(1)(ii)   of   the   Act   are   fulfilled   the   assessee   is   entitled   to   get exemption.  In the said case, the assessee who was not ordinarily a resident in India had made a gift of cash amount to more than Rs.1,00,000/­ in the 11 State of Jammu and Kashmir and claimed exemption in respect of the said transaction.  The High Court held that he was entitled to get the exemption and the gift was not taxable under the provisions of the Act.  The ratio of this Judgment in our view, is squarely applicable to the facts of the present case.

In the result, the submissions made by the learned Counsel appearing on behalf of the Revenue cannot be accepted.  The Order passed by the Income Tax Appellate Tribunal and Deputy Commissioner of Income Tax(Appeals) is, therefore, confirmed.  The Appeal is accordingly dismissed. S. S. PARKAR, J. V. M. KANADE, J. RD.