Kalpesh Classes

Gift transactions​​ 

The Punjab and Haryana High Court in Yash Pal Goel v. CIT [2009] 181 Taxman 175 held that a simple identification​​ of donor and showing movement of gift amount through banking channels are not sufficient to prove genuineness of a gift. The Court held that the onus lay on the assessee not only to establish the identity of the person making the gift but also his capacity​​ to make a gift and that it had actually been received as a gift from the donor.​​ 

In this case financial position of the donor suggested that he was neither in the capacity to make gift nor was having the source from where the gift was made. Moreover, no reason whatsoever had been assigned for gifting such a huge amount by the donor to the assessee. The donor never visited home of the assessee. He had no knowledge about the family of the assessee so that the Assessing Officer rightfully doubted the genuineness​​ of the gift.​​ 

The Court while imposing a cost of Rs. 30,000 upon the appellant aptly observed as under :

“The unscrupulous persons use every gimmick to avoid payment of income-tax. If the State exchequer is made the target of deceit and the revenue comes​​ down, the development of the country will be a casualty. It is reprehensible that some citizens spend on litigation and unnecessarily bring matters before the Courts than to pay tax on their income. The tendency needs to be discouraged and curbed. . . .”

Gifts from non-relatives

The Punjab & Haryana High Court in Smt. Kusum Lata Thakral v. CIT [2009] 185 Taxman 237 ordered moneys received as gifts taxable as it found that there was no relationship between the donors and the assessee. It opined that in the absence of a relationship there can be no natural love and affection and in its absence, gifts cannot be accepted to be genuine.

Gift – unexplained / unrecorded moneys, etc.​​ 

​​ The Delhi High Court in Ashok Mahindru & Sons (HUF) v. CIT [2008] 173 Taxman 178​​ held that even though the documentation may be in order, if there is enough material to raise a very strong suspicion that there is something not quite right with the nature of the transaction, the authorities under the Act may reject the documents and require the assessee to show that the transaction is really one which is above board.​​ In this case the assessee had claimed to have received a gift of significant sums of moneys from a Swiss national but for the reason that it failed to provide adequate material to show the resources or finances of the Swiss national such sums were taken as unexplained moneys in his hands.

Unexplained gifts​​ 

In P.P. Koya v. Dy. CIT [2008] 175 Taxman 4 (Ker.), the assessee suffered addition for unexplained money credited in his bank account alleged to have been received as gifts only for his failure to produce local addresses of foreign donors. The Kerala High Court felt that in the absence of such address, it was not possible for the Assessing Officer to verify the genuineness of gifts.​​ In this case, when the Assessing Officer demanded confirmation of the gifts from the donors, the assessee furnished addresses of some people abroad and did not produce local address of any of the donors. At this, the​​ Tribunal inferred that without producing local address, the assessee could not be said to have discharged the burden cast on him.

Gift received by politicians

In CIT v. Rajesh Pilot [2008] 175 Taxman 8 (Delhi), the assessee escaped tax on a sum of Rs. 10 lakhs received by his​​ election agent as a gift from an individual. It was found that the money received by the agent was spent on the expenditure for jeeps required for the election campaign of the assessee. As there was no evidence to show that the money was used by the assessee for acquiring movable or immovable properties in his name or in the name of his family members or even for his foreign travel or personal expenses, the Court deleted the addition in this case. The Delhi High Court held the above with the following perception of law :

“that it is well-settled that every receipt is not taxable as income. It may be a receipt, but not necessarily ‘income’. The question is whether the ingredients commonly embedded in the concept of ‘income’ are present.”

Un-vouched gifts​​ 

The​​ P&H High Court in Tirath Ram Gupta v. CIT [2009] 177 Taxman 294 held that the​​ following factors count the most in judging the genuineness of a gift :

 (a) Occasion factor;

 (b) Help a relative/friend factor; or

 (c) Human probability factor.

Above all, in​​ the Court’s premise to see the genuineness of a gift, the test of human probability is the most appropriate. The High Court further observed that a gift cannot be accepted, as such, to be genuine, merely because the amount has come by way of a cheque or a​​ draft through banking channel, unless the identity of the donor; his creditworthiness; relationship with the donee and occasion are proved. Unless the recipient proves the genuineness thereof, the same can very well be treated to be an accommodation entry​​ of the assessee’s own money.

Unexplained gifts including gifts from non residents​​ 

In Subhash Chander Sekhri v. Dy. CIT [2007] 158 Taxman 177 (Punj. & Har.) certain cash credits were found in bank statements, which were explained as gifts though neither​​ the relationship with the donor nor the occasion of gift was explained to the Assessing Officer. In the obvious result the sums were taken as undisclosed income. The similar action followed when the assessee in Jaspal Singh v. CIT [2007] 158 Taxman 306 claimed receipt of gifts from a non-resident. The Punjab & Haryana High Court held that mere identification of donor and showing the movement of gift amount through banking channels is not enough to prove genuineness of the gift. The assessee is required to​​ establish that the donor had the means and the gift was genuine and was given out of natural love and affection.​​ 

Unexplainable and bogus NRI gifts​​ 

In Raghbir Singh v. ITAT [2007] 162 Taxman 21 (Punj. & Har.) when the assessee failed to produce the donor​​ as well as provide the financial status and identity/source for such gift and even failed to bring on record the special reason for gift, the authorities chose to tax said sum under section 68. In this case, the drafts were purchased in cash (US Dollors)​​ at Singapore when the donor himself was having his bank account in the same bank. The Punjab and Haryana High Court upheld the addition.​​ 

The Delhi High Court too in Sandeep Kumar (HUF) v. CIT [2007] 162 Taxman 91 also upheld similar addition for failure of the assessee to establish the capacity of the donor to make huge gifts.​​ 

In yet another decision, the Allahabad High Court in CIT v. Meghdoot Village Products (P.) Ltd. [2007] 162 Taxman 25 remanded the appeal to the Commissioner (Appeals) in the absence​​ of any recorded finding of creditworthiness of creditors. The assessee did not provide PAN status or income status of the creditors nor did​​ it make any efforts to produce the creditors who perhaps were relatives of the assessee and even it had not made any prayer to the assessing officer to initiate action under section 131 of the Act.​​ 

These cases are a reminder to one and everyone to have adequate evidence in possession of the financial capacity of the cash/loan creditors to save skin from the Assessing​​ Officer during assessment course. Thus, mere fact that the gifts have come through banking channels will not do or mere identification such as PAN, etc., will not yield much benefit either.​​ 

In John George Vettath v. CIT [2007] 162 Taxman 134 (Ker.), the​​ Commissioner of Income-tax exercising powers under section 263 for setting aside an assessment, required the Assessing Officer to examine the factual position with regard to the credibility and genuineness of the source of funds through which the alleged gift was received by the assessee. The assessee challenged such direction under a writ before the Kerala High Court which directed the assessee to the Tribunal instead.