1989 (11) TMI 82 - AT - Income Tax

Summary

Issues:
1. Taxability of gifts made by a non-resident individual in foreign currency to his children for education purposes.
2. Interpretation of exemption under section 5(1)(xii) of the Gift Tax Act.
3. Adequacy of exemption allowed for educational needs under section 5(1)(xii).

Detailed Analysis:

1. The judgment dealt with the taxability of gifts made by a non-resident individual in foreign currency to his children for education purposes. The assessee purchased bank drafts in foreign currency for his sons, which were encashed through banks in India. The Gift-tax Officer taxed the entire amount, but the first appellate authority increased the exemption under section 5(1)(xii) of the G.T. Act. The issue was whether gifts made in foreign currency were taxable under the Act. The Tribunal analyzed the Board's Circular and relevant case laws to determine the situs of the gift. It concluded that gifts made through demand drafts in a foreign country were not taxable in India as the movable property was located outside the taxable territories. The Tribunal held that the gifts to two sons in foreign currency were exempt under section 5(1)(ii) as they were made through drafts and not cheques.

2. Regarding the interpretation of exemption under section 5(1)(xii) of the Gift Tax Act, the Tribunal considered the adequacy of the exemption allowed for educational needs of the assessee's sons. It reviewed the educational status of the sons at the time of the gifts and subsequent developments. Referring to a relevant High Court judgment, the Tribunal emphasized that the intention of the donor in making the gift for education purposes was crucial. It held that the exemption should be based on the donor's intention, opportunities for further studies, and the reasonable amount required for educational needs. The Tribunal concluded that the entire amount gifted for education was reasonable and deleted the addition sustained by the first appellate authority.

3. The Tribunal addressed the issue of the adequacy of the exemption allowed for educational needs under section 5(1)(xii). It considered the educational status of the sons at the time of the gifts and their subsequent academic pursuits. Relying on a High Court judgment, the Tribunal emphasized that the donor's intention for education purposes was significant in determining the exemption. It held that the exemption should be based on the donor's intention, the donees' educational opportunities, and the reasonable amount required for education. The Tribunal concluded that the entire amount gifted for education was reasonable and deleted the addition sustained by the first appellate authority.