Relative in context of gifts deemed income under S.56 – unreasonable view taken by AO for essence of ‘blood relative’ and un-necessary litigation by revenue before High Court.

[CA DEV KUMAR KOTHARI]

Case under study:

2020 (1) TMI 656 - GUJARAT HIGH COURT  -THE PRINCIPAL COMMISSIONER OF INCOME TAX VERSUS ARVIND N NOPANY Dated: - 13 January 2020

Related judgment of Tribunal:

2019 (2) TMI 233 - ITAT AHMEDABAD - DCIT, CENTRAL CIRCLE -2, BARODA. VERSUS SHRI ARVIND N. NOPANY  Dated: - 24 January 2019

Related order of CIT(A):

Order dated 28.01.2016 passed by the Commissioner of Income Tax (Appeals) - 12, Ahmedabad

Time in litigation:
We find that time between judgment of Tribunal and High Court is less than one year, and time between judgment of Tribunal and order of CIT(A) is about three years.

The cause of litigation was due to search which took place on 29.09.2011 leading to assessment and appeals. Reason for addition leading to litigation was nature of tax authorities to  suspect major transactions.

Scope of this article

Scope of this article is restricted to core issues which lead to dispute.

Core issues of dispute in this case:

The assessing officer made addition of gifts received from donor for the reason that donor was not blood relative, there was no occasion for making gift and doubts were expressed that in society in which assesse lives, substantial gift from sister (or her husband) is not prevalent though gift from brother to sister is very common. But real  main reason was substantial amount of gift given by brother-in-law (husband of sister) to assesse.

CIT(A) allowed appeal of assesse, and order of CIT(A) was confirmed by Tribunal recording facts , which are purely matter of fact and on plain reading of section 56 and 68 the revenue should not have carried the matter in appeal before High Court.

Litigation by revenue:

Litigation by revenue in this case is un-necessary and un-just. Why counsels of revenue, advise to file appeal in such cases has only one answer that is greed- greed to increase number of cases and greed to earn money at cost of public money.

 Observations of author about core issues:

So far the contention of  AO and now senior counsels on behalf of revenue is  that relative should be a blood relation has no merit. This is because definition of relative given in section itself includes relatives who are not blood relatives. For example, spouse of assesse is not a blood relative of his/ her counterpart spouse. Spouse of various relatives mentioned in section are not blood relative of assessee.

 Even brother – brother, brother –sister may or may not  be  blood relative  but spouse of brother or spouse of sister  will  not a blood relative. Even if sister is blood relative but her husband is not blood relative of assessee.

Spouse of sister or brother are specifically included in definition of relative, therefore, contention raised by AO was not justified. Similarly there are many other relatives included in definition who are not and cannot be blood relative.

In some circumstances even brother and sister may not be blood relative. For example, suppose biological parents have adopted another child, child so adopted by parents will be brother or sister of biological children of parents although the adopted child is not a blood relative.  Adopted child derives relationship of brother or sister because child adopted by parents is child of parents. 

Foster brother and sister are also brother and sister.

Ground reality about maintaining relationship:

Relationship is only when it is maintained. If a relationship is not maintained, then it may not be relationship in reality and practically.

We can find many cases in which we find that blood relatives like brother –brother, brother - sister are not maintaining any relationship for long period.

Whereas relationship is maintained with dharm bhai , dharm bahin in our society also known as   mooh bole bhai and bahin. We can also find relationship being maintained even wit children of dharm bhai and dharm bahi.

 Therefore, blood relationship is not an essence of relationship.  

Occasions of gifts:

For giving and receiving gifts an occasion is not necessary. In fact, it is practical and ground reality  that on occasions gifts are given in norms of family and society, because these are  of recurring in nature between donor and donee  and are also governed by family tradition.

 For example, gifts of Rakshasa bandhan from brother to sister is recurring in nature and it is also decided by family norms,  particularly when there are more than one brothers  therefore, ability to maintain annual gift by all brothers is also to be considered and may be a constraint in deciding maximum amount at any occasion.

 Whereas non-recurring gifts can be given by own free will and without such limitations because it is casual affair. 

Capacity of donor was well established:

The donor had funds in his bank account. Cheque issued by donor was passed and honoured on presentation by the drawee bank. When the cheque issued by drawer of cheque is honoured by the drawee banker, there should not be any doubt or question about source and credibility of person who issued cheque. The holder of cheque in due course, should not be asked to explain the source and creditworthy ness of drawer of cheque.

Banking transactions are governed by banking and related laws, rules, and regulations including the negotiable instrument Act. Account opening and maintaining are governed by Know Your Customer (KYC) norms about account holder, where substantial transactions take place, Permanent Account Number is also a part of KYC, proof of address is also a part of KYC beside many other information are gathered depending on nature of account.

When a cheque is received, the cheque itself become source of credit because on presentation of cheque it is expected to be honoured. In case cheque is dishonoured, the holder of cheque can institute a civil and criminal case against the drawer of cheque.

Assessee claimed that he received gift from donor who is his brother-in-law being husband of his sister.

This was doubted by the AO due to reason that in some document, assessee had mentioned that he has no sister. This was a mistake which was rectified and clarified  by assessee, however, the AO and now counsels of revenue are banking upon that statement of assessee, ignoring other evidences that assessee had a sister who is even blood relative  being child of same parentage, but revenue is indulging into un-necessary litigation.

For gifts relationship is not necessary:

In fact for gifts any relationship is also not necessary. When a person gifts property for charity, there is no relationship with donee  and  unascertainable  beneficiaries of charity. Gifts in contemplation of death, and gifts by way of will (that will be effective after death) can be to a non-relative , gifts on occasion of marriage need not be from relative etc. are some of examples.

Why gifts have been deemed income:

The core reason to include gifts in definition and scope of income is due to inefficiency of tax authorities to play their role properly to enable revenue to bring into unexplained cash credits some taxpayers as per other provisions like Section 68 of the Income-tax Act. Because tax officers did not and are not expected to perform properly so the easy way is found in deeming provision of gifts as income. 

We can also say that another reason is  due to suspicion that to impose tax gifts have been included in definition of income instead of asking tax officers to work properly to prove that gifts shown are in reality income of donee / receiver of gift.

Provision is un-constitutional:

The provision is not within power to impose tax on income, but it has not yet been challenged. Readers can refer to other articles by author on aspect of unconstitutional provision deeming capital receipts as income.