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2016 (5) TMI 482 - ITAT AMRITSAR

2016 (5) TMI 482 - ITAT AMRITSAR - TMI - Addition invoking the provisions of section 56(2)(v) - whether gift cannot be revoked after acceptance? - Held that:- The gift deed, as reproduced hereinabove, clearly shows that the amount was being transferred, but such transfer was irrevocable at the instance of the transferor. It is trite that a document has to be read as a whole, in order to gather the intention behind the transaction. A reading of the gift deed shows that though the term employed is .....

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amount transferred. The transfer of the amount of ₹ 5 lacs to the assessee was a revocable transfer and it was in fact revoked. The nomenclature employed is not determinative of the transaction, as is well settled. In fact, by making this observation, the ld. CIT(A) has himself accepted that the transaction was not a gift. It was a temporary transfer of money, which was revoked at the option and instance of the donor.

The transfer, as stated, is taken to be interest free unsecu .....

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e colour of the transaction from that of a gift is erroneous. The fact remains that the transfer was revocable a transfer, at the instance of the transferor, which fact has not been disputed. Rather, to reiterate, revocation notices were issued by the transferor and in response to such notices, the transfer was revoked and the money was returned to the transferor. The ld. CIT(A) talks of ‘certain motive’ behind the transaction. However, as to what such ‘certain motive’ could be, does not have an .....

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repaid when asked for, as per the transfer document. Finding merit in the grievance sought to be raised by the assessee, the same is accepted. The order of the ld. CIT(A) is reversed. The addition is deleted. - Decided in favour of assessee - ITA No. 199 (Asr)/2015 - Dated:- 28-4-2016 - Sh. A. D. Jain, Judicial Member For the Appellant : Written submissions For the Respondent : Sh. R. K. Sharda, DR ORDER This is the assessee s appeal for the assessment year 2006-07 against the ld. CIT(A) s acti .....

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see, who expired on 09.06.2012. The report of the concerned ITO has been received. The said report does not challenge the said application, which is accompanied by an affidavit of the said Smt. Kanti Saproo. Accordingly, Smt. Kanti Saproo is taken on record as the legal heir of the deceased assessee, Sh. Arjan Nath Saproo. 4. On behalf of the assessee, the following written submissions have been filed, challenging the impugned order, which written submissions will be dealt with in extenso, in th .....

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s received by Cheque No 367629 dt. 06/03/2006 drawn on State Bank of India, Gurgaon, Haryana. b. The appellant during the course of assessment for the assessment year 2006-2007 declared the said gift by way of credit to his capital account in the balance sheet filed before the Ld. Assessing Officer duly supported by relevant documentary evidence including the gift deed executed by Mr. B.L. SAPROO at the time of issuance of banker Cheque. c. The gift deed executed by the parties inter alia was pl .....

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t from his nephew Mr. B.L. Saproo amounting to ₹ 5.00 Lacs is not covered by the definition of the blood relatives under proviso to section 56(2)(v) but overlooked the contents of the gift deed which specifically provided for the donor s exclusive right of revocation of the said gift at any time which was subject to his absolute discretion. e. The Ld. Assessing Officer while seeking explanations from the appellant with regard to the gift U/s 56(2)(v) of the Act did not take cognizance of t .....

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m tax in view of the factum that the said gift was revocable since inception. g. The Ld. Assessing Officer unilaterally proceeded to hold the said gift as not hit by proviso to Section 56(2)(v) of the Act and proceeded to add the same to the income of the appellant in the computation of income framed in the assessment order passed on30/12/2008. h. The appellant being aggrieved by the order passed by the Ld. Assessing Officer filed appeal before the Ld. CIT Appeals, J&K Circle on 30/01/2009. .....

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ulfilled to enable a transaction to be called a valid gift is lacking in this transaction between the appellant and his nephew since the gift made by the nephew to his uncle was incomplete being loaded with an unrestricted power to take it back the next minute. c. That conditional/revocable gift being outside the preview of a valid gift does not constitute a gift received by any person to be subjected to tax under provisions of Section 56(2)(v) of the Act and therefore can not be subjected to ta .....

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otice of revocation of gift together with details of amounts paid in consequence thereto as refund by the appellant to Mr. B.L. Saproo on 27/03/2011 duly evidenced by the bank statements in itself prove conclusively that the amount received by the appellant in the financial year 2005-2006 was a temporary loan in the garb of an revocable gift. Such, temporary loans in itself does not constitute any sum of money received without consideration within the meaning of section 56(v)(2) of the Act and t .....

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ot be any gift deed of revocable gift at the option of the donor . With regard to the above conclusion of the learned Appellate Authority, the appellant submits as under :- a. That there has been a payment of ₹ 5.00 Lacs by Mr. B.L. Saproo nephew of the assessee to assessee himself by way of A/c payee cheque. The impugned payment is subject to conditionalties as imposed by the giver and as evidenced by the deed executed at that time wherein the payment transferred to the assessee was revoc .....

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r alia provided as under : GIFT - DEED Be it known to all that I, BUSHAN LAL SAPROO S/O SH. SOOM NATH SAPROO R/O DEVINDER VIHAR, GURGAON, HARYANA do hereby declare that I have gifted the following sum to my uncle - SH. ARJAN NATH SAPROO S/O PT. LATE RAM CHAND SAPROO as per detail given under :- CHEQUE NO. & DATE DRAWN ON AMOUNT GIFTED (RS.) 367629 Dt.06/03/2006 STATE BANK OF INDIA, DLF QUTAB ENCLAVE, GURGAON, HARYANA. 5,00,000/= TOTAL : 5,00,000/= I, further declare that the amount gifted as .....

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5A Sd/- [ DONEE ] PAN : APQPS6538G The copy of gift deed executed by Mr. B.L. Saproo is annexed as ANNEXURE-1. c. That the Ld. Appellate Authority has wrongly proceeded to conclude that there can not be any gift deed of revocable gift at the option of the donor. In this regard, the assessee submits that the conclusions as put forth by the Ld. Appellate Authority are unfounded on the following grounds :- 1. Under explanation (b) to the provisions of section 4(5) of the Wealth-tax Act the word irr .....

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or any part of the assets or income there from to the transferor, or (ii) in any way gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the assets or income there from;] As such, the unilateral conclusion of the Ld. Appellate Authority that a gift cannot be revocable at the option of the donor is without any basis and does not stand the test of law as laid down under various Acts. 2 That a gift U/s 122 of the Transfer of Property Act 1882 has t .....

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n it has been held that under section 126 of the Transfer of Property Act irrevocability of the gift is one of the essential features of the gift to qualify as a valid transfer under law. The plain reading of Section 126 of the Transfer of Property Act, 1882 clearly states that a gift can be revoked in any of the cases in which if it were a contract, it might be rescinded . The full text of Section 126 of the Transfer of Property Act, 1882 is reproduced for the ready reference of your honour. Se .....

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ed. Save as aforesaid, a gift cannot be revoked. Nothing contained in this section shall be deemed to affect the rights of transferees for consideration without notice. Illustrations (a) A gives a field to B, reserving to himself, with B s assent, the right to take back the field in case B and his descendants die before A. B dies without descendants in A s lifetime. A may take back the field. (b) A gives a lakh of rupees to B, reserving to himself, with B s assent, the right to take back at plea .....

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early stated as under : a) a transfer shall be deemed to be revocable if- (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets ; (b) transfer includes any settlement, trust, covenant, agreement or arrangement. 4. That as provided U/s 6(2) of the Gift-tax Act, 1958 & .....

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an overriding title to decide the terms of gift as to whether to make an outright gift or a revocable gift and the same is expressly stated in the instrument of the gift itself which has been examined by the Ld. Assessing Officer as well as by the Appellate Authority . e. That the distinction between the revocable and irrevocable gifts has itself been defined under provisions of Section 63 of the Income Tax Act, 1961 in clear cut terms which clarifies distinction between permanent transfers & .....

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by the assessee under law is nothing but miscarriage of justice and bad in law. The assessee also submits that all such revocable gifts which are dictated at the whims and fancies of the donor are outside the purview of a valid gift and therefore in other words can not be classified as complete gifts which are neither recognized as valid transfers under Transfer of Property Act, 1882 or under Gift Tax Act, 1958 & cannot be subject to levy of income tax under provisions of Section 56 (2)(v) o .....

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ed to hold as under :- Even if it is not a proper gift the appellant is liable to explain the source of the amount of ₹ 5.00 Lacs received from Mr. Bhushan Lal Saproo, which has not been explained before the assessing officer. The conclusions of the Ld. Appellate Authority are challenged being grossly incorrect on the following grounds. a. That the Ld. Appellate Authority on the face of the order passed is itself in contradiction to what has been stated by him at Para 1 of the order under .....

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r law as a valid transfer but in spite of having his own doubts about the captioned transfer has proceeded to hold that the proof of payment by the donor has not been proved. The findings of the Ld. Appellate Authority in this regard are grossly misleading as no such comments/findings have been made by the Ld. Assessing Officer in the body of the assessment order passed U/s 143(3) of the Act that the assessee at any time has failed to prove the source of gift by the donor. b. That the appellant .....

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t/transfer as claimed by the assessee has grossly exceeded his jurisdiction by wrongly stating contrary to those matters not recorded in the assessment order. c. That the appellant has voluntarily furnished proof of source and capacity of the donor during appellate proceedings by enclosing copy of the income tax acknowledgement return for the assessment year 2008-2009 filed with Assessing Officer, Gurgaon, Haryana under PAN # AHOPS1245A showing a returned income of ₹ 11,16,119/= for the as .....

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ly. e. The appellant submits that the general belief about the provision of the Section 56(2)(v) of the Act at the time assessment was that even if it is an interest free unsecured loan, same shall also be considered as sum of money received without consideration within the meaning of Section 56(2)(v) of the Act. Therefore it would not make any difference for the appellant to prove the source of money received unless it was hit by the proviso to Section 56(2)(v) of the Act, .This position is now .....

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from relative but now he is questioning the veracity of the same gift. The appellant submits that as stated by the Ld. Assessing Officer in the order itself that the appellant was asked to show cause as to why the amount received as gift from Mr. B.L. Saproo may not be added to the taxable income of the appellant U/s 56(2)(v) of the Act. The Ld. Assessing Officer neither asked the assessee/appellant to prove the source of income of Mr. B.L. Saproo in so far as his capacity to pay the amount to t .....

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deed submitted along with other documentary evidence. The appellant submits that as has been stated above the general belief the provision of the Section 56(2)(v) of the Act at the time assessment was that even if it is an interest free unsecured loan, same shall also be considered as sum of money received without consideration within the meaning of Section 56(2)(v) of the Act. Therefore it would not make any difference for the appellant to prove the source of money received unless it is hit by .....

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more than five years does not serve the purpose. This has been done with a motive to give it a colour other than gift. The passage of more than five years speak the truth of certain motive behind the transaction. The appellant submits that since the gift was revocable from the inception in unambiguous terms as evidenced by the deed, mere revocation by the donor at any point of time in accordance with the terms of gift has not been done with an ulterior motive but the option of the revocation wh .....

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usions arrived at by the Ld. Appellate Authority stated at the conclusion of the order are as under :- In view of the above, I do not find any merit in the argument of the appellant and uphold the addition. The appellant humbly submits that the Ld. Appellate Authority before whom the appellant had filed the appeal has summarily dismissed the arguments of the appellant in respect whereof neither any justifiable and legal reasons have been placed on record to uphold that the submissions of the app .....

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does not at all fall within the definition of money received without consideration as enumerated U/s 56(2)(v) of the Income Tax Act, 1961 nor the said transaction does fall within the definition of gift as per Section 2(xii) & (xxiv) of the Gift Tax Act, 1958 and therefore application of provisions of Section 56(2)(v) on the said transaction is improper and against cannons of natural justice. b. That to constitute a valid gift there has to be a transfer of property either by way of ownership .....

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nor does not constitute a gift which can be construed as amounts received without consideration wherein provisions of Section 56(2)(v) of the Act can be invoked and the liability to tax determined in an arbitrary and presumptive manner. d. That the appellant has conclusively proved that MR. B.L. Saproo the donor of the amount had adequate funds available with him to justify payment of ₹ 5.00 Lacs to his uncle. As such, the captioned transaction between the appellant and his nephew is neith .....

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sions of Section 68 of the Income Tax Act 1961. e. That the appellant being a aged person having retired from services of J&K Government more than fifteen years back has not been engaged in any commercial or vocational activity since retirement but has been solely making his living on pension income and some interest income received from bank deposits. As such, there can be no ulterior motive for such appellants to have received money without consideration only to conceal his income under on .....

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ellant forthwith repaid the g. amounts back on 27/03/2011 by A/c payee cheques which are evidenced by the bank statement of the appellant and confirmed by the donor leaving no room for apprehension and estimation that the amounts received by the appellant have been directly or indirectly his concealed income which has been intended to be regularized by way of gift deed. In this case the appellant has received money by A/c payee cheques and refunded the amount back by A/c payee cheques, there is .....

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f CHANDRAKANT H. SHAH vs. INCOME TAX OFFICER ITAT, MUMBAI C BENCH ITA No. 3966/Mum/2008; Asst. yr. 2005-06. (Copy enclosed as ANNEXURE-3) i. That the appellant has breathed his last on 10th September, 2012 as per copy of his death certificate submitted before the Hon ble Bench on 08/06/2015 and therefore the case of the assessee also deserves due consideration in view of the said fact that the appellant is no more alive and the principles of natural justice demand no harm to his legal heirs as t .....

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ment order passed U/s 143(3) of the Act before making the addition to the income of the appellant. Summing up, the appellant humbly prays hat the order passed by the Ld. Assessing Officer based on assumptions and presumptions without proper application of mind is fit to be quashed and appropriate relief due to the appellant under law be granted to meet ends of justice. 5. The ld. DR has placed strong reliance on the impugned order. 6. The written submissions have been perused. The ld. DR has bee .....

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by the said definition, the gift received by the assessee was exempt from tax. 8. The AO rejected the assessee s stand, observing that son of brother is not lineal descendent of the recipient of gift and so he is not covered under the definition of relative within the meaning of the proviso to section 56(2)(v) of the Act. 9. Before the ld. CIT(A), the assessee contended that the amount of ₹ 5 lacs received was a temporary receipt in the hands of the assessee, since the gift was revocable .....

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and find that the contention of the appellant acceptable because of following reasons: i) The gift cannot be revoked after acceptance. There cannot be any gift deed of revocable gift at the option of the donor. ii) Even if it is not a proper gift the appellant is liable to explain the source of the amount of ₹ 5 lacs received from Sh. Bhushan Lal Saproo, which has not been explained before the assessing officer. iii) The appellant has changed its stand now from what was stated before the a .....

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he first observation of the ld. CIT(A) is that a gift cannot be revoked after acceptance and there cannot be any gift deed of revocable gift at the option of the donor. This observation does not favour the addition being confirmed. The gift deed, as reproduced hereinabove, clearly shows that the amount was being transferred, but such transfer was irrevocable at the instance of the transferor. It is trite that a document has to be read as a whole, in order to gather the intention behind the trans .....

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submissions that the assessee was never vested absolute ownership of the amount transferred. The transfer of the amount of ₹ 5 lacs to the assessee was a revocable transfer and it was in fact revoked. The nomenclature employed is not determinative of the transaction, as is well settled. In fact, by making this observation, the ld. CIT(A) has himself accepted that the transaction was not a gift. It was a temporary transfer of money, which was revoked at the option and instance of the donor. .....

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e propriety of the gift. Moreover, whereas the AO never questioned the transaction, the ld. CIT(A) held, wrongly, on the basis of mere assumptions and presumptions, disregarding the explanation offered by the assessee before the AO, that the assessee had not explained the source of the amount received. Rather, it is nowhere in dispute that the amount came to the assessee from his nephew, Sh. B.L. Saproo. Therefore, the source of the receipt stood duly explained. Asking the assessee to explain th .....

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had changed his stand from that taken before the AO. This, however, also does not act as a detriment to the assessee s case, even if the transfer, as stated, is taken to be interest free unsecured loan. It amounts to money received, which money was returned. Moreover, even before the AO, the assessee had offered the explanation of the transaction being a gift, which position does not undergo any change in view of the document of transfer, as per which, the transfer was a revocable transfer. Rev .....

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