TMI Blog2006 (5) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50 lakhs each on 28th April, 1999 and 14th May, 1999, respectively. The AO was of the opinion that as the assessee was working as an employee of Shri G.K. Ramamurthy, in order to avoid income-tax, the employer Shri G.K. Ramamurthy paid Rs. 1 crore to the assessee and gave it the colour of gifts. The AO was of the further opinion that as there was a relationship of employer -employee between Shri G.K. Ramamurthy and the assessee, hence the amount received as the gifts was her income and liable to be taxed under s. 5(1) of the IT Act. The assessment of the assessee was completed vide order dt. 17th Feb., 2005 and the AO made the addition of Rs. 1 crore under the head "Income from other sources" in respect of the amount of "gifts" of Rs. 1 crore received from Shri G.K. Ramamurthy. 4. The assessee challenged the impugned order before the CIT(A). The CIT(A) held that since the assessee was an employee of Shri G.K. Ramamurthy, the "gifts" received by the assessee from her employer could be treated as her income and the said amount of gifts was assessee's income in lieu of or in addition to the salary as per the provisions of s. 17(1)(iv) of the Act. For giving the above finding, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the said AO on the ground that gift from employer to employee is liable to tax is not justified. Further, r. 3(7)(iv) has now been dated w.e.f. 1st April, 2005 and any gift made by a company, firm, AOP will be liable to payment of fringe benefit tax under s. 115WB(2)(o) which has come into force w.e.f. 1st April, 2005. Similarly, gift received by a person is not liable to tax under the IT Act, in asst. yr. 2000-01, is further supported by the fact that s. 56(1)(v) is inserted by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 to provide that any gift exceeding Rs. 25,000 received by an individual or HUF, on or after 1st Sept., 2004, will be treated as income from other sources and subjected to income-tax. This provision comes into force from asst. yr. 2005-06 only. Appellant has thus contended that above gifts are not her income. However, contentions of the appellant are not acceptable. Appellant was working. as office assistant in M/s Croslands Research Laboratories Ltd. and later on became secretary to Shri G.K. Ramamurthy, managing director and Shri Shankar, director and co-promoter of M/s Croslands Research Laboratories Ltd. She continued her employment even after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year 19992000 relevant to asst. yr. 2000-01 which exactly comes to Rs. 12,000 per month for a period of 12 months. Now once it is found that appellant is an employee of Shri G.K. Ramamurthy, gifts received by appellant from her employer can be treated as her income. In my opinion, aforesaid gifts can be treated as a13pellant's income in lieu of or in addition to salary as per provisions of s. 17(1)(iv) of the IT Act. In fact, CBDT Circular No. 158, dt. 27th Dec., 1974 clearly states that gifts of a purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation. Appellant has received the aforesaid gifts from her employer and, therefore, can be regarded as an addition to the salary and profits in lieu of salary. In view of above discussion, various contentions of the appellant are rejected and it is held that gifts of Rs. 1 crore represent appellant's income and, therefore, AO was right in treating the above gifts as appellant's income. Addition of Rs. 1 crore is, therefore, upheld." Now, the assessee has challenged the impugned order of the CIT(A) be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the learned Departmental Representative vehemently submitted that when the gifts were made, at that G.K. Ramamurthy and the CIT(A) has rightly held that the gifts received by the assessee from Shri G.K. Ramamurthy is assessee's income in lieu or in addition to the salary as per the provisions of s. 17(1)(iv) of the Act and the CIT(A) has rightly sustained the said addition made by the AO. The learned Departmental Representative relied upon the following precedents: V. Narayanan Vs. Dy. CIT (2004) 89 TTJ (Chennai) 628 : (2004) 88 ITD 43 (Chennai). 7. We have heard the rival submissions of the parties. We have also perused the facts of this case as per record available with us. We have also considered the principles in the precedents relied on by the parties. It is not disputed in this case that the assessee was an employee of Shri G.K. Ramamurthy. It is also not disputed in this case that the AO has accepted the salary income declared by the assessee as per the salary/TDS certificate in Form No. 16 dt. 30th April, 2000. The assessee has filed the copy of the said certificate which is placed at p. 11 of the paper book. On perusal of the said certificate, it appears that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g total income which the assessee received by way of two different gifts from Shri G.K. Ramamurthy: ".......The assessee is working as an employee of Shri G.K. Ramamurthy. It is obvious that in order to avoid the income-tax, the employer paid Rs. 1 crore to his employee and gave it the colour of gift. Since the amount is now in the hands of the assessee, and her relationship with Shri G.K. Ramamurthy is that of employer-employee. Any amount paid by the employer to the employee is treated as income under s. 5(1) of the IT Act, 1961 in the hands of the assessee." The AO thereafter proceeded to treat Rs. 1 crore as an income of the assessee under the head "Income from other sources". The CIT(A) has gone further holding that the amount of the gift received by the assessee is her income in lieu (of) or in addition to the salary as per the provisions of s. 17(1)(iv) of the Act. 8. As far as the IT Act is concerned, s. 4 is the charging section. Sec. 5 defines the total income in terms of the residence of the assessee. A non-resident's total income comprises of only income which accrues or is received or is deemed to accrue or to be received in India while a resident's total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said two declarations. It is well-settled proposition of law that a gift in which the personal element is present, is not income at all. Merely because an assessee carries on a vocation, there is no presumption in law that any amount received by him/her is income subject to tax. The test in such cases is to find out if the sum is paid to the assessee in respect of his services and accrues to him by virtue of his office. Where an amount is paid to a person as a personal gift for his personal qualities and as a token of personal esteem and veneration, it cannot be subjected to tax as income arising out of business, profession or vocation. 10. Now we have to consider the finding of the CIT(A) that the amount of gifts received by the assessee can be treated as assessee's income in lieu or in addition to salary as per the provisions of s. 17(1)(iv) of the IT Act. Sec. 17 defines the different terms used under the head "Salary" like salary, perquisite and profit in lieu of salary. Sec. 17(1)(iv) provides that salary includes any fee, commission, perquisite or profit in lieu of or in addition to any salary or wages. In the opinion of the CIT(A), the nature of the receipt in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the proper conclusion is likely to be that the voluntary payment is not a profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual, paid and received by reason of his personal needs or by reason of his personal qualities. We would like to clarify here that though the Court of Appeals distinguished the decision in the case of Reed vs. Seymour, but that was due to different set of facts and not on principles. 12. If we apply the above principles for determining the nature of the amount of gifts received by the assessee, on the facts of this case, we find that there is no material to support the case of the AO. In our opinion, the amount of gifts received by the assessee from Shri G.K. Ramamurthy is having the personal element and has nothing to do with her employment with him. It is in the nature of personal gift. We, therefore, have no hesitation to delete the addition of Rs. 1 crore made by the AO to the income of the assessee in respect of the two gifts received by her from Shri G.K. Ramamurthy. We, therefore, set aside the order of the CIT(A). 13. In the result, the assessee's appeal is allowed. - - TaxTMI - TMITax - Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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