Sri Sarad Kumar Babulal Jain, Vijayawada V. The ITO, Ward-1(4), Vijayawada

ITA 29/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56788 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TH L PETER
• Keywords: Gift
• Section: 56; 263; 10

Judgement Text

ITA NO29/V/11 SARADKUMAR BABULAL JAIN, VJA. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 29 /VIZAG/ 20 11 ASSESSMENT YEAR : 2006 - 07 SRI SARAD KUMAR BAB ULAL JAIN VIJAYAWADA VS. ITO WARD - 1(4) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AJGPS8091J APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) DATE OF HEARING : 1 3.6.2011 DATE OF PRONOU NCEMENT : 11.8.2011 ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT PASSED U/S 263 OF THE INCOME-TAX ACT (HEREINAFTER C ALLED AS AN ACT) DIRECTING THE A.O. TO TAX THE GIFT OF IMD OF ` 34,33,189/- U/S 56(2)(V) OF THE ACT AFTER SETTING ASIDE THE ASSESSMENT ORDER. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT ON A SCRUTINY THE CIT NOTICED THAT THE ASSESSEE WAS IN RECEIPT OF RS. 34,33,189/- BY WAY OF GIFT OF IMD (INDIAN MILLENNIUM DEPOSITS) BONDS WORTH US $ 50000 AND INTEREST THERE ON IN US $ 26,272.12 FROM NRI FRIEND, SHRI RA MAN TALWAR. THE ASSESSEE CLAIMED IT TO BE NON-CASH GIFT AND CLAIMED EXEMPTION U/S 10 OF THE ACT. BUT AS PER THE PROVISIONS OF SUB-SECTION (V) OF SECTION 56 OF THE ACT, ANY SUM OF MONEY EXCEEDING ` 25,000/- FROM A PERSON NOT RELATED TO THE ASSESSEE IS TO BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE UNDER THE HEAD OTHER SOURCES DURING THE YEAR OF RECEIPT. HAV ING OBSERVED THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE, THE CIT ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. IN RESPONSE THERE TO IT ITA NO29/V/11 SARADKUMAR BABULAL JAIN, VJA. 2 WAS STATED THAT GIFT WAS RECEIVED IN THE FORM OF IM D ISSUED BY THE GOVERNMENT OF INDIA BUT NOT RECEIVED IN THE FORM OF MONEY. AS PER THE TERMS OF IMDS, INCOME ON THE IMDS WILL BE EXEMPT IN THE HANDS OF THE DEPOSITOR FROM THE INDIAN INCOME TAX. HE FURTHER C ONTENDED THAT THE IMDS WILL ALSO BE FREE FROM WEALTH TAX AND GIFT TAX IN I NDIA. THE TAX CONCESSION WILL BE AVAILABLE TO THE DONEE AND THE TRANSFEREE A LSO. MORE OVER THIS IMD WAS RECEIVED BY THE ASSESSEE AS A GIFT ON 28.4.2004 WHEREAS THE PROVISIONS OF SECTION 56(2)(V) ARE APPLICABLE ONLY TO THE AMOU NT RECEIVED AFTER THE FIRST DAY OF SEPTEMBER, 2004. THE CIT WAS NOT CONVINCED WITH THE EXPLANATIONS FURNISHED BY THE ASSESSEE AND HE OBSERVED THAT FROM THE TRANSFER LETTERS DATED 21.9.2005 ISSUED BY THE BANK, IT COULD BE SEE N THAT THE GIFT OF IMDS WORTH US $ 50,000 RECEIVED FROM SRI RAMAN TALWAR, N RI WAS TRANSFERRED IN THE NAME OF THE ASSESSEE ON 21.9.2005. THE ASSESSE E HAS NO EXPLANATION AS TO WHY IT WAS TRANSFERRED IN THE NAME OF ASSESSEE O NLY ON 21.9.2005, WHERE IT WAS RECEIVED BY THE ASSESSEE AS A GIFT ON 28.4.2 004. SINCE THE GIFT WAS RECEIVED AFTER 1.9.2004, THE INCOME ON THE IMDS DOE S NOT QUALIFY FOR THE EXEMPTION U/S 10(15)(I) OF THE ACT. THE CIT ACCORD INGLY DIRECTED THE A.O. TO TAX THE GIFT OF IMD OF ` 34,33,189/- UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56(2)(V) AND PASS ORDER ACCORDINGLY. 3. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT HE HAS FURNISHED ALL RELEVANT INFOR MATION BEFORE THE ASSESSING OFFICER AND HE HAS ACCEPTED THE CLAIM OF THE ASSESS EE AFTER MAKING A DETAILED VERIFICATION. ON MERIT HE HAS CONTENDED THAT HE HA S RECEIVED THE GIFT BEFORE 1 ST SEPTEMBER, 2004. HE FURTHER SUBMITTED THAT THE PR OVISIONS OF SECTION 56(2)(V) SHALL APPLY TO THE SUM OF MONEY RECEIVED ON OR AFTER 1.9.2004 BUT BEFORE 1.4.2006. SINCE IMB IS A SECURITY AND NOT SUM OF MONEY, THE PROVISIONS OF SECTION 56(2)(V) WOULD NOT BE APPLICA BLE IN THE CASE OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS PLA CED A RELIANCE UPON THE FOLLOWING JUDGEMENTS OF THE TRIBUNAL:- 1) ACIT VS. ANUJ AGARWAL 130 TTJ 49 2) CIT VS. G.K. KABRA 211 ITR 336 3) SYNERGY ENTREPRENEUR SOLUTIONS PVT. LTD. VS. DC IT ITA 306/MUMBAI/ 2010 DATED 31.3.2011. ITA NO29/V/11 SARADKUMAR BABULAL JAIN, VJA. 3 4. THE LD. D.R. ON THE OTHER HAND HAS CONTENDED THA T ASSESSING OFFICER HAS NOT EXAMINED THIS ISSUE DURING THE COURSE OF AS SESSMENT PROCEEDINGS AS NO QUERY WAS RAISED IN THIS REGARD. THERE IS NO DI SCUSSION OF THIS ISSUE IN THE ASSESSMENT ORDER, WHEREAS, THE FACTS EMERGES FROM T HE CITS ORDER ARE THAT THE IMDS WERE TRANSFERRED IN THE NAME OF THE ASSESS EE ON 21.9.2005 I.E. AFTER THE PROVISIONS OF SECTION 256(2)(V) WERE BROU GHT ON THE STATUTE W.E.F. 1.9.2004. THEREFORE, THE CIT HAS RIGHTLY INVOKED T HE PROVISIONS OF SECTION 263 OF THE ACT AS THE ORDER OF THE ASSESSING OFFICE R IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WITH R EGARD TO THE JUDGEMENTS REFERRED BY THE ASSESSEE, LD. D.R. HAS SUBMITTED TH AT THE JUDGEMENTS WERE RENDERED ON MERIT AND CAN ONLY BE APPLIED WHEN THE ISSUE IS BEING ADJUDICATED ON MERIT BY THE ASSESSING OFFICER. HER E IS A CASE THAT THE ISSUE OF RECEIPT OF GIFT WAS NEVER EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, THE ASSESSME NT ORDER WAS RIGHTLY SET ASIDE BY THE CIT AFTER HAVING INVOKED THE PROVISION S OF SECTION 263 OF THE ACT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS RECE IVED IMD BONDS AS GIFT FROM A NRI. THE ASSESSEE HAS CLAIMED THAT IT WAS R ECEIVED BY HIM ON 28.4.2004. HOWEVER, IT WAS TRANSFERRED TO THE NAME OF THE ASSESSEE ONLY ON 21.9.2005. IN THE MEAN TIME, THE PROVISIONS OF SEC . 56(2)(V) WAS INTRODUCED INTO THE ACT WITH EFFECT FROM 01-09-2004. SINCE TH E IMPUGNED IMD BONDS WAS TRANSFERRED TO THE NAME OF THE ASSESSEE AFTER, 01-09-2004, THE LD. CIT HAS OPINED THAT THE IMPUGNED GIFT TRANSACTION IS HI T BY THE PROVISIONS OF THE SECTION 56(2)(V) OF THE ACT. 6. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 5 6(2)(V) AND ALSO THE PROVISIONS OF SECTION 56(2)(VI) AND 56(2)(VII), WHI CH WERE INTRODUCED SUBSEQUENTLY. A COMBINED READING ALL THESE THREE P ROVISIONS FACILITATES THE CORRECT UNDERSTANDING OF THEIR PURPOSE. WE NOTICE THAT UNDER THESE PROVISIONS, IF ANY INDIVIDUAL OR HINDU UNDIVIDED FA MILY RECEIVES ANY SUM OF MONEY OR ANY OTHER PROPERTY WITHOUT CONSIDERATION, THE SAME IS DEEMED TO BE INCOME OF THE ASSESSEE. HOWEVER, WE NOTICE THAT THESE PROVISIONS HAVE BEEN INTRODUCED IN A PHASED MANNER. THE PROVISIONS OF SECTION 56(2)(V) ARE ITA NO29/V/11 SARADKUMAR BABULAL JAIN, VJA. 4 APPLICABLE TO SUM OF MONEY RECEIVED DURING THE PE RIOD FROM 1.9.2004 TO 31.3.2006 WITHOUT CONSIDERATION. THE PROVISIONS OF SECTION 56(2)(VI) ARE APPLICABLE TO THE SUM OF MONEY RECEIVED DURING TH E PERIOD FROM 1.4.2006 TO 30.9.2009 WITHOUT CONSIDERATION. THE PROVISIONS OF SECTION 56(2)(VII) ARE APPLICABLE TO SUM OF MONEY OR IMMOVABLE PROPERTY OR ANY PROPERTY OTHER THAN IMMOVABLE PROPERTY RECEIVED ON OR AFTER 1.10.2 009 WITHOUT ADEQUATE CONSIDERATION. A CAREFUL READING OF ALL THESE THREE PROVISIONS SHOW THAT ONLY THE RECEIPT OF SUM OF MONEY DURING THE PERIOD FRO M 1.9.2004 TO 30.9.2009 WAS SUBJECTED TO TAX UNDER THE ACT. ONLY FROM 1.10 .2009 ONWARDS, THE RECEIPT OF IMMOVABLE PROPERTY OR ANY OTHER PROPERTY , I.E. RECEIPT IN KIND, WITHOUT ADEQUATE CONSIDERATION HAS BEEN BROUGHT INT O THE TAX FOLD. THE TERM PROPERTY HAS BEEN DEFINED UNDER CLAUSE (D) OF EXPLA NATION TO SECTION 56, WHICH, INTER ALIA, INCLUDES SHARES AND SECURITIES . 7. IN THE INSTANT CASE, THE ASSESSEE HAS RECEIV ED IMD BONDS. THERE CANNOT BE ANY DOUBT THAT IMD BONDS FALLS IN THE C ATEGORY OF SECURITIES. HENCE THE RECEIPT OF SECURITIES WITHOUT ADEQUATE CO NSIDERATION, I.E. GIFTS IN KIND, IS SUBJECTED TO TAX, ONLY IF IT IS RECEIVED O NLY ON OR AFTER 1.10.2009. IN THE INSTANT CASE, THE IMPUGNED IMD AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE PRIOR TO 1.10.2009. HENCE, THE PROVISIONS OF SECTION 56(2)(V), WHICH WAS INVOKED BY LD. CIT IS NOT APPLICABLE TO THE IMP UGNED TRANSACTION. WE NOTICE THAT SIMILAR VIEW HAS BEEN EXPRESSED BY MUMB AI BENCH OF ITAT IN THE CASE OF ANUJ AGARWAL, SUPRA. HENCE, THE DIRECTIONS ISSUED BY LD. CIT TO TAD THE RECEIPT OF IMD BONDS U/S 56(2)(V) OF THE ACT IN THE INSTANT CASE DO NOT HAVE LEGAL SANCTITY AND ACCORDINGLY THE SAID DIRECT ION IS LIABLE TO BE SET ASIDE. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 11 TH AUGUST, 2011 ITA NO29/V/11 SARADKUMAR BABULAL JAIN, VJA. 5 COPY TO 1 SARAD KUMAR BABULAL JAIN, D.NO.11 - 25 - 350, MAIN ROAD, VIJAYAWADA - 520 001 2 ITO, WARD - 1(4), VIJAY AWADA 3 THE CI T, VIJAYAWADA 4 THE CIT (A) , VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM