Monday, August 29, 2011

Whether when donor has capacity to borrow funds, not based only on annual

Whether when donor has capacity to borrow funds, not based only on annual income but also total assets owned, genuineness of gift cannot be doubted - Delhi HC grants major relief to Mayawati

NEW DELHI: THE questions before the Bench are - Whether when donor has the capacity to borrow funds, not based only on annual income but also the total assets owned, the genuineness of gift cannot be suspected and whether a gift is to be treated as genuine when the assessee discharges the onus cast on it for proving the identity, creditworthiness and relationship of the donor and the donee. And the verdict goes in favour of the assessee.

Facts of the case

The Income Tax return for the Assessment Year 2003-04 was filed by the assessee on 06.08.2003 declaring total income of Rs.13,29,090/-. The Assessee earned income from salary, house property and other sources. The AO, on perusal of the return, found that during the year under consideration, the assessee had received gifts from the certain persons vide cheques and also received immovable assets from Ashok Jain and Veena who were the husband and wife. Pankaj Jain, from whom the assessee received the cheque of Rs. 200000/- was nephew of Ashok Jain. Ashok Jain was an Advocate by profession and Pankaj was a practicing Chartered Accountant and a partner of M/s P.Jain & Co.

The AO wanted to examine the genuineness of the aforesaid gifts. For this purpose he summoned the donors. He recorded the statement of Veena Jain on 26.12.2004. The AO recorded his observation on the creditworthiness, it was seen that she herself had taken loan for purchase of property as she was not having sufficient funds for this purpose. She had sold her jewellery for purchase of the house. Therefore, he opined that the creditworthiness of the donor was not proved.

Summons u/s 131 of the Act was issued to Ashok Jain. In compliance, Ashok Jain, Advocate appeared before the AO and his statement was recorded by him. The AO observed that there was no relation between the donor and the donee and the genuineness and creditworthiness was not proved.

The AO also recorded the statement of Pankaj Jain. After going through the facts, he found that during the Assessment Year 2003-04 he had gifted a sum of Rs.17 lacs to her and the family members of the assessee. He had also made gift of Rs.2 lacs in the Assessment Year 2000-01 and in the Assessment Year 2004-05 made a gift of Rs.5 lacs to the assessee. As observed by the Assessment Officer that the entire case made by him was out of amount received from M/s Blue Bell Finance Co.

The AO recorded in his assessment order that it was surprising that the assessee had gifted the amount out of loan taken from this concern M/s Blue Bell Finance Co. Since there was no occasion for making the gift; the gifted amount was more than the income of the assessee; that there was no relation between the donor and the donee, and the AO held that it was only an arranged gift and an accommodation entry.

In nutshell the AO did not accept the claim of the assessee in respect of the two immovable properties namely C-57, Inderpuri, New Delhi and C-58, Inderpuri, New Delhi and added the same to the income of the assessee u/s 69 of the Act. He also did not accept the gift of Rs.2.00 lac of Pankaj Jain and made addition of this amount also to the income of the assessee u/s 69 of the Act. In the final assessment order dated 30.03.2006, total income of the assessee was assessed at Rs.79,03,390/-.

The assessee preferred an appeal against the above order passed by the AO. As regards applicability of Section 69, the CIT (A) was of the opinion that it was not the assessee who had made the investment. The donor had paid the stamp duty twice, the assessment of the donor had not been disturbed, and the donor and donee both accepted the factum of gift. Further the gift was also evidenced by documentary evidences like gift deeds, sworn affidavits, declaration before AO etc. The donor also gave an explanation for immediate source of gift. Therefore, keeping the aforesaid discussion into view the CIT (Appeal) was of the opinion that the donee had discharged not only the burden but also the onus cast on her. Accordingly, the addition of Rs. 40,68,450/- was deleted.

As regards the gift of property No. C-58, Inderpuri, the CIT(A) did not agree with the assessment order passed by the AO and addition made by the AO of Rs.22,03,850/- was deleted. The basis of this conclusion were almost as in the case of gift made by her husband Ashok Jain regarding the property No. C-57, by Ashok Jain.

As regards the gift of Rs. 2 lacs received by the assessee from Pankaj Jain by provision he was a Chartered Accountant and assessed to tax since last so many years. The CIT (A) found that he had placed details of his income tax assessment and bank account and also filed affidavit certifying the above gift. He appeared before the AO for statement on oath where he confirmed giving the gift. He also established that he had been meeting the assessee, and his family members on family functions since so many years. The CIT (A) also found that the gift vide A-C payee cheque no. 17186 dated 17.12.2002 drawn on Andhra Bank for Rs. 2 lacs.

The CIT (Appeal), thus, accepted the genuineness of gift inasmuch as the identity and capacity of the donors were proved and came to the conclusion that factum of gift stood established. He thus, partly allowed the appeal of the assessee. The ITAT confirmed the order of the CIT(A).

On further appeal, the High Court held that,

++ there is substance in the contention of the counsel for assessee that there are pure findings of facts recorded by the two authorities below on the basis of evidence adduced which was sufficient to discharge the onus as well as burden caused upon her by proving the identity of donors, their creditworthiness as well as genuineness of the gifts. It has been established that the assets of Ashok Jain as on 31.03.2003 including movable/ immovable assets were of Rs.1.25 crores, whereas the liability owned by Ashok Jain was only Rs.11.88 lacs less Rs.10.78 lacs. Keeping the assets owned by Ashok Jain, the court was of the considered view that he had the capacity to make gifts in question. Therefore, there is no force in the arguments of the ASG that Ashok Jain had no capacity to do the same;

++ further in the case of Veena Jain, details of assets proved on record show that the total assets of Veena Jain were of Rs.1.34 crores & the liabilities were only of Rs.2.11 lacs. We have perused the assets owned by Mrs.Veena Jain and found that she had capacity to borrow first, and then to gift as per her desire. The capacity does not mean what you are earning monthly or annually. The capacity includes how much total assets a person owns. So is the case of Veena Jain here, she had an asset of Rs.1.34 crores, definitely could borrow Rs.20 or 25 lacs easily. Second plea regarding Veena Jain is that if a person buys any property for her personal use, she will definitely not make the gift for the same. Here on perusal of the record it is revealed that she has stated before the Department that the assessee is a Rakhi sister of her husband and she is great admirer of the assessee because she is working for the upliftment of the down trodden and poor persons of the society. Sometimes a person does not have to be related to a particular trust or a charitable institution, but in their view that trust or institution is doing a great service to the particular section of the society. Therefore, there is no force in the arguments advanced by the counsel for the Revenue. Further, it is also not necessary that a person should be a habitual donor. It depends from person to person, thinking to thinking and situation to situation. Sometimes a person keeps donating throughout their life and sometimes he donates once and sometimes during the last stage of his life. Therefore, the arguments advanced by the counsel for the Revenue cannot be agreed with;

++ counsel for the Assessee has vehemently argued that the Revenue has relied upon the judgments not relevant in the facts and circumstances of the instant case. In the case of Sajan Dass and Sons vs. Commissioner of Income-Tax, the donor was not found related to the assessee, however, in the present case the donors have 15 years old relationship with the assessee as has been proved by the evidence, affidavits on oath and photographs. Therefore, the aforesaid case does not hold for the Revenue Department;

++ another case of Anil Kumar (2007-TIOL-210-HC-DEL-IT) has also no relevance because in the said case the assessee was asked to explain the capacity and genuineness of the donor, however, the assessee did not appear before the Department. But, in the present case the assessee herself submitted all the relevant documents before the Revenue. That apart, all the donors appeared, confirmed and filed affidavits on oath. Therefore, this case of Anil Kumar is not relevant in the present situation;

++ so is the case of Rajeev Tandon (2007-TIOL-413-HC-DEL-IT) wherein, the donor was complete stranger, but in the present case all the donors have 15 years old relationship with the assessee as has been proved by evidence, documents and their statements;

++ all the donors appeared before the Department, submitted material including affidavits on oath, confirms the gifts made, established their old relations with the assessee and proved their capacity to make the gifts. We have noted that in earlier years also they had made gifts to the assessee and her family members, which were accepted by the Revenue. We have also noted that two gifts made by Ajay Aggarwal and O.P.Khadaria, Advocate were of Rs.10 lacs and Rs.1 lac respectively have been accepted by the Department. The donors are persons of sufficient means. The assessee has fully discharged her legal obligations by disclosing the identity of all the donors. Further, donors have proved their genuineness and capacity to make a gift. All assessee as well as the donors had appeared before the Registrar and the gifts are duly registered. All gifts are absolute and without any lien of anyone. There is no evidence on record to prove that the assessee has favoured the donor in any manner whatsoever by acquiring the gifts in question. The capacity of any person does not mean how much they earn monthly or annually, but the term capacity has vided term and that can be perceived by how wealthy he is. All the formalities, as per law are met by the assessee and donors as well. All the donors have admitted that they are great admirer of the assessee as she is working for the upliftment of poor people;

++ the issue raised by the Revenue in the instant appeal cannot be said to involve any question of law, much less a substantial question of law. A question of fact becomes a question of law, if the finding is either without any evidence or material, or if the finding is contrary to the evidence, or is perverse, as was held in the case of Mahavir Woolen Mills;

++ in the light of above facts and circumstances, no substantial question of law arises from the instant appeal. Therefore, the judgment passed by the ITAT was confirmed and the instant appeal of the Revenue was dismissed.

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