COMMISSIONER OF GIFT TAX Vs. K.RAMULLAN

JUDGEMENT

(1.) THE question arising in this gift tax appeal filed by the Revenue against the appellate order of the Tribunal is whether the late assessee whose legal representatives represent him in this appeal, was entitled to gift tax exemption under Section 5(1)(iib) of the Gift Tax Act (hereinafter called œthe Act ) in respect of the consideration paid to the seller from NRI Accounts for purchase of property in the name of late assessees wife and children. The late assessee during his lifetime purchased immovable property in the joint names of himself, his wife and children. Consideration for the purchase was made through cheques and demand drafts drawn from NRI accounts. Even though the gift tax exemption claimed was disallowed by the Assessing Officer on the ground that late assessee was not a person resident outside India, that issue was later settled in favour of the assessee vide judgment of the Supreme Court referred to in the order of the Tribunal wherein the Supreme Court held that the assessee was entitled to the status œperson resident outside India . Before us, Senior counsel for the Revenue contended that even if late assesses was a non -resident Indian, he is not entitled to exemption from gift tax under Section 5 (1)(iib) of the Act because gift given is in the form of immovable property purchased by the assessee in the name of himself and his wife and children. Counsel appearing for the respondent contended that since the consideration for purchase of property is money sourced from NRI accounts maintained by the assessee, such gift is also covered by Section 5(1)(iib) of the Act. in order to appreciate the contentions raised, we have to look into the scope of section 5(1)(iib) and for easy reference, the said Section is extracted hereunder:

(2.) IN fact it is clear from Section 5(1) that gift tax exemption is provided with reference to items of property gifted. While clause (i) of Section 5(1) provides for exemption of gift of immovable property situate outside India and clause (ii) provides for exemption of movable property situate outside India, clause (iia) provides for foreign exchange/currency gift. The gift referred under clause (iib) of Section 5(1) is nothing but money gift and the condition for exemption is that the gift should flow from the non -resident (external) account maintained in a Bank by a person resident outside India. In other words, the two conditions for exemption are that the donor should be a non -resident and the gif should be from out of money standing in his non -resident account in any Bank in India. In this case admittedly the assessee did not give any gift of money in the form of cheque or demand draft to his wife or children from the non -resident external accounts maintained by him. However, he purchased property in the form of land and building in the name of himself and his wife and children. However, for the property jointly purchased by the assessee, his wife and children, sale consideration was paid by him from non -resident accounts maintained by him. The question is whether the payment of sale consideration for the property purchased in the name of wife and children amounts to gift and if so, such gift is entitled to exemption under section 5(1)(iib) for the reason that money paid was from NRI accounts maintained by the assessee. There can be no dispute that the transaction is a gift in as much as on account of sale consideration paid by the assessee, his wife and children as contended by standing Counsel for the department. On the other hand, assessee paid purchase consideration attributable for acquisition of right in property by assessees wife and children. We, therefore, reject her departments contention and hold that the gift is nothing but the consideration in money paid by the assessee on behalf of the other purchasers of the property along with him, who are his wife and children. Since all the authorities including the Tribunal have found that the source of fund for purchase of the property is from the several NRI accounts maintained by the non -resident assessee in Indian Banks, we are of the view that the sale consideration paid on behalf of the other purchasers of property namely, wife and children of the assessee also in a NRI gift falling under Section 5(1)(iib) of the Act. In this view of the matter, we dismiss the appeal.