ORDER
N. Barathvaja Sankar, A.M.
1. This is an appeal filed by the Revenue and the sole ground of appeal is as follows :
“The learned CIT(A) has erred in law and on facts in holding that the gift of Rs. 32 lakhs made by the assessee is exempt under s. 5(1)(ii)(a) of the GT Act and is not taxable in his hand”.
2. The assessee, Sunil Siddharthbhai is an individual and not ordinarily resident in India during the relevant asst. yr. 1984-85. Drafts were purchased from Bank of India, Ahmedabad, in the name of Sunil Siddharthbhai payable at Bank of India, Srinagar as under :
Date Particulars Amount (Rs.)
20-5-1983 5 Drafts of Rs. 6 lakhs 30 lakhs
21-5-1983 1 Draft of Rs. 2 lakhs 2 lakhs
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32 lakhs
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The assessee opened an account in his name on 23rd May, 1983, with Bank of India, Srinagar Branch and the assessee was introduced to the Srinagar Branch by Shrenikbhai and the manager of Bank of India, Ahmedabad. 22 accounts of ABC Trust Nos. 201 to 222 were also opened by its trustees Vimlaben and Taral on 23rd May, 1983, with Bank of India, Srinagar Branch. Gift was made by the assessee on 24th May, 1983 as under :
Name of the Trust Amount (Rs.)
Nos. 201 to 210 1,46,000 each
Nos. 211 to 222 1,45,000 each
Separate cheques were drawn by Sunil Siddharthbhai in favour of each trust and the same were deposited in the bank account of the relevant trusts at Srinagar. Drafts favouring the trustee Smt. Vimlaben Siddharthbhai were obtained from Bank of India, Srinagar Branch, as detailed below :
Name of the Trust Amount (Rs.)
Nos. 201 to 210 1,46,000 each
Nos. 211 to 222 1,45,000 each
The bank charge for obtaining drafts were debited in respective accounts of ARC Trust in the Bank of India, Srinagar Branch. The drafts obtained from Srinagar Branch were deposited in the accounts of Kasturbhai Lalbhai and 301 others (Vimlaben is one of them) on 30th May, 1983.
3. The assessee filed return of gift for the asst. yr, 1984-85 wherein he claimed exemption under s. 5(1)(ii)(a) in a sum of Rs. 32 lakhs. While making the assessment under s. 15(3) of the GT Act the AO accepted the contention of the assessee and granted the exemption of Rs. 32 lakhs claimed by the assessee under s. 5(1)(ii)(a). However, later on the said order was set aside by the CGT, Gujarat-I, Ahmedabad vide his order, dt. 28th March, 1988, under s. 24 of the GT Act. The original assessment was set aside because it was felt that the claim of the assessee for exemption of gift of Rs. 32 lakhs made in Jammu and Kashmir was not proper. After further investigation the fresh assessment order was passed on 6th February, 1990, wherein the impugned sum of Rs. 32 lakhs was subjected to gift-tax. In other words, the exemption claimed by the assessee under s. 5(1)(ii)(a) of the GT Act was denied by the said order, dt. 6th February, 1990. Aggrieved by this, the assessee went in appeal before the CGT(A) who allowed the claim of the assessee for the detailed reasons set forth in his lengthy order. Aggrieved, the Department has brought the issue before us on second appeal.
4. The learned Departmental Representative, P. N. Dixit contended that the entire affair was a stage-managed one and it was made to believe that the movable property was situated in Jammu and Kashmir. According to him, the movable property was not actually situated in Jammu and Kashmir and hence the ratio of the Hon’ble Supreme Court decision in the case of McDowell & Co. Ltd. vs. CTO would be squarely applicable. He also submitted copies of extract from Taxman’s Interpretation of Taxing Statutes by D. P. Mittal and Iyengar’s Commentary on Income-tax Law, Vol-I wherein matters regarding substance of transaction, form of transaction, doctrine of physical nullity, etc. have been dealt with and contended that substance of the transaction could be considered in preference to form of transaction in any taxing statute.
5. The learned counsel for the assessee J. P. Shah contended that when the law is clear that movable properties situated at Jammu and Kashmir are exempt from gift-tax and if the assessee availed the benefit within the four-corners of the statute he should not be denied the benefit of exemption under s. 5(1)(ii)(a) of the GT Act. He pointed out that the assessee at the relevant time was resident but not ordinarily resident Indian citizen. He contended that there was no colourable device in the present case as enumerated in McDowell’s case (supra). He further contended that the donees were taxed for income arising out of the gift. He relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Dipak A. Sheth vs. GTO (1986) 19 ITD 820 (Ahd) and contended that the assessee is eligible for the exemption claimed.
6. We have considered the rival submissions, facts and materials on record including the detailed paper-book submitted by the assessee’s learned counsel and the order of the first appellate authority. In our opinion, the transactions in the present case were effected at arm’s length in the sense that separate accounts were opened for different entities at Srinagar and the gift was made and received by cheques at Srinagar. Even if the theory of substance having preference over the form of the transaction is considered, then also, in our opinion, the substance is that the transactions were between the assessee and different trusts effected through bank accounts by issue of cheques from bank account situated at Srinagar. We are of the opinion that there is force in the assessee’s,contention that if certain things are allowed as per the provisions of the Act why the assessee should not avail of the same. In similar circumstances, the Ahmedabad Bench-B of the Tribunal in the case of Dipak K. Sheth vs. GTO (supra) had decided the issue in favour of the assessee. In that case, it was held as follows :
“A reading of s. 5 coupled with s. 1 as well as S. 2(xxiiia) would clearly show that the provisions of the Act are not to extend to Jammu and Kashmir in respect of an individual who is a citizen of India and is resident but not ordinarily resident in the taxable territories which in this case happened to be India excluding Jammu and Kashmir. The argument that the exemption under s. 5(1)(ii) was to be restricted to the persons resident in Jammu and Kashmir is not supported by the language of the Act inasmuch as no such provision is stated anywhere nor can it be read in any of the aforesaid sections. The exemption envisaged in cls. (i) and (ii) of s. 5 is entirely based on the situs of the property gifted. The Act clearly grants exemption in respect of movable property situated in Jammu and Kashmir or elsewhere outside India subject to the fulfilment of two conditions. In the instant case the amount gifted by the assessee was clearly movable property situated in Jammu and Kashmir and the gift was made and accepted in the same territory. As the territorial jurisdiction of the Act is the whole of India except the State of Jammu and Kashmir, it would naturally follow that all gifts made and accepted outside India would qualify for exemption under s. 5 subject to fulfilment of further conditions. In case the contention of the Department was accepted it would mean that even gifts made in other parts of the world would not qualify for exemption.
Therefore, the transaction of gift effected by the assessee was within the frame-work of law and could not be termed as dishonest or dubious with a view to dupe the Revenue and, therefore, gift in question made by the assessee was exempt under s. 5(1)(ii).”
Considering in totality the facts and circumstances of the case in the light of the decision of the Tribunal cited supra we are inclined to uphold the decision of the first appellate authority in granting the exemption in a sum of Rs. 32 lakhs under s. 5(1)(ii)(a) of the GT Act.
7. In the result, the appeal filed by the Revenue is dismissed.