IN THE ITAT DELHI BENCH ‘A’

Ms. MAYAWATI

v.

Deputy Commissioner of Income-tax, Central Circle-II, New Delhi

P. N. Parashar, Judicial Member

And P. M. Jagtap, Accountant Member

IT Appeal Nos. 279 and 422 (Delhi) of 2007

[Assessment year 2003-04]

November 30, 2007

Section 68 of the Income-tax Act, 1961 read with sections 122 and 123 of the Transfer of Property Act, 1882 - Cash credits - Assessment year 2003-04 – Assessee, a public and political figure, had received five gifts, three of which were in cash by way of cheques and two were in kind by way of two immovable properties, from five different donors - Assessing Officer treated two of said cash gifts as genuine and rest three (viz. two immovable properties and one cash gift) as ingenuine - Consequently, he added amounts of said three gifts as assessee’s income under section 68 – However, in respect of said cash gift, it was found from record that same was made through account payee cheque by donor, who was assessed to tax, and gifted amount was reflected in bank account of assessee, and further donor vide his affidavit had confirmed to have made said gift out of natural love and affection – Similarly, in respect of gifts of two immovable properties, it was on record that those properties were purchased by their donors, who were assessed to tax through registered sale deeds, and same were transferred to assessee voluntarily through registered gift deeds and, moreover, wealth and net worth of donors clearly showed that they were capable of making gifts from their own sources and in addition donors had also filed evidence in terms of photographs to show their intimacy with donee - Whether in view of facts and circumstances of case and evidence on record, it could be said, that all three gifts were not only genuine as they were validly executed through registered deed as laid down in sections 122 and 123 of Transfer of Property Act, but also identity and capacity of donors to make gift stood duly and fully established – Held, yes – Whether, therefore, additions made on account of said gifts by Assessing Officer were to be deleted - Held, yes

FACTS

The assessee, a public and political figure had received five gifts of substantial amounts from five different donors, out of which, three were in cash by way of three cheques total amounting to Rs. 13 lakhs including Rs. 2 lakhs from one ‘P’ and two were in kinds by way of two immovable properties. The Assessing Officer recorded statements of those donors including said ‘P’ , whose statement was already record by the ADIT (Inv.). He also made further enquiries from the assessee regarding those gifts. However, not satisfied about the genuineness of the gifts of Rs. 2 lakhs and the two immovable properties as also about the credit worthiness of their donors, he added the amounts of those three gifts as the assessee’s income under section 68. On appeal, the Commissioner (Appeals) after obtaining a remand report from the Assessing Officer to know the networth of those three donors and after finding therefrom that the networth of each of those donors exceeded Rs. one crore, deleted the impugned additions. He also held that section 69 was not applicable because there was no proof that the assessee had made any investment in the property gifted to her.

On revenue’s appeal:

HELD

As the issue involved in the appeal related to genuineness of gift of movable and immovable properties, it would be proper to consider the requirement of law in relation to validity of such gifts. [Para 7.3]

In this regard it would be necessary to refer to Chapter VII of the Transfer of Property Act which deals with gifts of movable and immovable properties. Section 122 defines ‘gift’, as the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee and such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void. [Para 7.3.1]

Section 123 of the Transfer of Property Act deals with the procedure relating to Transfer of the property gifted. This provision says that for the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses. For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delivery and such delivery may be made in the same way as goods sold may be delivered. [Para 7.4]

In view of the above definitions, following are the essential elements of gift :

(1) Donor’s intention to make a gift;

(2) The gift should be made voluntarily and without consideration, by the donor;

(3) Delivery of actual or constructive possession;

(4) Accpetance of the gift by the donee or on his behalf. [Para 7.5]

In addition to the above, gift of immovable property has to be through a registered document, and transfer of immovable property is to be effected by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses, whereas in the case of movable property such gift should be effected either by registered instrument or by delivery. [Para 7.6]

In the case of CIT v. Smt. Shyamo Bibi AIR 1967 All. 82 , the Allahabad High Court has observed that whether the transaction is gift or not is to be examined in the light of sections 122 and 123 of the Transfer of Property Act. The Court has also observed that there is no warrant for the saying that the law contained under section 123 does not apply when an income-tax authority has to decide whether there was a gift or not. [Para 7.7]

The definition of gift is not given in the Income-tax Act. In general terms, gift consists in the relinquishment of ones own right of the property and creation of the right in another in that property. [Para 7.8]

As per the dictionary meaning gift means the transfer of any property from one person to another gratuitously while donor is alive and not in expectation of death. [Para 7.9]

In view of the various judicial pronouncement it is clear that for all intents and purposes the validity of the gift, whether of movable or immovable property, is to be examined by satisfying the conditions laid down in sections 122 and 123 of the Transfer of Property Act; from the same it follows logically that for income-tax purpose also the validity of gifts is to be examined in the light of the said provisions. [Para 7.13]

In view of the above it was to be examined as to whether these legal requirements, as laid down in section 122 and 123 were satisfied in the case of gifts made to the assessee or not. So far as the gift from ‘P’ was concerned, the transaction was carried out through account payee cheque and reflected in the bank account of the assessee. ‘P’ had confirmed to have made the gift of Rs. 2 lakhs through an affidavit. Further, ‘P’ in his statement had categorically deposed that he made the gift out of natural love and affection. [Paras 7.14 and 7.15]

In view of the said documentary and oral evidence on record, the requirement of law for establishing a validly executed gift of movable properties were fully satisfied inasmuch the donor gifted the amount voluntarily to the donee and had delivered the possession of the gifted property to the donee. [Para 7.17]

Coming to the gift of immovable properties, it was found that the gift was executed in the presence of two witnesses who had signed the deed. Photographs of donor and donee had been appended. That document was duly stamped and duly registered. The gift had been made irrevocable and absolute and once for all. The donor transferred and conveyed the free hold property with all attending rights to the donee by way of gift together with all privilege, easement and advantages appurtenant thereto. [Para 9]

Further, the donor of the said immovable property in her statement had categorically stated that she made the gift voluntarily and out of reverence and love and affection to the donee. [Para 9.1]

From the above documentary and oral evidence, it was clear that the donor made the gift of immovable property to the donee voluntarily. The gift was duly registered and, therefore, the requirement of sections 122 and 123 were fully satisfied. [Para 9.3]

Coming to the gift of another immovable property the document in respect of said gift was also duly stamped and duly registered and bore the signatures of the donor and of the assessee, the donee. The witnesses have also signed the registered deed at the time of registration. [Para 10]

Further, the donor, in his statement had categorically stated that the gift was being made by him voluntarily and out of natural love and affection. [Para 10.2]

On the basis of the said documentary and oral testimony, the requirement of law narrated as above was fully satisfied in the case of said immovable gift also. [Para 10.3]

Further, it is a settled legal position that for claiming the benefits of gifts, the assessee is required to satisfy the following conditions:

1. Identity of the donors.

2. Creditworthiness of the donors.

3. Genuineness of the transactions of the gifts. [Para 17. 2]

As regards the identity of the donors it was seen that all the three donors appeared before the Assessing Officer and their statements were recorded. Two of them appeared before the ADI (Inv). All the three were assessed to tax. Donors appeared before three different authorities which confirmed their identity. [Para 18.1]

And, therefore, the Assessing Officer had also not rightly doubted their identity The Commissioner (Appeals) had also recorded a positive finding about their identity. On examination of the relevant material there was no doubt of any type regarding the identity of the donors. As there identity was fully proved on record. [Para 18.1.1]

It was also to be noted that those donors had appeared before the Registrar for registry of the documents and two independent witnesses had also validated their identity. [Para 18.1.2]

Keeping in view the totality of facts identity of the donors stood fully proved and established. [Para 18.1.3]

With regard to the creditworthiness of the donors, it was found that all the three donors who made the gifts were men of means. They belonged to rich background and owned huge movable and immovable properties. The evidence of their earnings had been brought on record. On the direction of the Commissioner (Appeals), the Assessing Officer made enquiry about their net worth and then reported the same to the Commissioner (Appeals) The figures of net worth as made available by the Assessing Officer had not been doubted. Each of them had net worth more than a crore. The department had not brought out any adverse material against their creditworthiness. The Assessing Officer had held them to be non-creditworthiness only on the basis of surmises or guesswork, in fact, at the time of making assessment he made no enquiry about their wealth and net worth, which he subsequently made while submitting the remand report to the Commissioner (Appeals) and in which he found them to be creditworthy. Thus, in absence of any enquiry or any material about their creditworthiness, the Assessing Officer was not justified in holding that the donors creditworthiness was in doubt. [Para 18.2]

It has been held by various Courts that for rejecting the explanation of the assessee department has to be in possession of sufficient and adequate material. And that there has to be tangible material which should be brought on record. It is also trite law that the assessee can not be presumed to have knowledge of sources of the donor or from where he brought the money or the property. The Commissioner (Appeals) was correct in holding that the donors had fully creditworthiness and were capable of making the gifts from their own sources. [Para 18.2.1]

Once the identity of the donor was established and his capacity was also proved then the only question to be seen was to whether the transactions of gift was genuine or not. For examining that aspect, the conduct of parties, that was the donor and the donee, and the appreciation of attending circumstances would become necessary. The conduct could be seen from various angles. If the donee makes his or her own investments for arranging the gift or purchasing the gift or directly or indirectly manages such gifts then such conduct will definitely render the transactions as a colourable one or of dubious nature. Similarly, if the donor makes a gift in lieu of some valuable consideration or for any tangible benefit or for past or future consideration, in terms of money or monies worth, then such gift may not he treated to be genuine. Likewise, if the circumstances under which the gift is being made show that the gift was made to cover up or conceal other transactions or to convert black money into white money by taking recourse to such mode then the transaction of gift may be treated to be non-genuine. There may be several other circumstances to create suspicion to the genuineness of the gift. The financial position of donor or that of donee may also be relevant factor to judge the genuineness of the gift. However, such conduct of the donor or the donee, or such circumstances which create doubt in the genuineness of the transaction of the gift have to be brought on record. Mere guesswork will not be sufficient. Similarly the mere fact that the gift was made of huge amount or of valuable property in absence of any other material to doubt the genuineness of the gift, will not be sufficient to treat the gift as non-genuine. Lack of blood relationship or family relationship or absence of occasion for making gift are again not the only considerations for treating the gift as non-genuine. Although these may, at times, be relevant corroborative considerations to establish the non-genuineness of the transactions, but by itself none of such factors can be sufficient considerations for treating the gift as non-genuine. [Para 18.3]

In the instant case there was no evidence on record to show that the assessee had in any way at any time financially or otherwise helped the donors to gain in any manner by misusing her position as a public servant. There was no proof that the donee made any investment in the property gifted to her before the same was gifted. Both the donors borrowed funds for purchasing the property gifted to the donee. There was no evidence that the donee had made arrangement of the loan or paid any part of them or interest thereon either prior to the purchase of the property or subsequently. In all the three gifts in question the entire investment made was from the source of donors and not from the donee. [Para 18.3.1]

The Assessing Officer had not collected any evidence to disprove the genuineness of the gift by bringing material on record to show that the gifts were arranged by the assessee from her resources or that donors made gift in lieu of some tangible benefit derived by them from the assessee by misusing her office of public servant. On the contrary the assessee adduced sufficient evidence to show that the gifts were made voluntarily by the donors without any consideration and out of natural love and affection. All the three donors had repeatedly confirmed the fact that the properties were gifted by them to the donee out of natural love and affection. The aspect of voluntarily giving of gifts had been fully proved in all the three cases. The delivery of possession was given at the time of making gift. The gifts of immovable property in the instant case proved the genuineness of the transactions beyond any shadow of doubt because of the procedure adopted for transferring such properties by way of gift through registered deeds. [Para 18.3.2]

It is not uncommon that people give donations and charities to persons in whom they place faith or for whom they have limitless regards. Similarly gifts are also made of invaluable properties for furtherance of noble objects executed by personages of high eminence. As stated by the donors in their statements recorded by the Assessing Officer, the donee was a public and political figure who was working for the welfare of the downtrodden in a missionary manner and on account of the social work, the donors decided to part away with their properties by giving the same as gift to her. The element of reverence, veneration or personal esteem and faith all depend upon personal feelings and desire. No probe can easily be made into such aspects of human psychology and the best persons to explain such feelings and desires are those who advance and execute the same. [Para 18.3.3]

In the instant case the department had not brought any material to question such feelings and desires of the donees and, therefore, the Assessing Officer was not justified in holding that the gifts were not genuine. [Para 18.3.5]

Keeping in view of the totality of the facts and circumstances of the case and after considering the entire material available on record all the three gifts were not only genuine but also the identity and capacity of the donor to make the gift stood duly and fully established. Accordingly the findings of the Commissioner (Appeals) deleting the additions made on account of the said gifts by the Assessing Officer was to be upheld. [Para 19]