After Split verdicts in Division Bench of Punjab & Haryana HC, Third Judge finally holds Gift from abroad is not deemed income [Read Judgment]

The Punjab and Haryana High Court has ruled that the gifts received by the Managing Director of Ludhiana-based Oswal Woollen Mills Limited, Jawahar Lal Oswal, for and on behalf of his daughters in England were valid.

A two-decade old controversy relating to the genuineness of two monetary gifts of $4 lakh received by the assessee for and on behalf of his daughters has culminated in an order against the income tax authorities.

Justice Rajive Bhalla of the High Court held that the Tribunal has rightly opined that the gift could not be treated as a deemed income of the assessee.

The revenue filed four appeals, one in the case of Jawahar Lal Oswal, two each in the case of his daughters and the fourth pertaining to gift Tax. The appeals came up for consideration before a Division Bench. After considering the questions framed, the Hon'ble Judges comprising the Division Bench differed in their opinion, with one opinion, allowing the appeals and the other dismissing the appeals. The appeals were, therefore, placed before a third Hon'ble Judge

Two gifts of $2 lakh each by two donors, not related to the assessee, were made in favour of his two daughters through two banks drafts bearing consecutive numbers in March 1994.

British citizen OS Gill made a gift of $2 lakh to Ruchika Oswal. Similarly, another UK resident BP Bhardwaj allegedly made a gift of $2 lakh in favour of Monica Oswal.

The assessee received the two drafts on behalf of his daughters in England. The income tax authorities alleged that the gifts were bogus and the amount of gifts represented concealed income of the assessee.

Their Revenue Counsel argued onus to prove that the gifts were genuine and not a mere devise to evade tax lay upon the assessee. But he failed to discharge this onus by producing tangible evidence that would even remotely prove the genuineness of the gifts.

Counsel for the assessees submitted that the Commissioner of Income Tax (Appeals) has rightly accepted the genuineness of the gift made by Dr.O.S.Gill.

Counsel for the Oswals, Sanjay Bansal argued that the assessing officer based his opinion primarily on the quantum and drew an inference without referring to concrete facts.

Justice Bhalla asserted, “An arrangement between a donor and another is an arrangement between the donor and his source of money. The onus to probe and prove this aspect lies upon the revenue and not upon the assessee, particularly where the income is being dealt with under a deeming provision. A person, who receives a gift, is not required to prove the source of the money of his donor.”

The order further states, “It would be appropriate to record that suspicion and doubt may be the starting point of an investigation but cannot, at the final stage of assessment, take the place of relevant facts, particularly where a deeming provision is sought to be invoked. The principle that governs a deeming provision is that the initial onus lies upon the revenue to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the assessee to prove that the gift is genuine and if the assessee is unable to proffer a credible explanation, the Assessing Officer may legitimately raise an inference against the assessee. If, however, the assessee furnishes all relevant facts within his knowledge and offers a credible explanation, the onus reverts to the revenue to prove that these facts are not correct. The revenue cannot draw an inference based upon suspicion or doubt or perceptions of culpability or on the quantum of the amount, involved. Any ambiguity or any ifs and buts in the material collected by the Assessing Officer must necessarily be read in favour of the assessee, particularly when the question is one of taxation, under a deeming provision. Thus, neither suspicion/doubt, nor the quantum shall determine the exercise of jurisdiction by the Assessing Officer.”

Read the Judgment here.