Provisions of s. 56(2)(v) applied only to gift n or after 1st Sept, 2004

IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH ‘A’ BENCH

BEFORE SHRI B. R. MITTAL(JUDICIAL MEMBER) AND

SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER)

ITA No.6399/Mum/2010

Assessment Year: 2006-07

ACIT, Cent. Circle-44,

Aayakar Bhavan, M.K. Road,

Mumbai.

(Appellant)

Vs.

Anuj Jitendra Mehta,

2601, Shiv Tapi, 26th floor,

Harishchandra Goregaokar Marg,Gamdevi,

Mumbai-007

PAN No.AJUPM 8680

(Respondent)

Appellant by: Ms Usha S Nair

Respondent by: Shri Vijay Mehta

Date of hearing: 23.8.2012

Date of pronouncement: 5. 9.2012

ORDER

Per B.R.Mittal, JM:

The department has filed this appeal for assessment year 2006-07 against order dated 17.6.2010 of ld CIT(A) -38, Mumbai disputing the order of ld CIT(A) in deleting addition of Rs.98,56,827 made by the AO on account of gift of IMDs under section 56(2)v) of the Act.

2. The relevant facts giving rise to this appeal are that assessee received gift in the form of IMD of face value of US$ 1,50,000 from Mrs Hansa Agarwal, NRI, residing at Sharjah on 25.9.2005. Thereafter, the assessee prematurely encashed the said IMD on 5th October, 2005 and received maturity amount of US$ 2,22,452 equivalent to INR 98,56,827. The AO stated that the assessee utilized the unaccounted income of Group Company to obtain a non-genuine gift. The AO also contended that gift of IMDs is equivalent to gift of money and thus invoked the provisions of s. 56(2)(v) of the Act and made an addition to the total income of the assessee. The AO made the additions on the ground that the status of IMDs with the facility of premature encashment available was on par with the legal status of a bank fixed deposit and held that treating the bank fixed deposits as not money would be an absurd interpretation and would defeat the very purpose of the enactment. In respect of the interest on the IMDs, the AO held that, that when a-gift is brought to tax under section 56(2)(v) of the Act, taxing the principal amount and exempting interest would be a travesty of law. He also made observations that the Donor and her family members had never in the past given any gift to any of the family members of the assessee and that giving of the gift at a time when the family of the assessee had earned huge unaccounted money from construction business cannot be purely co-incidental. The above facts have been summarized by ld CIT(A) at page 3 of the impugned order.

3. Ld CIT (A) has stated that assessee submitted before him that he furnished various documentary evidences to establish the genuineness of the aforesaid gift during the course of assessment proceedings. That the assessee furnished various evidences during the course of assessment proceedings to establish the genuineness of the aforesaid gifts such as;

(a) Details of gift giving name and address of Donor, etc.

(b) Copy of Affidavit of the Donor, Mrs. Hansa Agarwal sworn at the Consulate General of India, Dubai confirming the fact of gift.

(c) Letter issued by State Bank of India relating to Investments of the Donor.

It was further contended before ld CIT(A) that assessee had received gift of IMDs and that the provisions of s. 56(2)(v) of the Act were not applicable to gift received in kind. Assessee contended that complete details of the gifts were furnished before the AO to establish the genuineness of gift and creditworthiness of the donor. That assessee furnished confirmation of gift from the Donor mentioning the details of the longstanding family relations, which establish the genuineness and the reason for the gift. Ld CIT(A) has stated that it was submitted before him that section 56(2)(v) applies only in a case where any money is given without consideration. That IMDs due to its nature and the terms and conditions attached to , IMDs, though convertible into money, is not money. That IMDs are Promissory Notes issued by State Bank of India under a scheme approved by the Government of India and that IMDs cannot be equivalent to money because IMD certificate is required to be presented together with the prescribed repayment application Form at least 60 days prior to the due date of maturity for receiving money against the certificate. The encashment is not permissible before the expiry of 60 days from the effective date of deposit and that Resident donees of the IMD certificates cannot further transfer IMD certificates. Ld CIT(A) stated that the other restrictions in respect of IMD certificates were also brought to his notice. Thus, it was submitted that IMDs are not money as the same cannot be currently accepted as a medium of exchange and that there are numerous restrictions on the transfer / gift of IMDs unlike in the case of “money” which is freely transferable. That IMDs at best can be treated at par with any other property which can be converted into money but by itself they cannot be treated as money and that they are not freely exchangeable as money and lack all the characteristics of money in terms of free transferability and acceptability. The assessee also relied upon the decision of Hon’ble Supreme Court in the case of H.H. Sri Rama Verma v. CIT (187 ITR 308) (SC), wherein the meaning of the expression “any sum paid” in the context of deduction u/s. 80G of the Act came up for consideration. The Hon’ble Apex Court observed that Donations may be made by supplying goods of various kinds including building, vehicle or any other tangible property but such donations, though convertible in terms of money, do not fall within the scope of section 80G(2)(a) entitling an ássessee to deduction. Relying upon the ratio laid by Hon’ble Supreme Court, ld CIT(A) has stated that it was submitted before him that what has been gifted is IMD which is merely convertible into money and is not money by itself. Ld CIT(A) has further stated that assessee also referred the recent mendment made by Finance Act, 2009 by way of introduction of clause (vii) in subsection (2) of section 56 whereby gifts in kind have also been brought within the  purview of section 56(2) of the Act. The said amendment has been introduced prospectively w. e. f. 01.10.2009 and therefore the same cannot be applied to the assessee. The assessee also placed reliance on decision of ITAT Mumbai Bench in the case of ACIT Central Circle 34 V. Shri Anuj Agarwal bearing ITA No. 4945/Mum/08 and submitted that the facts of the said case are exactly similar to the assessee’s case. In the said case, the Assessing Officer had made an addition u/s. 56(2)(v) in respect of gift of India Millenium Deposit certificate (IMD) received by the assessee from unrelated person and the Tribunal in the said case observed and held as under:

“We also find force in the submissions of learned counsel for the assessee that prior to introduction of section 56(2)(vii) by the Finance Act, 2009 w. e. f. 1 -10- 2009, gifts in kind were outside the purview of section 56(2)(v) or (vi) of the act. The expression used in section 56(2)(v) and (vi) is “where any sum of money” exceeding Rs.25,000 is received by an individual from any person in the light of the decision of Hon’ble Supreme Court and considering the fact that in the present case, what was given without consideration was only IMD certificates, provisions of section 56(2)(v) or (vi) could not have been invoked by the Assessing Officer “………

(emphasis supplied)

4. On behalf of assessee, it was contended that AO has not made the impugned addition u/s.68 of the Act but invoked the provisions of section 56(2)(v) of the Act. By doing so, it is implied that the aforesaid transaction relates to gift only and that the erquisites u/s. 68 have been complied with by the assessee. Therefore, the only dispute raised by the AO by invoking S. 56(2)(v) is whether the gift in question is “gift of money” or “gift in kind”. Ld CIT(A) after considering the submissions of the assessee has deleted the said addition on account of gift of IMD made by the AO u/s.56(2)(v) of the Act and relevant part of the order of ld CIT(A) reads as under:

“I have also gone through the evidences submitted in the course of assessment proceedings and the statement of Donor’s husband recorded by the AO in the course of assessment proceedings. The appellant has furnished documentary evidences to establish the genuineness of the gift. These evidences are not disputed by the AO and no reasons have been given for disbelieving the same. In fact, the Donor’s husband has deposed before the AO and the facts stated in the evidences submitted by the appellant have been corroborated in the statement recorded by the AO. It is precisely for this reason that the AO has not invoked the provisions of section 68 of the Act. It is true that in the course of search proceedings as well, no evidence or material has been found to establish that the aforesaid gifts were not genuine.

In this regard, it would be worthwhile to consider the provisions of s. 56(2)(v) of the Act which are reproduced hereunder:

“56(2)(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1 day of September, 2004 but before the l day of April, 2006, the whole of such sum :

Provided that this clause shall not apply to any sum of money received - ………….

“(emphasis supplied)

The above section deals with only any ‘sum of money’. The only issue in the present appeal is whether gift of IMDs can be equated with gift of money and thus brought within the purview of s. 56(2)(v) of the Act. The AO has equated the IMDs with bank fixed deposits and concluded that the same is money. I have perused the terms and conditions of the IMDs and the various restrictions placed upon the free transferability of the IMDs. It is true that no restrictions apply to the transferability of money, which is currently accepted as a medium of exchange. Thus, IMDs, which have these restrictions, cannot be treated as money. At the best they can be treated as anything convertible into money. For that matter, any property whether movable or immovable can be converted into money but the same is not treated or akin to money. This is precisely the reason that an amendment has been brought by the Finance Act 2009 for bringing within the purview of tax, the gifts in kind. However, the amendment is prospective in nature and applies to transactions on or after 1.10.2009. I am in complete agreement with the decision of Hon’ble Tribunal in the case of Shri Anuj Agarwal (ITA no. 4945/Mum/08) wherein gift of IMDs is held as gift in kind and outside the purview of s. 56(2)(v) of the Act. I therefore, direct the AC to delete the addition of Rs. 98,56,827/- on account of gift of IMDs made u/s. 56(2)(v) of the Act. This ground of appeal is accordingly allowed.”

Hence, this appeal by the department.

5. During the course of hearing, ld D.R. relied on the order of AO and whereas ld A.R. supported the order of ld CIT(A). He further submitted that similar issue on identical facts have been considered by the Tribunal in the case of ACIT vs. Haresh N Mehta in I.T.A. No.6804/M/2010 for the assessment year 2006-07 and vide order dated 31.1.2012 the Tribunal dismissed the appeal of the department by confirming the order of ld CIT(A). Ld A.R. submitted that in the said case also, grounds of appeal were similar as in the case of the assessee and referred page 22 of PB. He submitted that order of ld CIT(A) be confirmed by dismissing the appeal of department.

6. We have considered submissions of ld representatives of parties and orders of authorities below. We have also considered page 22 of PB, which contains grounds of appeal in I.T.A. No.6804/M/2010(supra) and find substance in the submission of ld A.R. that grounds of appeal of the assessee herein are identical save and except the amount. We observe that the Tribunal by its order dated 31.1.2012 after considering the orders of authorities below and relying on the decision of co-ordinate Bench in the case of ACIT vs. Anuj Agarwal, 130 TTJ 49(Mum) and also the decision of ITAT Vizag Bench in Sri Sarad Kumar Babulal Jain vs ITO (I.T.A. No.29/Viz/2011) order dated 11.8.2011 dismissed the appeal of department by confirming the order of ld CIT(A). We consider it prudent to state paras 15 to 17 of the said order which read as under:

“15. The co-ordinate bench of the Tribunal in ACIT v/s Anuj Agarwal (supra), held as follows:-

“Held: The gift in question was complete prior to 19th July, 2002. The gift deed dt. 19th July, 2002 records the fact that the gift was already completed prior to that date by delivery of IMD bonds y the donor to the donee. As rightly held by the CIT(A), gift would be complete in the financial year 2002-03 within the meaning of ss. 122 and 123 of the Transfer of Property Act, 1882, Provisions of s. 56(2)(v) applied only to gift n or after 1st Sept, 2004. The fact that maturity proceeds were received by the assessee during the previous year relevant to asst. yr. 2006- 07 cannot be the basis to apply provisions of s. 562,)(v). There is also force in the submissions of the counsel for the assessee that prior to introduction of S. 56(2)(vii) by the Finance Act, 2009, w.e.f. 1st Oct., 2009, gifts in kind were outside the purview of s. 56(2)(v) or (vi). The expression used in s. 56(2)(v) and (vi) is “where any sum of money” exceeding Rs. 25,000 is received by an individual from any person. Considering the fact that in the present case, what was given without consideration was only IMD certificates, provisions of s. 56(2)(v) or (vi) could not have been nvoked by the AO. Even on this ground, order of the C1T(A) deserves to be sustained—H.H. Sri Rama. Verma vs. CIT (1991) 95 CTR (SC) 26: (1991) 187 ITR 308 (SC) applied.”

16. Similar view was taken by Vizag Bench of the Tribunal in Sri Sarad Kumar Babulal Jain v/s ITO, ITA no.29/Vizag/2011, order dated 11th August 2011. Respectfully following these decisions, we uphold the findings of the Commissioner (Appeals) on this issue.

17. Coming to the issue of addition under section 68 of the Act, we find that the assessee has furnished various evidences to establish the genuineness of the gift during the course of assessment proceedings. Affidavits were filed from the donors. The Assessing Officer has not disputed any of these documents and in fact he has not made addition under section 68. On the contrary, the Assessing Officer has recorded at Page-4 of his order that the assessee has produced documentary evidence to confirm the very high network status of the donor. When it is not the case of the Assessing Officer that an addition could be made under section 68, the submissions of the learned Counsel on this issue are uncalled for. Thus, grounds no.2 and 3 of the Revenue are dismissed.”

7. Since the facts issue of the case before us are identical to Haresh N Mehta(supra) and respectfully following the decision of co-ordinate bench in the case of Haresh N Mehta (supra), we uphold the order of ld CIT(A) and reject the grounds of appeal taken by department.

8. In the result, appeal filed by department is dismissed.

Pronounced in the open court on 5th September, 2012

                                                  Sd/-                                  Sd/-

                                   (B.RAMAKOTAIAH)        (B.R. MITTAL)

                                     Accountant Member          Judicial Member

Mumbai, Dated 5th September, 2012

Parida

Copy to:

1. The appellant

2. The respondent

3. Commissioner of Income Tax (Appeals),38, Mumbai

4. Commissioner of Income Tax, C-IV , Mumbai

5. Departmental Representative, Bench ‘A’ Mumbai

//TRUE COPY//

BY ORDER

ASSTT. REGISTRAR, ITAT, MUMBAI