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Shri Hanuman Dass v. The Commissioner Of Income Tax, Jalandhar And Another S
Factual and Procedural Background
This appeal under Section 260-A of the Income Tax Act, 1961 challenges the order dated 18.12.1998 of the Income Tax Appellate Tribunal, Amritsar in ITA No. 526 (ASR)/1992. The substantial question of law admitted for hearing was stated as:
For the assessment year 1990-91 the assessee claimed receipt of three foreign gifts from donors in the United Kingdom: Rs. 50,000 each from (i) Shri Puran Chand Sharma, (ii) Shri Vijay Kumar, and (iii) Shri Kiran Kumar (son of Shri Vijay Kumar). The Assessing Officer (AO) rejected the assessee's claim that the donors were family friends (though not relatives) and had capacity to pay, because no specific occasion for the gifts had been disclosed.
Family members of the assessee (brother Raj Kumar, sister-in-law Smt. Tara Devi, mother Smt. Shanti Devi, and the father of the assessee) also received foreign gifts from two of the three donors. On the AO finding the gifts non-genuine, an addition of Rs. 1,50,000 (aggregate of the three Rs. 50,000 gifts) was made to the assessee's income as concealment/furnishing inaccurate particulars. The Commissioner of Income Tax (Appeals) deleted that addition. The Tribunal, on revenue appeal, reversed the CIT(A) and restored the AO's addition. The assessee brought the present appeal challenging the Tribunal's order.
Legal Issues Presented
- Whether a gift made by a stranger is valid in law when the capacity of the donor to make the gift is not disputed, and if the gift is treated as invalid, whether the amount can be treated as income in the hands of the assessee?
Arguments of the Parties
Appellant-Assessee's Arguments
- The donors' capacity to make the payments was not disputed and the assessee confirmed acceptance of the gifts.
- Given (i) acceptance and (ii) absence of dispute about donor capacity, the addition of Rs. 1,50,000 to the assessee's income (restoring the AO's order) was neither justified nor legal.
Revenue's Arguments
- There was no occasion for such gifts and no relationship of blood or otherwise that would justify the donors making large gifts to the assessee.
- Donor capacity to pay is irrelevant in the circumstances of this case; the gifts were not genuine and could be treated as income of the assessee from undisclosed sources.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Lall Chand Kalra v. CIT ((1987) 22 CTR 135) (P&H) [also cited as "Lal Chand Kalra"] | The opinion records this authority as supporting the proposition that, in cases where genuineness of gift is doubtful, such credits may be treated as not genuine. | The AO relied on this authority to conclude the gifts were not genuine; the AO's order explicitly referenced this case in making the addition of Rs. 1,50,000. |
| Commissioner of Income Tax, Karnal v. Puneet Singh (ITA No. 498 of 2005, decided 7.2.2011) | Described as considering the issue at length and treating the issue (genuineness of stranger's NRI gifts) as no longer res integra; it reproduces and relies on prior parameters for assessing genuineness. | The Court referred to this decision and its exposition of principles (via quotation) to show established parameters requiring proof of relationship/occasion and donor's means; applied those parameters to the present facts and found against the assessee. |
| The Commissioner of Income Tax, Faridabad v. Sh. Kamal Gupta (ITA No. 392 of 2005, decided 20.1.2011) | Stated rule: where donor not produced, bank statement not produced and financial capacity not established, the assessee fails to discharge the onus of proving genuineness of a gift. | The Court quoted this authority (through Karnal v. Puneet Singh) as laying down the parameters that gifts from strangers cannot be accepted as genuine absent proof of donor's means and natural love and affection; these parameters were applied to reject the assessee's claim. |
| Shri Jaspal Singh v. CIT (ITA No. 256 of 2006, dated 15.9.2006) | Held in similar circumstances that an NRI gift from a stranger was to be treated as bogus unless the assessee proved natural love and affection and financial capacity of the donor; relied upon Lal/Lall Chand Kalra and other authorities. | Cited by the Court as a precedent supporting the proposition that mere identification and banking movement is insufficient; applied as part of the line of authorities against the assessee. |
| Sajan Dass and Sons v. CIT ((2003) 264 ITR 435) (Delhi High Court) | Included in the list of authorities the Court cited as relevant to the principle that gifts from strangers require proper proof of genuineness. | Referenced as one of the supporting authorities relied upon in the quoted jurisprudence (in the sequence of cases leading to the parameters applied here). |
| Commissioner Of Income Tax, West Bengal II v. Durga Prasad More ((1971) 82 ITR 540) | Listed among earlier authorities relevant to the jurisprudence on proving genuineness of credits/gifts. | Included in the Court's recital of authorities relied upon in earlier decisions addressing similar factual issues. |
| Sumanti Dayal v. CIT ((1995) 214 ITR 801) | Listed among authorities cited for principles relating to genuineness of alleged gifts/credits. | Part of the group of authorities referenced in the quoted passages that establish the parameters for acceptance of gifts. |
| Commissioner Of Income Tax, Delhi… Petitioner v. R.S. Sibal… (2004) 269 ITR 429 | The assessee relied on this authority; the opinion notes it was cited by the appellant. | The Court explicitly observed that this authority, as cited by the assessee, did not support the appellant's case in the present facts. |
Court's Reasoning and Analysis
The Court evaluated the rival contentions by examining (i) the identity and relationship (or lack thereof) between donors and donees, (ii) whether any specific occasion existed for making such gifts, (iii) the relative size of the gifts in the contemporaneous period (1989), and (iv) surrounding factual circumstances including gifts to multiple members of the same family.
Key factual observations relied on in the analysis included:
- The donors were not related by blood to the assessee and no specific occasion was shown that would reasonably justify such large gifts.
- Large sums were gifted not only to the assessee but also to his brother, mother and sister-in-law by the same donors; the father of the assessee had also received similar gifts.
- The AO's view (quoted in the opinion) was that donors with surplus funds would more plausibly have donated to charitable causes or advanced loans, and that circumstantial evidence suggested the assessee arranged the transactions and made compensatory payments outside the books, indicating undisclosed income.
The Court reviewed the divergent findings: the AO made the addition treating the gifts as non-genuine and coming from undisclosed sources (relying inter alia on Lall/Lal Chand Kalra), the CIT(A) deleted the addition (focusing on identity and capacity of donors), and the Tribunal reversed the CIT(A), upholding the AO's factual conclusions.
The Court then considered binding and persuasive authority: it reproduced and relied on the reasoning in a coordinate-bench decision (Commissioner of Income Tax, Karnal v. Puneet Singh) which, by reference to Faridabad v. Kamal Gupta and Jaspal Singh, summarized settled parameters — namely, that mere identification of donor and showing movement of funds through banking channels is insufficient; the assessee must establish natural love and affection between donor and donee and the donor's means (financial capacity) such that the gift is believable as genuine.
Applying those parameters to the facts of the present case, the Court found: even if the donor had the means, there was no relationship, no occasion, no evidence of natural love and affection, and no proof of genuineness. The authority cited by the appellant (R.S. Sibal) did not support the appellant's position on these facts. Accordingly, the Court found no perversity or impropriety in the Tribunal's order restoring the AO's addition.
Holding and Implications
Core Ruling: The appeal is dismissed and the impugned order of the Income Tax Appellate Tribunal restoring the addition of Rs. 1,50,000 is upheld.
Direct consequences for the parties:
- The addition of Rs. 1,50,000 (aggregate of the three Rs. 50,000 foreign gifts) to the assessee's total income, treated as income from undisclosed sources, stands restored.
- The assessee's appeal against the Tribunal's order is without merit and dismissed.
Broader implications as reflected in the opinion:
- The Court applied existing precedents and accepted the established parameters that, where gifts are from strangers (or non-relatives) and no occasion/relationship exists, the assessee must produce convincing evidence (including proof of donor's means, natural love and affection or production of the donor) to establish genuineness.
- The opinion does not state that it is creating a new legal principle; it applies and reaffirms extant authorities and jurisprudential parameters in similar cases.
Dr. Bharat Bhushan Parsoon, J.
This income tax appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter mentioned as, the Act), against order dated 18.12.1998 (Annexure P-3) passed by Income Tax Appellate Tribunal, Amritsar in ITA No. 526 (ASR)/1992, was admitted for hearing on the following substantial question of law:-
“Whether a gift made by a stranger is valid in law when the capacity to give the gift is not disputed and even if the gift is treated as invalid could the amount be taken as income in the hands of the assessee?”
For the assessment year 1990-91, foreign gifts had been received by the assessee from the donors (mentioned against each) from United Kingdom. The details are as under:-
(i) Shri Puran Chand Sharma Rs. 50,000/-
(ii) Shri Vijay Kumar Rs. 50,000/-
(iii) Shri Kiran Kumar s/o Shri Vijay Kumar Rs. 50,000/-
Claim of the assessee that even though the donors were not related to the assessee by blood yet they were family friends and had capacity to pay, was not accepted by the Assessing Officer on the ground that there was no specific occasion disclosed by the assessee on which the alleged gifts were received by him.
In addition to the assessee, even his brother, brother's wife and the mother had also received gifts from two out of three foreign donors, details whereof, are as under:-
Name of family members receiving such gifts Relation with the assessee Amount received (Rs.) Donor's name
Shri Raj Kumar brother 50,000/- Shri Viujay Kumar
Shri Raj Kumar brother 50,000/- Shri Vijay Kumar
Smt. Tara Devi (wife of assessee's brother) sister-in-law 50,000/- Shri Kiran Kumar s/o Shri Vijay Kumar
Smt. Shanti Devi mother 50,000/- Shri Vijay Kumar
It may also be noteworthy that even father of the assessee had received similar gifts.
Finding the claim of the assessee to be not genuine by the Assessing Officer, an addition of Rs. 1,50,000/- which represented amount of gifts, was made to his total income, taking it to be a case of concealment of income and of furnishing of inaccurate particulars. Commissioner of Income Tax (Appeals), Jalandhar disagreeing with the Assessing Officer deleted the addition of Rs. 1,50,000/- made by the Assessing Officer. When the matter came up in appeal by the revenue before the Income Tax Appellate Tribunal, reversing the order of Commissioner of Income Tax (Appeals), the order of Assessing Officer regarding addition of Rs. 1,50,000/- made to the total income of the assessee which the assessee claimed on account of foreign gifts from donors of United Kingdom, was restored. It is in these circumstances that the present appeal has been filed by the assessee.
Stand of the appellant-assessee is that when there is no dispute regarding capacity of the donors qua payment made by way of gifts to the assessee and the assessee has also confirmed acceptance of such gifts, addition of such amount of gifts to income of the assessee, reversing order of Commissioner of Income Tax (Appeals) while upholding order of Assessing Officer by the Income Tax Appellate Tribunal is neither justified nor legal.
Per contra, claim of the revenue is that there was neither any occasion nor there was any relationship of blood or otherwise justifying such gifts by donors to the assessee. It is vehemently claimed that capacity of donors to pay is irrelevant in the facts and circumstances of this case.
When rival contentions raised by the parties are evaluated, it becomes evident that the questioned foreign gifts had been made by the donors who were neither related to the assessee nor there was any specific occasion qua the donees on which occasion the alleged gifts could have been given and were to be received by them. These are not small gifts, particularly keeping in view the contemporaneous times when these were given in the year 1989.
No one would part with such big amounts as gifts even if donors are having capacity to pay. Neither donors nor donees have shown that such gifts of huge amounts had ever been given by the donors to any of their relatives or had been received by the donees from their relatives or from such donors. Relevant extract from the order of Assessing Officer, Annexure A-1, is reproduced as below:-
“4. … Had the alleged donors such surplus funds available with them and been kind to humanity, they would have made such huge gifts in the shape of donations to some charitable organization/institute including of National importance for a charitable and noble cause where the very purpose for the uplitftment of the suffering/humanity/mankind is served. Even had the alleged donors advanced the said amounts as loans, may be interest free, then the position would have been different, and there could besaid to be a fraction of element of truth in such a situation. In these circumstances, the assssee's contention that he received the above amounts as foreign gifts and that too from the distant family friends is absolutely not found to be reliable as true and correct.
…. To me, it appears that the assessee has arranged the said transactions from the above alleged donors in the garb of gifts by suitably making to them the payments against the said foreign remittances, outside his books of account and as such, it appears to be a case of compensatory payments made for acquiring the alleged foreign remittances by way of gifts, by the assessee out of his income earned from undisclosed sources, for which circumstantial evidence exists. The assessee's case is also hit by the case of Lall Chand Kalra v. CIT reported as (1987) 22 CTR 135 (P&H). Therefore, to my mind, the assessee has also failed to prove the genuineness of the credits appearing his bank account as also capital account to the above extent. Under these circumstances, an addition of Rs. 1,50,000/- is hereby made to his total income for which he is also treated to have concealed as also furnished inaccurate particulars.”
Vide order dated 17.2.1992 (Annexure A-2), Commissioner of Income Tax (Appeals) had considered only identity and capacity of the donors as also the effect of acceptance of such gifts while coming to the following conclusion:-
“4. … In the circumstances I hold that the A.O's conclusions are contradictory and addition made treating it as a case of compensatory payments without bringing any material on record and also on the basis of not proving the genuineness of the credit was not warranted. The addition of Rs. 1,50,000/-, thus made is hereby deleted.”
When we go through the order of Income Tax Appellate Tribunal, not only the facts but even law on the point has been discussed threadbare. Relevant findings, after such discussion, returned by the Income Tax Appellate Tribunal with approval are as below:-
“7. ….We are of the considered opinion that CIT (A) was not justified in holding the gifts to be genuine merely because the A.O, has held in his order that the creditworthiness/paying capacity of the alleged foreign donors does not appeal to be doubtful. She has failed to appreciate the observations of the A.O, wherein he stated that these foreign gifts by the donors does not appear to be genuine because the donors were neither related to the assessee nor there was any specific occasion for the donors for making such huge amount of gifts to the assessee. In our opinion, in the present circumstances, when the foreign donors, are not closely related to the assessee there was no specific occasion with the donors for making gifts to the assessee and his family members and so we do not find any justifiable reasons with the donor for making such huge amount of gifts of Rs. 1,50,000/- to the assessee and more so when in addition to these very donor, have made foreign gifts of Rs. 2,50,000/- to the brother, mother and sister-in-law of the assessee. We are further of the opinion that the A.O was justified in rejecting the amount of gifts as non-genuine and accordingly he was also justified in adding this amount as an income of the assessee earned from his undisclosed sources and consequently the order of the CIT(A) deleting the addition of Rs. 1,50,000/- made on account of foreign gifts of Rs. 50,000/-, each by S/Shri Puran Chand Sharma, Vijay Kumar and Kiran Kumar in the income of the assessee as his income earned from undisclosed sources is set aside and the order of the A.O making the addition of the same is hereby sustained.”
This aspect has been considered at length by a Bench of coordinate jurisdiction of this Court in ITA No. 498 of 2005, decided on 7.2.2011 (Commissioner of Income Tax, Karnal v. Puneet Singh). In the interface of facts of the said case, relevant observations and findings thereof in the said authority, are as under:-
“The aforesaid issue is no longer res integra. This Court in a recent judgment passed in ITA No. 392 of 2005 (The Commissioner of Income Tax, Faridabad v. Sh. Kamal Gupta) decided on 20.1.2011, had laid down as under:-
“The assessee failed to produce the donor as also his bank statement to prove that gift was actually given by the assessee. Financial capacity of the donor was also not established. The assessee, thus, failed to discharge onus which was on him. Reliance has been placed on judgment of this Court dated 15.9.2006 in ITA No. 256 of 2006 Shri Jaspal Singh v. CIT, wherein in similar circumstances, NRI gift from a stranger was held to be bogus relying upon earlier judgment of this Court in Lal Chand Kalra v. CIT (22 CTR 135) and judgment of Delhi High Court in Sajan Dass and Sons v. CIT (2003) 264 ITR 435.
We are of the view that the Assessing Officer and the CIT (A) were justified in holding that the gift in question was bogus and the Tribunal committed patent error in accepting the gift as genuine. Admittedly, the donor had no relationship with the assessee. He had no occasion to give the gift. He was not produced. His financial capacity was not established. His bank statement was not produced. The Tribunal failed to appreciate these facts. It, thus, committed patent error of law in holding that the assessee discharged onus on him to prove the genuineness of the gift. Its order is, thus, perverse. In identical situation, this Court held that NRI gift could not be accepted as genuine unless the assessee was able to prove natural love and affection and financial capacity of the donor. Observations of this Court in Jaspal Singh are:-
“It is well settled that mere identification of donor and showing the movement of gift amount through banking channel is not enough to prove genuineness of the gift. The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection. Reference in this regard may be made to the judgment of this Court in Lal Chand Kalra v. CIT, 22 CTR 135, judgment of Delhi High Court in Sajan Dass and Sons v. CIT, (2003) 264 ITR 435, CIT, Commissioner Of Income Tax,West Bengal Ii v. Durga Prasad More, (1971) 82 ITR 540 and Sumanti Dayal v. CIT, (1995) 214 ITR 801.”
6. Applying the aforesaid parameters to this case, learned counsel for the assessee was unable to show that there was either any occasion or any relationship or there existed any natural love and affection with the donor to have gifted the amount as claimed by the assessee. Further, the assessee was also required to substantiate that the donor had the means and the gift was genuine which he had failed to establish.”
Taking up the case in hand, even when the donor had the means to make the gifts, there being neither any relationship nor there being any circumstance to show natural love and affection of the donor for the donee nor there being any occasion to make such gifts to the assessee and the authority of jurisdictional High Court being against the assessee, the authority cited by the assessee as Commissioner Of Income Tax, Delhi…Petitioner v. R.S Sibal…, (2004) 269 ITR 429 does not support the case of the appellant. Thus, there is no perversity or impropriety in the impugned order and sequelly the same is upheld.
Consequently, there being no merit in the appeal, the same is dismissed.
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