Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ‘gifts’ arose at the time when the assessee spent the amounts for the benefit of his son, and not at the time when he had actually written off the entire debit balance standing in the account of his son and, consequently, the gifts should have to be severally assessed in the relevant years in which the amounts were spent by the assessee on his son?

Counsel Appeared

C.V. Rajan, for the Revenue : K. Sengottian, for the Assessee

RATNAM, J.:

Under s. 26(3) of the GT Act, 1958 (hereinafter referred to as “the Act”), at the instance of the Revenue, the following question of law has been referred for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ‘gifts’ arose at the time when the assessee spent the amounts for the benefit of his son, and not at the time when he had actually written off the entire debit balance standing in the account of his son and, consequently, the gifts should have to be severally assessed in the relevant years in which the amounts were spent by the assessee on his son?”

The assessee, an individual, was originally assessed to gift- tax on 30th Nov., 1972, in respect of certain lands settled on his grandson by means of a settlement deed. While examining the accounts for the asst. yr. 1972-73, the GTO noticed that a sum of Rs. 55,633.10 was forgone by the assessee in favour of his son and in the view that that amounted to a gift which had escaped assessment in the original assessment made earlier, action under s. 16(1) of the Act was initiated. The assessee raised the objections that there was no abandonment of any debt due to the assessee and that there was no gift either. However, the GTO found that advances had been made by the assessee to his son as loans and debited to the folio of his son and calculating interest also on the loans so advanced, the advances made as well as the interest were both brought to tax under the Act. On appeal to the AAC, she took the view that a sum of Rs. 6,000 could be said to represent the obligatory expenses on the part of the assessee towards maintenance and education of his son and that the further expenditure incurred by the assessee for preparing his son to occupy the position he did, could be deemed gifts as and from the dates when the expenses were incurred and not from a future date when the amounts expended were ultimately written off. In that view, the GTO was directed to modify his order accordingly. On further appeal by the Revenue and the preferring of a cross-objection by the assessee, the Tribunal upheld the order of the AAC holding that the expenses incurred by the assessee in relation to his son were liable to be treated as gifts in the years in which they had been incurred and that it is not possible to accept the contention that there was an outstanding loan which came to be written off only on 5th Feb., 1972, and so holding, the appeal by the Revenue and the cross- objection by the assessee were both dismissed and that is how the question of law referred to at the outset has come up before this Court for its opinion.

Learned counsel for the Revenue, referring to the entries in the books of accounts maintained by the assessee as found in the revised order of assessment passed by the GTO and relying upon the definition of “gift” in s. 2(xii) and s. 4(1)(c) of the Act, submitted that even according to the entries in the accounts maintained by the assessee, it was clearly established that the assessee had advanced loans to his son for the purpose of meeting his expenditure and had also carried forward these amounts which were ultimately written off on 5th Feb., 1972 and that disclosed that prior to the writting off, no gift at all had been intended and, therefore, the gift should be regarded as having arisen on the date of the writing off of the entire debit balance standing in the account of his son. On the other hand, learned counsel for the assessee contended that, considering the relationship between the assessee and the person to whom the loans were advanced and also the fact that such amounts were advanced by the assessee only for the purpose of securing a career for his son in the political field, incurring expenditure in connection therewith, the amounts advanced should be treated as gifts, as and when the amounts were made available to the son of the assessee and not at the point of time when they were written off.

4. There is no dispute that the assessee had advanced from time to time amounts to his son and we are not concerned with the purpose behind those advances. What is significant is that the amounts advanced by the assessee to his son have all been shown in the accounts maintained by the assessee only as loans. The loans so advanced had also been carried forward. If, as and when the amounts were advanced, such advances had been considered to be gifts, they would not have been treated in the manner as reflected by the accounts. In other words, the assessee should have debited the amounts advanced to his son directly to his capital account, in which case, such advances could have been treated as gifts as and when they had been made. Instead, the assessee had treated the amounts advanced to his son as loans and advances and had also, on 5th Feb., 1972, after giving credit for a sum of Rs. 19,000 realised by the sale of a motor car belonging to his son, written off the balance of the amounts paid to his son. Under s. 4(1)(c) of the Act, where there is a release or abandonment of any debt by any person, the value of the release or abandonment, to the extent to which it has not been found to the satisfaction of the GTO to have been made bona fide, shall be deemed to be a gift made by the person responsible for the release or abandonment. It, therefore, follows from s. 4(1)(c) of the Act, that having regard to the manner in which the advances had been treated by the assessee in his accounts, the release or abandonment resulting in a deemed gift within the meaning of s. 4(1)(c) of the Act took place only on the date on which the assessee wrote off the advances made to his son. To consider, in the face of the entries in the books of account of the assessee referred to in extenso by the GTO in the course of his order, that the gifts were made on the dates when the amounts were advanced, would be to totally ignore the treatment of the amounts advanced by the assessee to his son as loans, even as per the accounts, and the carry forward of the loans so advanced from year to year and also to ignore the giving of credit for the realisation of amounts by the sale of the motor car of the son of the assessee and the final writing off of the amounts. If really the gifts had been made on the respective dates of the advances made by the assessee to his son and had taken effect, there was absolutely no need whatever for the assessee to have brought forward in his accounts the amounts so advanced, given credit for the amounts realised by the sale of an asset belonging to the son and eventually to write off the entire amounts advanced to his son. The fact that the son of the assessee might have come into possession of funds to meet his expenses on the date of the respective advances would not, in our view, make any difference, particularly having regard to the treatment of those advances in the accounts of the assessee. The very act of writing off of the amounts by the assessee established that even according to him, at least till that date, he had entertained hopes of recovering the amounts as loans, as per the accounts. The subsequent writing off of the amounts is of considerable significance in ascertaining when the gifts took place. The Tribunal purported to rely upon the letter of the assessee to the effect that there was no intention on his part to get back any portion of his drawings account in the name of his son and from this, it drew the inference that even at the time when the amounts were given by the assessee to his son and spent by him, gifts had taken place. What would be relevant is the contemporaneous treatment of the amounts advanced in the books of account of the assessee himself and not the contents of the letter with reference to the intention entertained then, almost two years after the event. It may be that the son of the assessee also maintained that there was no gift at any time made by his father. Whether there was a gift within the meaning of the Act or not cannot be made to depend upon the view of the transaction taken by the son of the assessee, but it must rest on the definitions in the Act. Considering the manner in which the advances made by the assessee to his son have been treated in the accounts of the assessee and the writing off of the amounts eventually, we are of the view that the gift took place only when the assessee realised or abandoned the debt within the meaning of s. 4(1)(c) of the Act and that was on 5th Feb., 1972, and not at an earlier point of time. We, therefore, hold that the Tribunal was in error in the view it took that the advances made by the assessee to his son should be treated as gifts in the years in which they were made. We answer the question referred to us in the negative and in favour of the Revenue. The Revenue will be entitled to its costs. Counsel’s fee Rs. 500.

[Citation :181 ITR 489]