By TIOL News Service

MUMBAI, SEPT 07, 2015: THE issue before the Bench is - Whether capacity of the donor of gift has to be examined with reference to the time when the donor subscribed to Bonds and not its capacity at the time of the maturity of the Bonds. YES is the answer.

Facts of the case

The assessees are individuals, who filed return for relevant AY. In relevant year, assessee credited maturity proceeds of RIB Bonds which had been received as gifts by them from a NRI living in Dubai, UAE. The bonds were issued in 1998 by State Bank of India. During assessment process, AO invoked Section 68 of the Act and credited the entire proceeds on maturity of the RIB Bonds to the income of the assessee as AO held that the financial capacity and identity of the donor as to make such gift as well as its genuineness was not established. AO did so inspite of the fact that the assessee submitted fixed deposit receipts of the NRI donor from various banks as well as Bank Statements concerning the period in which the subscription to RIB Bonds was made by the NRI donor. So far as the identity of the donor is concerned, the AO ignored the affidavit in support of the gift and the copy of the passport. Aggrieved assessee filed appeal before CIT(A), who after analysis of the relevant documents produced by assessee concluded that the assessee had submitted all basic documents which would establish the gift of RIB Bonds. On further appeal, the Tribunal also upheld the finding of fact arrived at by the CIT (A). Aggrieved Revenue filed appeal in HC.

After hearing parties, HC held that,

++ we find that the respondents-assessee had led evidence to establish the capacity of the donor. This was evident from the fixed deposit certificates as well as bank statements pertaining to the period when subscription was made to RIB Bonds by the donor. Insistence on the part of the revenue seeking to examine the financial capacity of the donor in the previous year relevant to the subject assessment year is in the present facts uncalled for, This is so as his present capacity will not determine his capacity at the time of purchase of the RIB Bonds. Two authorities have come to a concurrent finding of fact that the capacity of the donor to make the gift stands established on the basis of the documents which were placed before the Assessing Officer. This finding of fact with regard to capacity of the donor has not been shown to be perverse. It is pointed out by Mr. Mistri, learned Senior Counsel for the respondent that the revenue could not dispute the concurrent finding of the two authorities that the gift was received from an NRI who had originally subscribed to the RIB Bonds. These bonds were transferable and in fact transferred to the respondent assessee by making a necessary declaration in that regard with the State Bank of India,

++ in view of the above discussion, we are of the view that the issue arising for our consideration is essentially a question of fact. Two authorities have reached a concurrent finding of fact on the basis of evidence produced before them that the amount of proceeds on the maturity of RIB Bonds was not hit by Section 68 of the Act. This view is reasonable and possible on the basis of the evidence on record. Accordingly, no substantial question of law arises for our consideration in the above appeals.

(See 2015-TIOL-2036-HC-MUM-IT )