Shri Jitendra Manghnani Vs. Acit - Court Judgment

Excerpt:
1. this is an appeal filed by the assessee against the order of the commissioner of gift tax (appeals) wherein he has held that the assessee is not entitled to exemption for paying gift tax under section 5(1)(iib) of the g.t. act.2. facts of the case are that the assessee being a donor made two gifts of rs. 5 lakhs each by cheque on 24.11.97. in response to notice under section 16, the assessee filed a return of taxable gifts declaring the value of taxable gifts as nil. in the return the assessee claimed exemption by stating as under: exemption claimed due to the fact that gifts were made out of nre accounts and on the date of gifts, the assessee was a nri and gifts made out of nre accounts by nris are exempt under section 5(1) of the g.t. act as it is the date of gift on which the.....

Judgment:
1. This is an appeal filed by the assessee against the order of the Commissioner of Gift Tax (Appeals) wherein he has held that the assessee is not entitled to exemption for paying gift tax Under Section 5(1)(iib) of the G.T. Act.

2. Facts of the case are that the assessee being a donor made two gifts of Rs. 5 lakhs each by cheque on 24.11.97. In response to notice Under Section 16, the assessee filed a return of taxable gifts declaring the value of taxable gifts as nil. In the return the assessee claimed exemption by stating as under: Exemption claimed due to the fact that gifts were made out of NRE accounts and on the date of gifts, the assessee was a NRI and gifts made out of NRE accounts by NRIs are exempt Under Section 5(1) of the G.T. Act as it is the date of gift on which the status has the significance and another fact is that gift is made out of only NRE account where status has no relevance on the date of gift.

3. During: the course of assessment proceedings, the assessee argued before the A.O. as under: (i) The assessee claimed NRI status in the return of gift, since he has an NRI on the date of making gifts.

(iii) A person will continue to NRI for a period of stay of 180 days. The assessee claimed to be NRI till 6.12.97.

(iv) The gifts were made on 25.11.97 which clearly fell prior to 6.12.97.

However, the A.O. rejected the claim by holding that the provisions of Section 2(q) of Foreign Exchange Regulation Act, 1973 would be applicable to the case of the assessee and since the assessee is in India with effect from 6.6.97 and remained in India for his personal reasons , his case would be covered within the meaning of Section 2(p)(ii)(c). Accordingly, the A.O. did not allow the exemption to the assessee.

4. Before the CGT(A) the assessee repeated the same arguments. He also relied on the speech of the Hon'ble Finance Minister while introducing the provisions of Section 5(1)(iib) of the Gift Tax Act. It was submitted before him that the case of the assessee does not fall in Clause (p) of Section 2 of FERA Act, 1973 5. The CGT(A) considered the arguments of the assessee but confirmed the order of me G.T.O. on this issue by upholding as under: I have considered the appellant's arguments and facts of the case.

Following the doctrine of strict interpretation of taxing statutes the question to be decided here is whether the provisions of Section 5(1)(iib) of the Gift Tax Act are applicable to the appellant's case or not. The answer to this question will depend on whether the appellant can be treated as "person resident outside India" within the meaning of Clause (q) of Section 2 of FERA. The answer to this question will be in negative if the appellant is found to be "person resident in India" within the meaning of Clause (p) of Section 2 of FERA. According to the A.O. the appellant is covered by the category as per subclause (ii) of Clause (p) of Section 2 of FERA. I am inclined to agree with the A.O. The appellant arrived in India on 06-06-97 and has been staying in India and is carrying on a business/vocation India. He is, therefore, a "person resident in India" within the meaning of Section 2(p) of FERA. In other words, he is not a "person resident outside India" within the meaning of Clause (q) of Section 2 of FERA. Accordingly I hold that the provisions of Section 5(1) (iib) of the Gift Tax Act are not applicable to the appellant's case. I, therefore, hold that the A.O. justified in computing the taxable gifts at Rs. 9,70,000/-. The grounds of appeal No. 1 to 11 are, therefore, decided against the appellant.

6. Before us, the learned A.R. for the assessee submitted that for the purpose of getting exemption Under Section 5(1)(iib) of the G.T. Act, one has to determine whether the assessee is a person resident outside India or not. For this one has to go to definition contained in Section 2(q) of FER Act as provided in Explanation to Section 5(iib) of the G.T. Act. In that definition of Section 2(q) of FER Act it is mentioned that a person resident outside India means a person who is not resident in India. For the purpose of determining whether a person is resident in India or not, one has to come back to Section 6 of the Income Tax Act and find out whether the person is resident in India or not.

Section 6(1)(a) of the Income Tax Act provides that a person will be resident in India only when he is in India for 182 days or more in that previous year. The assessee prior to giving gifts on 24.11.97 was in India for less than 182 days as he had arrived in India on 6.6.97.

Accordingly, he is not a resident in India and, therefore, the assessee is a person resident outside India as per Section 2(q) of FER Act and as he is a person outside India, he is entitled to exemption Under Section 5(iib) of the G.T. Act.

7. On the other hand, the learned D.R. submitted that for the purpose of determining whether a person is a "resident in India" or "not resident in India" within the meaning of Section 2(q) of FER Act, one has to only look to FER Act and need not come back to Income Tax Act for finding out the meaning of "resident" or "not resident". The concept of resident has been clearly defined in Section 2(p) of the FER Act which had been referred to by the learned A.O. and confirmed by the learned CGT(A). The assessee, according to Section 2(p) of FER Act is a resident in India in the relevant financial year and, therefore, he cannot be said to be not resident in India and, therefore, person outside India. Accordingly, the assessee is not entitled to exemption.

8. We have heard the rival submissions and perused the materials on record. Thus the controversy boils down to the point whether the assessee can be treated as "a person resident outside India" or not within the meaning of Section 2(q) of FER Act. If yes, he is entitled to excemption and if not, he is not entitled to exemption. The learned A.R. wants that for finding out definition of resident, one should come back to Income Tax Act and apply the definition of 'resident' given in Section 6(1)(a). The department wants that once Section 5(iib) of the Gift Tax Act has referred to Section 2(q) of FER Act then one has to confine only to FER Act for determining whether "person was resident in India" or not. For the convenience , we refer to various provisions relied on by the parties and relevant for the purpose of the above issue , as under: (1) Section 5(1) (lib) being a person resident outside India, out of the moneys standing to his credit in a Non-resident (External) Account in any bank in India in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder.

Explanation - For the purpose of this clause, "person resident outside India" has the meaning assigned to it in Clause (q) of Section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973).

(2) Section 2 (q) -"person resident outside India" means a person who is not resident in India.

(i) a citizen of India, who has, at any time after the 25th day of March, 1947, been staying in India, but does not include a citizen of India who has gone out of, or stays outside, India, in either case (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (ii) a citizen of India, who having ceased by virtue of paragraph (a) or paragraph (b) or paragraph (c) of Sub-clause (i) to be resident in India, returns to, or stays in, India, in either case: (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (iii) a person, not being a citizen of India, who has come to, or stays in, India, in either case (c) for staying with his or her spouse, such spouse being a person resident in India, or (d) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (iv) a citizen of India, who, not having stayed in India at any time after the 25^th day of March, 1947, comes to India for any of the purposes referred to in paragraphs (a), (b) and (c) of Sub-clause (iii) or for the purpose and in the circumstances referred to in paragraph (d) of that sub-clause or having come to India stays in India for any such purpose and in such circumstances.

Explanation: A person, who has, by reason only of paragraph (a) or paragraph (b) or paragraph (d) of Sub-clause (iii) been resident in India, shall, during any period in which he is outside India, be deemed to be not resident in India;.

(1) An individual is said to be resident in India in any previous year, if he: (a) is in India in that year for a period or periods amounting in all to one hundred and eighty -two days or more; or (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

9. In our view, the controversy is settled by the decision of the Hon'ble Supreme Court in K. Rammullan v. CIT (2000) 162 ITR 305 (SC) which is referred to by the learned A.R. before the learned CGT(A) as well as before us. In this regard we reproduce "held and conclusion" portion of this judgment as under: Section 10(4A) excludes any income from interest on moneys standing tro the credit of a non-resident in Non Resident (External) Account in any bank in India, in computing the total income of a person resident outside India. Explanation appended to Section 10(4A) says that for purposes of that clause "person resident outside India" shall have the meaning assigned to it in Clause (q) of Section 2 of the FERA. Section 2(q) defines that expression to mean 'a person who is not a resident of India'. And that expression is defined in Clause (p) of Section 2 of the FERA. Para 10 of Sub-clause (iii) of the FERA deals with stay with his or her spouse. Short of immaterial words Section 2(p)(iii)(r) will read thus: a person resident in India means a person, not being a citizen of India , who has come to or stays in India for staying with his or her spouse, such spouse being a person resident in India. A plain reading of para (r) makes it evident that the stay contemplated therein has to be some permanence and not with the intention of returning abroad in some short, set period. The word 'staying' in paragraph really means 'residing with the spuse'. Even the purposes referred to in paras (a), (b) and (d) indicate that the term 'stay' does not denote a short or casual stay ; it has to be a stay for taking up employment or carrying on business or a vocation or with the intention of remaining in India for an uncertain period. If para (c) is construed to include a mere casual stay or stay for a short period, it would defeat the purpose of having Non Resident (External) Account. This being the position , the appellant cannot be treated as a person resident in India during the relevant period. Consequently, he will be a person resident outside India within the meaning of Section 2(q) of the FERA entitled to exemption Under Section 10(4A) - CIT v. K. Ramullan reversed.

Assessee, a person of India origin, settled in Malaysia, who stayed with his wife in India for some period for undergoing medical treatment cannot be treated as a person resident in India during the relevant period ;he is a person resident outside India within the meaning of Section 2(p)(iii)(c) r/w Section 2(q) of FERA and is entitled to exemption under Section 1D(4A).

10. It is clear from the above that Hon'ble Supreme Court had applied provisions of Section 2(p) of FER Act for determining whether a person is "resident in India" or not. Therefore, respectfully following above decision , we also hold that one has to look at the definition of "resident" only in the FER Act and need not come back to the Income Tax Act unless it is so specifically provided. There is another logic in this conclusion. It is clear that Section 5(iib) and explanation thereto of Gift Tax Act says that we had to follow the definition of Section 2(q) for determining whether person is "resident outside India" or not. This is not disputed. Once this is so then for finding out the meaning or concept of the words used in that definition, one has to look to that Act only and need not travel outside unless it is so specifically provided in the main statute ,i.e. Gift Tax Act or in the referred Act, i.e. FER Act. The question will arise as to why one is required to come back only to income tax and why not elsewhere in any other statute which may also provide the definition of "resident". In our considered view search in other statute can be done only when the referred Act, i.e. FER Act does not provide the meaning or concept of the words used in Section 2(q). Once the meaning and concept of the words used in Section 2(q) are clearly available in Section 2(p) of FER Act then we do not see any reason to come back to Income Tax Act or any other Act for searching the meaning of the words used in the definition referred to in Section 2(q) of FER Act.

11. Notwithstanding above, in our considered view, the learned A.R. has misconceived the meaning and effect of Section 6(1) of the Income Tax Act. He wanted us to apply Section 6(1)(a) only ignoring Section 6(1)(b) which is not permissible. One has to look first into Clause (a) to find out whether a person was in India for 182 days in the relevant previous year, if not whether he was in India as per Clause (b), for 365 days in 4 immediately proceeding years and also for 60 days in the relevant previous year. A person can be resident in India if either of the two situations as specified. He will not be resident in India in that previous year if both Clause (a) and Clause (b) fails in the case of the assessee.

12. We also do not uphold the argument of the learned A.R. that for determining the status as a "resident" in the case of a donor, under Section 6(1) of I.T. Act one has to consider the date of the gift as cut off date and count the number of days, from that day backward, when he was in India during that previous year. There is no such provision in Section 6(1)(a) that one has to insert cut off date in the case of a donor being the date of the gift for determining the residential status. Therefore, this argument is rejected. Notwithstanding, we notice that the assessee was in India for entire financial year from 6.6.97 onwards. Thus he was in India for 182 days or more during the relevant previous year. Thus the condition laid down in Section 6(1)(a) is clearly satisfied in his case and he will be resident in India, if we look at the definition under I.T. Act.

13. But as held above , we had to confine ourselves to FER Act for looking at the residential status. We agree with the learned. A.O. and also with the learned CGT(A) that Sub-section 2(p)(iii)(c) are applicable in his case. Assessee was in India after 6.6.97 for his personal reasons. Therefore, he would be resident in India. Once he was resident in India he is not a person resident outside India.

14. Thus the assessee is clearly not entitled to exemption Under Section 5(iib) of the G.T. Act. Orders of the authorities below on this issue are confirmed.