Verification: car as a tool to avoid gift tax?

The concern is genuine.......... has ever remain debatable issue........ How can the issue remain untouched by the taxation authority?

Before expressing my views...... let me confirm that the car is included u/s. 2(14)(ii) of I T Act, as personal effect. So, the students should stick to the concept for their exams........

Depending upon the utility of car........ it can be capital assets or personal effect.......

1. As per section 32 of the Income Tax Act, 1961, depreciation is allowed on tangible assets and intangible assets owned, wholly or partly, by the assesse and used for the purposes of business or profession. Motor car is  in item No. (2) in heading III, in table Part A, as Tangible Assets, depreciable at 15%.. The same car is also subject to capital gains when sold.

More details Refer:      section-32-depreciation

and /forum/capital-gain-on-motor-car--142071.asp

2. It also changes its color when gift of car received by an employee as 'PERQUISITES' and becomes taxable. (If gift of car is always tax-exempt, the same principle should apply here !!!)

Thanks a lot for sharing your views Dhirajlal Sir.

Car to be considered as personal assets:

As per S. 2(14) of the Income Tax Act, 1961, unless the context otherwise requires, the term “capital asset” means:

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992;

but does not include:

(i) any stock-in-trade, other than the securities referred to in sub-clause (b), consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including vehicle, wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes:

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

(iii) agricultural land in India, not being land situate in specified area.

(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.

More details refer:   /forum/gift-of-car-74865.asp

Now finally comming to the query.

1. For tax-exempt gifts as A to B & B to C has to pass many severe tests.  

Firstly genuineness of any gift is tested over 'out of love and affection'

Read more: Taxmans-notice-to-SRK-over-gifted-Dubai-villa

2. To prove and stand on the footings as the gift of personal asset has always remained risky on assessee part.....  A case study where the car as personal asset used by assessee for 7 years, was negated by honourable Mumbai High Court, when the same was sold by assessee at margin.

""" Therefore, on the given facts and in light of the ratio laid down by the decisions relied upon the by the Departmental Representative unlike the ones relied by learned authorised representative which are distinguishable, we hold that the antique car held by the assessee is not a "personal effect" as occurring in section 2(14)(ii) rather it is a capital asset. Consequently, the surplus realized on its sale is chargeable to Capital gain under section 45 of Income Tax Act, 1961."""

https://indiankanoon.org/doc/694973/

Honourable court has cited many tests that requires to be passed for so called....... 'Personal assets' ; which the queriest in the example can hardly pass.

3. Practically, car is being gifted on many occassions on different and stronger footings like 'marriage occassion'; 'between relatives' etc; wherein many case-laws exists in favour of assessees. But not a single case law exists where car gifted as 'personal asset' has passed the tax-exempt test. So even the professionals lack confidence in its applicability.

In nutshell, let me conclude that theory and practical life is quite different !!!!!!!!!!!!

Dear Sir, thanks for taking the pain to explain the things in detail

My Pleasure

On the auspicious day of Janmashtami & Independance day.......... I would like to add:

1. Independence from .........Janma.....Maran  !!!  Ultimate goal of life !!!

2. As per the present query......... if one is clear in concept about the fundamentals of the subject.... any twist in the query can be easily solved......... otherwise gets rotated in the sections of the act/rule/notifications.......

3. Same is with......... If one has been thorough in the basics of science of life..... he would not rotate in chakra anymore.......... No question of fetish beliefs as seen mostly, but real science of the birth & death.      (Though not easy to understand, but not impossible too).

4. The lucky one who understands and realizes it, would be most fortunate to receive the real treasure that cannot be found in the illusionary world.

5. What to say..... he is out of this books (own knowledge); real tapsavi even after pouring fuel to body, real yogi to unwind the attachment even after doing his duties....... known as Sthit-Pragna.

6. We all have inbuilt capacity for that status, but not aware of it !!!!!!!!!!!!!

7. Pray Almighty..... that the darkness be unveiled and the real SELF be known(realized) to all. 

Three Salutes to the All bondage Free SELF......... To the path of its realization and its followers............. To the Real Independence

Dear Sir, thanks for sharing your wisdom. I am glad to see a glimpse of the spiritual side of yours and am looking forward to learn a lot more from you. Wish you a very happy independence day as well.

Same to you dear.......... Happy Janmashtmi.......... the real birth is yet to take place (relatively, otherwise YOU ARE ETERNAL)...........