Provisions of s. 56(2)(v) applied only to gift n or after 1st Sept, 2004

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
The relevant facts giving rise to this appeal are that assessee received gift in the form of IMD of face value of US$ 1,50,000 from Mrs Hansa Agarwal, NRI, residing at Sharjah on 25.9.2005. Thereafter, the assessee prematurely encashed the said IMD on 5th October, 2005 and received maturity amount of US$ 2,22,452 equivalent to INR 98,56,827. The AO stated that the assessee utilized the unaccounted income of Group Company to obtain a non-genuine gift. The AO also contended that gift of IMDs is equivalent to gift of money and thus invoked the provisions of s. 56(2)(v) of the Act and made an addition to the total income of the assessee. The AO made the additions on the ground that the status of IMDs with the facility of premature encashment available was on par with the legal status of a bank fixed deposit and held that treating the bank fixed deposits as not money would be an absurd interpretation and would defeat the very purpose of the enactment. In respect of the interest on the IMDs, the AO held that, that when a-gift is brought to tax under section 56(2)(v) of the Act, taxing the principal amount and exempting interest would be a travesty of law. He also made observations that the Donor and her family members had never in the past given any gift to any of the family members of the assessee and that giving of the gift at a time when the family of the assessee had earned huge unaccounted money from construction business cannot be purely co-incidental. The above facts have been summarized by ld CIT(A) at page 3 of the impugned order.

Citation :
ACIT, Cent. Circle-44, Aayakar Bhavan, M.K. Road, Mumbai. (Appellant) Vs. Anuj Jitendra Mehta, 2601, Shiv Tapi, 26th floor, Harishchandra Goregaokar Marg,Gamdevi, Mumbai-007 PAN No.AJUPM 8680 (Respondent)