SMT. BRONEY A. FERNS v. GIFT TAX OFFICER
[Citation -1987-LL-0403]

Citation 1987-LL-0403
Appellant Name SMT. BRONEY A. FERNS
Respondent Name GIFT TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 03/04/1987
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags share of profit • petrol bunk • donee
Bot Summary: The GTO rejected the assessee s claim for exemption under s. 5(1)(xii) on the following grounds: The donee, Shri John A. Ferns is an adult, i.e., more than 18 years of age; The donee is having his own independent business. The father of the donee is an income-tax assessee having substantial income. As the AAC was of the opinion that the donee was having sufficient financial resources at his command, he held that it would be unreasonable to allow any part of the gift as deduction under s. 5(1)(xii). The donee s incomes are negligible as can be seen from the following details: Assessment year Income/ Loss as returned 1977-78 Rs. 11,222 1978-79 Rs. 2,870 1979-80 Rs. 3,190 1980-81 Rs.52,070 The loss of Rs. 52,070 was accepted by the ITO for the asst. The Departmental Representative supported the order of the AAC. He urged that if at all any exemption is to be given it would be reasonable only to give exemption of Rs. 50,000 under s. 5(1)(xii) considering the financial resources of the donee. As such the adequacy or sufficiency of the financial resources of the donee cannot be taken as a negative factor for considering the claim for exemption under s. 5(1)(xii) of the Act. Looking to the background of the family, consisting mainly of Doctors, the financial standing of the donor and the educational needs of the donee, we consider that the gift of Rs. 1,25,000 is reasonable and the assessee is entitled to exemption under s. 5(1)(xii) of the GT Act, 1958.


A. SATYANARAYANA, A.M. ORDER This appeal preferred by assessee is against order of AAC dt. 28th Nov., 1985 for asst. yr. 1979-80 for which previous year ended on 31st March, 1979. 2. assessee made gift of Rs. 1,25,000 in cash to her son John. A. Ferns on 21 st June, 1978. She claimed same as exempt under s. 5(1)(xii) of GT Act, 1958 in return filed on 29th May, 1980. In note accompanying return assessee stated as under: "Note: Rs. 1,25,000 has been given as capitation fee in J.J.M. Medical College, Davangeri, Karnataka State for her son John A. Ferns for Medical College admission. By doing so, I have fulfilled my parental obligation." GTO asked assessee to produce receipt or whatever evidence she had for having paid amount to J.J.M. Medical College. But no receipt w s produced by assessee. GTO rejected assessee s claim for exemption under s. 5(1)(xii) on following grounds: (i) donee, Shri John A. Ferns is adult, i.e., more than 18 years of age; (ii) donee is having his own independent business. He is assessed to both income-tax and wealth-tax; (iii) assessee is mother of donee. father of donee is income-tax assessee having substantial income. When father is alive he has to be treated as guardian for purposes of discharging primary duty of guardian to educate children. 3. Aggrieved by order of GTO, assessee preferred appeal to AAC. AAC found that donee John A. Ferns had paid Rs. 1,25,000 as capitation fee to J.J.M. Medical College, Davangeri and that amount was paid by draft. AAC considered that grounds taken by GTO in refusing exemption claimed by assessee, namely, absence of proper evidence regarding payment of amount to medical college and mother making gift instead of father were irrelevant and absurd. But he considered that ground that donee himself was having his own business and that he was income-tax and wealth-tax assessee was relevant factor. He found that donee is deriving income from petrol bunk at Sakthikulangara (Raj Fuels) and share of profit from firm Marine Maiden and that he is wealth-tax assessee since 1980-81. As AAC was of opinion that donee was having sufficient financial resources at his command, he held that it would be unreasonable to allow any part of gift as deduction under s. 5(1)(xii). 4. Against above finding of AAC assessee preferred present appeal. At time of hearing, assessee s counsel filed photostat copy of receipt dt. 24th June, 1978 for payment of Rs. 1,25,000 by John A. Ferns as capitation fee for admission to 1st M.B.B.S. in J.J.M. Medical College, Davangeri, copies of statements of income filed before ITO for asst. yrs. 1977-78, 1978-79, 1979-80 and 1980-81, copy of statement of wealth filed before WTO for asst. yr. 1980-81, copy of notice of demand under s. 30 of WT Act, 1957 dt. 9th March, 1984 for asst. yr. 1980-81 and copy of income-tax assessment order for asst. yr. 1980-81 dt. 25th Nov., 1982. His arguments were to following effect: From copy of receipt dt. 24th June, 1978 filed before Tribunal it would be seen that gifted amount was entirely spent towards capitation fee for getting admission to 1st M.B.B.S. in J.J.M. Medical College, Davangeri. donee s incomes are negligible as can be seen from following details: Assessment year Income/ Loss as returned 1977-78 Rs. 11,222 (Loss) 1978-79 Rs. 2,870 ( " ) 1979-80 Rs. 3,190 (Income) 1980-81 Rs.52,070 (Loss) loss of Rs. 52,070 was accepted by ITO for asst. yr. 1980-81 b y his order dt. 25th Nov., 1982. For asst. yr. 1980-81 donee was assessed to wealth-tax for first time. From details of wealth filed before Tribunal it would be seen that donees assets, namely, Rs. 60,114 were less than liabilities of Rs. 71,500. Thus there was deficit of Rs. 11,386 as o n 31st March, 1980. Thus it cannot be said that donee has got sufficient financial resources at his command as observed by AAC. Even assuming that donee has got sufficient resources, this is entirely irrelevant factor for considering allowability of exemption under s. 5(1)(xii) of GT Act, 1958. assessee had gifted amount in fulfilment of her parental obligation. donee is one among 4 daughters and 3 sons in family of Mr. Ambrose and Mrs. Broney. Three of daughters are doctor. eldest son studied for medicine but discontinued because of his ill-health. donee has already qualified himself as Doctor. last son is also studying for medicine. So AAC was in error in confirming order of GTO. 5. Departmental Representative supported order of AAC. He, however, urged that if at all any exemption is to be given it would be reasonable only to give exemption of Rs. 50,000 under s. 5(1)(xii) considering financial resources of donee. 6. We have considered rival submissions. We agree with AAC that grounds taken by ITO, namely, absence of evidence for payment of capitation fee, age of donee and making of gift by mother instead of father are all irrelevant and absurd. relevant section is as under: "5(1).-Gift-tax shall not be charged under this Act in respect of gifts made by any person- (xii) for education of his children to extent to which gifts are proved to satisfaction of GTO as being reasonable having regard to circumstances of case." word 'children' is not defined in GT Act, 1958. In absence of any definition of word 'children' under this Act, age of child is not relevant for purpose of s. 5(1)(xii). Patna High Court in case of CGT vs. M.S. Rao (1976) 102 ITR 308 (Pat) held that word 'children' in s. 5(1)(xii) meant any issue of assessee who is capable of receiving education, respective of his or her age. section is also silent about relationship of donee to donor, i.e. whether donor should be father or mother. So ground of ITO that gift was made by mother instead of father is also quite irrelevant. circular of CBDT dt. 27th Feb., 1959 in F. No. 1-59/GT (extracted at p. 1506 of Direct Taxes Circulars by Taxmann, Vol. 1, 1985 edition) says that GTO would take into consideration income of donor and nature of education that was proposed to be given to child in deciding whether and how far gift was reasonable. Neither s. 5(1)(xii) nor above circular say anything about dependence of donee on donor. absence of words 'dependent upon' in cl. (xii) of s. 5(1) becomes conspicuous when we compare cl. (xii) of s. 5(1) with cls. (vii) and (ix) of said section which read as under: "(vii) to any relative dependent upon him for support and maintenance, on occasion of marriage of relative, subject to maximum of rupees ten thousand in value in respect of marriage of each such relative;" "(ix) of policies of insurance or annuities to any person (other than his wife) who is dependent upon him for support and maintenance, subject to maximum of rupees ten thousand in value in aggregate in one or more previous years of benefits in respect of each such donee." So dependence of donee upon donor is also irrelevant. As such adequacy or sufficiency of financial resources of donee cannot be taken as negative factor for considering claim for exemption under s. 5(1)(xii) of Act. Looking to background of family, consisting mainly of Doctors, financial standing of donor and educational needs of donee, we consider that gift of Rs. 1,25,000 is reasonable and assessee is entitled to exemption under s. 5(1)(xii) of GT Act, 1958. GTO is directed to allow exemption claimed by assessee. 7. In result, appeal is allowed. *** SMT. BRONEY A. FERNS v. GIFT TAX OFFICER
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