VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1794 (2009)

Income Tax Ordinance (XXXI of 1979)---

----S.13(1)(aa)---Addition---Cash gift---Rejection of---Assessee contended that neither Assessing Officer nor First Appellate Authority had denied the presence of the three elements which make a gift valid---Gift had been rejected merely for the reasons that there was no "blood relationship" between the donor and the donee which makes the transaction doubtful because "every wealthy person could not divest of his hard-earned possessions through a gift without any quid pro quo"---Validity---Assessee had not only explained the nature and source but the Assessing Officer had also found the explanation satisfactory while making observations that "...no doubt that the so-called donor has sufficient funds in his possession et it is not necessary that each wealth person might have made gift of money he earned through his hard work. If it was loan the position would have been a bit different..."-From such observations of the Assessing Officer it became clear that he had not doubted the nature and source of amount but he doubted the intention behind such source because every wealthy person could not part with his hard earned possession(s) through gift in the absence of any blood relationship---Assessing Officer had stated that had it been a loan then the situation would have been a bit different and acceptable---In view of such observations of the Assessing Officer, the amount claimed to have been received by the assessee did not attract the provision of S.13(1)(aa) of the Income Tax Ordinance, 1979---Action of department as well as that of First Appellate Authority were not sustainable in law---Order was vacated by the Appellate Tribunal and assessee's appeal was accepted.

2007 PTD (Trib.) 651; 1987 SCMR 1907; 2004 PTD (Trib.) 1523; 1999 MLD 1687; PLD 1980 Lah. 770 and 1979 CLC 580 ref.

Hafiz M. Idrees, M. Mazhar, I.T.P. and Abdul Basit, F.C.A. for Appellant.

Sardar Ali Khawaja for Respondent.

ORDER

The assessee has assailed the learned C.I.T.(A)'s Order No.68/2008 dated nil on the following grounds:--

(i) That the addition made under section 13(1)(aa) of the repealed Income Tax Ordinance, 1979 is totally void, unwarranted and without any lawful authority as the Taxation Officer has already accepted one cash gift of Rs.300,000 in the instant case in the same assessment year while she rejected second gift without any cogent and valid reason.

(ii) That the appellant referred many parallel cases filed affidavit from the real .son of the Donor, as the Donor had died on 24-12-1998 despite these conclusion and irrefutable evidences, the C.I.T.(Appeals) rejected, the plea of the appellant.

2. Facts leading to this appeal are that the assessee engaged in the 'business of trading in sweets and kulfi had filed return declaring net income of Rs.129,200. The income was, however, assessed under section 62 at a figure of Rs.1,971,941 after disallowing the claim of receipt of gift worth Rs.12 lac and its addition to assessee's income in terms of section 13(1)(aa) of the repealed Income Tax Ordinance, 1979. The First Appellate Authority, however, set aside the addition of Rs.12 lac with the direction that the Assessing Officer should first investigate the genuineness of claim of gift after seeking clarification from Income Tax Officer Sialkot regarding validity of wealth tax return, relationship between the donor and the donee, availability of cash with the donor as well as the mode of payment of the amount in question. Such order of the C.I.T.(A) was maintained by the I.T.A. vide I.T.A. No.208/IB/2004 dated 3-8-2004. In the second round the departmental officer obtained copies of the wealth tax returns from the Assessing Officer based at Sialkot. Such statements depicted following position:--

From the above position of wealth as declared by the Donor-Syed Asghar Ali Shah, further investigations were made in order to enquire about the genuineness of the gift. After investigation, the Assessing Officer reached at the final conclusion as per paragraph No.6 of the re-assessment order, which is reproduced below:-

"6. It has been confirmed that neither the donor has some blood relation with the assessee nor there was any consideration for making the gift. No doubt that so-called donor has sufficient funds in his possession yet it is not necessary that each wealthy person might have made a gift of money he earned through his hard work. If it was loan the position would have been a bit different. The assessee, therefore, failed to prove the genuineness of gift particularly in view of the queries raised by the learned ITAT and Commissioner of Income Tax (Appeals).

The case was submitted for seeking approval for making addition of 12,00,000 under section 13(1)(aa) vide this office letter No. 428 dated 28-6-2006. Approval was accorded by AC (Audit) vide No.868 dated 19-6-2006. An amount of Rs.12,00,000 is added in the income of assessee as deemed income in terms of section 13(1)(aa) of repealed Ordinance."

In view of the above findings, the Assessing Officer again added the amount of Rs.12 lacs in assessee's income and taxed accordingly. The first appellate authority has also confirmed the addition. Not satisfied with the order of the learned C.I.T. (A), the assessee has come up in appeal before us.

3. The learned authorized representatives (ARs) of the assessee Hafiz Muhammad Idrees, Advocate, Mr. M. Mazhar, I.T.P. and Mr. Abdul Basit, FCA have argued the case in the light of grounds of appeal. It was contended that the impugned addition was void in law and unwarranted, as the Assessing Officer had already accepted one cash gift amounting to Rs.3 lacs in the instant case, while the second gift was rejected without any cogent reasons. They also pointed out that despite of the conclusion regarding possession of sufficient funds by the donor, the gift was rejected on the basis of presumption that every wealthy person cannot make a gift of money without having blood relation with the donee. The learned ARs have also contended that under the Muhammadan Law every Muslim could make a gift to his brother in faith, hence the logic for disallowance of the gift was untenable in the eyes of law. In support of their contentions the learned ARs have relied on the case law reported as 2007 PTD (Trib.) 651. It was contended that gift means transfer of right of property in substance by one person to another without consideration which is a condition to be fulfilled in order to make a gift valid. The learned AR pointed out that in the case law reported as 2007 PTD (Trib) (651) the Tribunal had 'detested the departmental contentions for disallowing a gift having been made sans blood relationship. It was also observed by the Tribunal that even oral gift was as valid as a written gift under the Islamic law subject to the condition that elements of "offer", "acceptance" and "possession" were existent in such a gift. It was averred at the Bar that these were the three conditions under the law for performance of a valid gift. It was contended that since all the three ingredients of a valid gift are present in the instant case, therefore, it could not have been rejected at the departmental level or by the learned C.I.T. (A). The learned DR, on the other hand, has supported the orders of both the officers below for the reasons explained therein.

4. Heard, record perused. a plethora of case law exists on the issue involved. The Honourable apex Court in the landmark judgment reported as 1987 SCMR 1907, have held that there were three ingredients for making a gift valid. Such ingredients have been enumerated as: (i) proposal of gift by donor, (ii) acceptance of gift by donee and (iii) delivery of possession of a immovable property. In the instant case, however, the transfer of right of immovable property is not involved. Instead, transfer of Rs.1200,000 from donor to donee is undisputed. It is also true that under the Muhammadan Law any mentally sound person can make a gift of his property without any consideration. The fact as to what makes a gift valid has been explained in various other judgments reported as 2004 PTD (Trib) 1523; 1999 MLD 1687 (LHC); PLD 1980 Lah. 770; 1979 CLC 580 (LHC). All such cases-law quoted at the Bar do not speak of presence of the fourth ingredient of "blood relationship" between the donor and the donee to make a gift valid. In all such cases, the conditions precedent for making a gift valid are the basic three ingredients as to the existence of proposal of gift by the donor, acceptance of gift by the donee and delivery of possession of the property which is subject-matter of the gift. In the case at hand, neither author of the assessment order nor the First Appellate Authority have denied the presence of the above three elements which makes a gift valid. The gift has been rejected merely for the reasons that there was no "blood relationship" between the donor and the donee which makes the transaction doubtful. because "every wealthy person cannot divest of his hard-earned possessions through a gift without any quid pro quo". The reasons assigned by the Assessing Officer as well as the lower appellate authority in denying the assessee's claim regarding receipt of gift, do not get support from various judicial pronouncements referred to supra.

5. Secondly, addition made under section 13(1)(aa) is otherwise not legally sustainable. The said provision comes into play where "the assessee is found to have made any investment or is found to be the owner of any money of valuable article, in any year", and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of the money of valuable article or explanation offered by him is not found to be satisfactory.' In this case we find that the assessee has not only explained the nature and source of Rs.12 lacs but the Assessing Officer has also found the explanation satisfactory while making observations vide paragraph No.6 of his order that "...no doubt the so-called donor has sufficient funds in his possession yet it is not necessary that each wealthy person might have made gift of money he earned through his hard work. If it was loan the position would have been a bit different..."From these observations of the Assessing Officer it becomes clear that he had no doubt about the nature and source of amount of Rs.12 lacs but he was vary of the intention behind such source because every wealthy person cannot part with his hard earned possession(s) through gift in the absence of any blood relationship". As per Assessing Officer's observations in paragraph 6 of the assessment order reproduced supra, had it been a loan from Syed Asghar Ali Shah (so-called donor) then the situation would have been a bit different and acceptable. In view of such observations of the Assessing Officer, the amount of Rs.12 lac claimed to have been received by the appellant does not attract the provision of section 13 (1)(aa) of the repealed Ordinance.

6. In view of these facts and circumstances of the case, it is our considered opinion that action of the department as well as that of the First Appellate Authority are not sustainable in law. Hence, the impugned order is vacated and assessee's appeal is accepted.

C. M. A./89/Tax(Trib.)Appeal accepted.