Section 5 l Exempted Gifts
Circular No. 302 was issued by the Central Board of Direct Taxes on 2 May 1981. Its subject is Section 5 l Exempted Gifts.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Settles when a foreign currency gift by a non-resident donor to a person in India attracts gift-tax. Under section 5(1)(ii)(a) of the Gift-tax Act what matters is where the property gifted is situated at the time of the gift. So there is no charge where the draft, cheque or currency is received by or on behalf of the donee outside India, the subject matter then being property outside India. There is a charge where the donor of his own motion posts or otherwise sends the cheque or draft to the donee in India, because the post office or other agency is then the donor's agent and the property is situated in India. The case the Board clarifies is the middle one: where the draft or cheque is posted to the donee's Indian address at the donee's own request, there is no gift-tax, the post office or bank being the donee's agent outside India. The Board relies on Rajkumar Mills Ltd. v. CIT, where the Bombay High Court, reviewing Supreme Court principles, said that a cheque sent by post is received where it is posted if that mode was adopted at the addressee's express or implied request, and otherwise where it is delivered.
The Board had occasion to consider the taxability of gifts made by remittance of foreign currency or other foreign exchange by non-resident donors to residents in India.
| Under the 1961 Act | Now |
|---|---|
| s.5 | s.5 |
SECTION 5 l EXEMPTED GIFTS
1443. Whether gifts by way of remittance of foreign currency or other foreign exchange made by non-resident donors to residents in India are not taxable on the ground that they fall within clause (ii)(a) of sub-section (1)
1. The Board have had occasion to consider the question of taxability or otherwise of gifts by way of remittance of foreign currency or other foreign exchange made by non-resident donors to residents in India.
2. The question has to be decided in the light of section 5(1)(ii)( a) of the Gift-tax Act which reads :
"5. (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person—(i)
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(ii) of movable property situate outside the territories unless the person—
(a) being an individual, is a citizen of India and is ordinarily resident in the said territories."
3. In view of the provisions of section 5(1)(ii)(a ), what is relevant for the purpose of assessability is the location of the property gifted, at the time of the gift.
4. If a non-resident donor makes a gift in foreign exchange or foreign currency to a person in India and the bank draft or cheque or the currency is received by or on behalf of the donee outside India, there will obviously be no liability to gift-tax in respect of such a gift. That is because the subject-matter of the gift in such cases will be property situated outside India. Again, where the property in such foreign currency or foreign exchange is delivered to the donee in India, that is, where the cheque or draft is sent by the donor to the donee in India on his own by post or otherwise, the gift, undoubtedly, would attract liability to gift-tax. This is because in such a case the post office or the agency through which the gift is sent acts as an agent of the donor and the subject-matter of the gift will be property situated in India.
5. The situation which requires some clarification, however, is where a non-resident donor makes a gift in foreign exchange or foreign currency to a person in India and the bank draft or cheque representing the gift is sent by the donor by post to the address of the donee in India at the request of the donee. The Board clarify that there will be no liability to gift-tax in respect of these transactions. That is because in such a case the gift can be said to have been received by the bank/post office as an agent of the donee outside India. This inference is based on the decision in the case of Rajkumar Mills Ltd. v. CIT [1976] 103 ITR 92, 99, 100 wherein their Lordships of the Bombay High Court on a review of the relevant principles laid down by the Supreme Court quoted as under :
"If the cheque is sent by post, the receipt would be at the place where the cheque is posted provided the mode of sending it by post is adopted at the express or implied request of the addressee, in such cases the post office being the agent of the addressee; otherwise, the receipt would be at the place where the cheque is delivered by the post office to the addressee."
6. The above should be brought to the notice of all the field officers working in your charge.
Circular : No. 302 [F. No. 331/2/78-GT], dated 2-5-1981.
On an old gift-tax assessment of a remittance received in India from a relative abroad.
Source: the Income Tax Department’s own published text — its page for this instrument.
