I-T Officials Cite Google Search To Tax NRI's Rs 3 Crore Gift To Mom, Tribunal Disagrees
IT officials were after a Hong Kong-based NRI hedge fund operator who gifted Rs 3 crore to his mother. Officials wanted to tax the amount as a circular trading transaction
The Income Tax Appellate Tribunal (ITAT) in Mumbai condemned the action of Income Tax officials attempting to tax a gift received by a mother from his son. The bench stated that no tax can be imposed on this gift.
The bench observed that the Income Tax officials levelled allegations of circular trading based solely on a Google search and newspaper reports, without conducting an independent investigation. The NRI son’s financial capacity was demonstrated, with sufficient funds in his bank account at the time of the gift, proving the gift’s authenticity.
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The case involved an NRI, a major hedge fund operator in Hong Kong, who gifted Rs 3 crore to his mother in two instalments through banking channels. The income tax officer questioned the authenticity of the gift, terming it a circular trading transaction, and imposed income tax on the amount received by the mother.
Under the Income Tax Act, gifts exceeding Rs 50,000 are taxable to the recipient at their applicable slab rates, except for those received on special occasions like marriage. However, gifts received from close relatives are exempt from tax. In this particular case, the income tax officer treated the Rs 3 crore received by the mother as “unexplained cash credit" under Section 68 of the Income Tax Act, rather than classifying it as a gift.
The Income Tax officer’s action was initially rejected by the Commissioner (Appeals). However, the Income Tax Department appealed this decision to the ITAT. The ITAT bench, comprising BR Bhaskaran (accountant member) and Aniket Banerjee (judicial member), upheld the earlier appellate order. The bench found that the NRI son’s financial capacity was clearly demonstrated, with sufficient funds in his bank account at the time of the gift, thus proving the gift’s authenticity.
The Income Tax Department alleged that the Securities and Exchange Board of India (SEBI) had previously barred a hedge fund, managed by the son, from operating in the Indian market. Furthermore, they highlighted that the mother had provided an unsecured loan to an Indian company. The department also pointed to a gift received by the mother in 2010-11, which was subsequently returned to the son in 2012-13, indicating a potential instance of circular trading.
The ITAT clarified that the gift amount was transferred through banks, and all relevant documentation was submitted to the income tax officer. Furthermore, the ITAT noted that the Securities and Exchange Board of India (SEBI) had lifted the ban imposed on the hedge fund. Despite these clarifications, the income tax officer’s claim relied solely on information obtained from a Google search and local news reports, without conducting any independent investigation or cross-verification.
The ITAT ruled that the gift transaction was fully documented, and the donor’s financial capacity was evident. The Income Tax Department’s claim of circular trading was rejected. The bench further stated that the mother’s subsequent use of the money and its return to the son did not affect the validity of the gift.
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