Nut Crackers

Direct Taxes

Questions & Answers

Q.1 One of my client wife has gifted shop to his mother-in-law by registering giftdeed with the registering authority. Whether the value of shop being taxable under the head income from other sources in the case of donee or the same is allowable as gift from relative u/s. 56(2)(vi). Please clarify?

Ans. Section 56(2)(vi) applies in respect of gift of “any sum of money” and not on an immovable property. Hence provision is inapplicable. Otherwise also the gift being from daughter-in-law to her mother-in-law; “a relative” as explained in Explanation (vi) & (vii) would not hit.

Q.2 Whether Karta from their HUF Fund can give gift to the coparcener at any amount is allowable u/s. 56(2)(vi). If no, whether fund can be transferred by showing partial partition of HUF Fund by Deed of partition amongst the Karta and Coparcener. Please clarify?

Ans. Section 56(2)(vi) excludes gift to “any relative” Explanation does not cover a Hindu Undivided Family. Hence gift received by a coparcenar above Rs. 50,000/- from a H.U.F. would be liable to be taxed u/s. 56(2)(vi) of the I.T. Act. Secondly a Karta can give gift of reasonable amount to a coparcener under Hindu Law and not an unreasonable amount looking to the estate of the HUF. Thirdly “partial partition” is impermissible on account of over-riding provision contained u/s. 171(9) of the Act. A partition has to be full and complete, of all the property and members/coparceners of the family.

Q.3 A survey was conducted at the premises of the readymade garments merchant. During the survey, the Inspector of the Assessing Officer took the Inventory of the Stock-in Trade, put identification on the Books of Accounts, recorded the statement of the assessee and impounded the Books of Accounts without recording the reasons for the same. The Assessing Officer was present during the survey, however, except putting his signature, the whole survey was conducted by the Inspector. The assessee was advised that the Inspector has no authority to conduct any such activity during survey. You are requested to advise the course of action to be taken by the client.

Ans. Under Explanation to Section 133A, an inspector has been included as an “income tax authority” for the purposes of inspection of such books of account or other documents, which may be available at the place under survey; to place marks of identification and make or cause to be made extracts or copies therefrom. He is not authorized to take any inventory of the stock-in-trade or to record statement or to impound the books of account or other documents. When the Assessing Officer was admittedly present the survey and survey was conducted by him, it can be claimed by the Revenue, that his inspector was doing ministerial work and assisting him in doing the acts done in the course of the survey. It has also been admitted by the querist that the Assessing Officer has put his signatures or the inventory and on recording of the statements as well as the act of impounding Acts done by the Inspector should be deemed as acts done by the Assessing Officer himself. But even the Assessing Officer has no power to impound without recording his reasons of doing so. Hence, act of impounding is unauthorized and illegal. The querist may challenge the act of impounding by way of writ before the State High Court.

Q.4 During a marriage function, the I. T. Authority visited the function and collected the information and evidences from the various contractors in respect of the expenditure incurred for various ceremonies and events. They also recorded the statement of the contractors.

The assessee objected to the presence of I. T. Authority at the function. Can Assessing Officer use such information collected during the function for the purpose of proceedings under the Income Tax Act ? Is it proper on the part of I. T. Authority to visit during the marriage function and also to take statements etc. of the various persons ?

Ans. Sub-section (5) of Section 133A empowers an income tax authority including an Inspector to do the stated acts but only after the marriage function. The assessee can object to the presence at the function. However, the information so collected as well as the statements as recorded can be used against the assessee after furnishing its copy and affording an opportunity to cross-examine and to adduce evidence in rebuttal. Else it shall be in violation of statutory provision as well as natural justice and liable to be ignored or excluded. The Hon’ble Supreme Court in Pooranmal’s case has opined that material collected in an illegal search can be used but its evidentiary value would not be at par. Reliance can also be placed on the decision of the Rajasthan High Court reported in 213 CTR 200.

Q.5 The I. T. Authority conducted the survey on ‘XYZ Company’. I. T. Authority wanted to verify the books of accounts of the said company. However, books of accounts were not available at the business premises. On being asked about the books, the partner of the firm stated that the books of accounts etc. are lying with the tax consultant for preparation of return of income. The I. T. Authority wanted to survey the premises of the tax consultant Can I. T. Authority conduct survey at premises, which is not a business premises of the assessee but that of the tax consultant ?. Assuming that the survey is conducted at the premises of the tax consultant, can I. T. Authority inspect the books of the tax consultant and / or his other clients ?

Ans. Section 133A(1) contains an ‘Explanation’ whereby place other than place of business permits to survey and reach the books of account or other documents, if the assessee states that his books of account, etc. have been kept at such other place. Hence, on account of statement of the assessee the Income tax Authority would be competent to survey the premises of the tax consultant. However, the Income Tax Authority can not inspect the books of the tax consultant and/or his other clients. He should restrain himself to have access to, inspect and take further proceedings only in respect of the assessee and not on others.