Facts in the Case
- A made a gift of Rs. 50,000 to his friend B on 1st September 2009.
- The Income Tax authorities levied tax on the gifted amount.
- The assessee (B) challenged the levy, disputing its legality.
Issues in the Case
- Whether the gift of Rs. 50,000 made in 2009 is liable to income tax.
- Whether the Income Tax Act provisions applicable in 2009 impose tax on gifts.
- Whether the assessee’s challenge to the tax levy is valid.
Principles Applied
1. Income Tax on Gifts – Legal Framework (As of 2009)
- Before Finance Act 2004 (effective from 1 June 2004), there was no specific provision to tax gifts in the Income Tax Act.
- From 2004 onwards, gifts received by an individual are taxable if the aggregate exceeds Rs. 50,000 in a financial year (Section 56(2)(x) introduced).
- Gifts received from relatives are exempt from tax.
- Gifts received from friends or non-relatives are taxable if they exceed the threshold.
2. Interpretation of Taxing Provisions
- Taxing statutes must be strictly construed.
- The date of gift and relevant tax laws at that time are decisive.
- The gift tax provisions introduced in 2004 are applicable to gifts received after 1 June 2004.
3. Exemption Limits
- The threshold exemption for gifts from non-relatives is Rs. 50,000 per financial year.
- If the gift does not exceed Rs. 50,000, it is not taxable.
Judgment / Legal Position
- Since the gift amount is exactly Rs. 50,000, and the tax provision exempts gifts up to Rs. 50,000, the gift is not liable for income tax.
- The tax authorities’ levy of income tax on the gifted amount is incorrect.
- The assessee’s challenge to the tax levy is valid and sustainable.