The Hindu Business Line : Some kindness to gifts in kind

IT IS just as well that the Finance Minister has heeded the advice of the cognoscenti and decided to bring to tax receipts camouflaged as gifts. If all goes well, this well-merited move would take effect from September 1, 2004.

One wishes the Finance Minister had not given this leeway to the tax dodgers. For, in the time available between the presentation of Budget and September 1, 2004, they may launder their ill-gotten wealth post-haste by giving it the colour of gift not only to evade income-tax thereon but also to make it legit.

The target of the proposed move is unexplained receipts in cash or cheque or draft or by way of credit. This is understandable in the backdrop of catena of cases where the income-tax department was frustrated when courts refused to hold as income cash explained away as gifts on the ground that testimonials given in appreciation of personal qualities cannot be termed as income.

There is an undercurrent of criticism that the Finance Minister has not made a comprehensive amendment to target gifts of all hues — in cash as well as in kind.

Their apprehension is that the dyed-in-the-wool tax evader would continue his game merrily by changing tack just a tad — hold the ill-gotten wealth in kind and not in cash.

What would happen if the tax sleuths stumble upon property title deeds or piles of share certificates instead of sacks of cash as hitherto?

Would courts show the same indulgence when the man caught with his pants down explains away the booty as gift in kind from his aficionados?

One hopes the Finance Minister wakes up to this dangerous possibility.

Else, an artiste who got away when caught with a pile of cash by explaining it away as gift from his fan club would hereafter first convert his booty into jewellery and give the same explanation without batting an eyelid.

Incidentally, the proposed ceiling of Rs 1 lakh on exemption from tax on gifts received on the occasion of one's marriage seems to be redundant, if not meaningless, because in any case gift of cash from relatives made out of natural love and affection is outside the tax net in terms of the proposed new Section 2 (24) (xiii).

To be sure, dowry and other filial and parental offerings on the occasion of the marriage would pass muster (but not under the Prevention of Dowry Act) under this leeway without any monetary ceiling.

Non-relatives should, however, take care to give gifts in kind to the bride or bridegroom as the case may be. Because if the aggregate of cash gifts from non-relatives breaches the ceiling of Rs 1 lakh, the bride's or as the case may the groom's party could be spoiled by the taxman.

It is another matter that most of the newly weds would be smart enough to explain away the spillover as gifts from doting relatives.

(The author is a Delhi-based chartered accountant.)

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