The Hindu Business Line : Gift horses cantering in twilight zone

The appreciation of the rupee against the dollar will impact Indian imports and exports after a time lag, aver the experts. In the world of taxation too, some measures take time before delivering on their promise.

That is why the facile explanation of gift still cuts ice despite the amendment to the Income-tax Act, 1961 w.e.f. April 1, 2005, saying that anyone receiving gift in excess of Rs 25,000 will have to pay tax on the entire gifts received by him during a year.

Splitting game

Past masters in the splitting game and intrepid assessees saw to it that no individual gift received was for an amount exceeding Rs 25,000. The government however did not throw in the towel. Instead it plugged the loophole.

Therefore, with effect from April 1, 2006, the focus is not on individual gifts but on the aggregate of gifts received during the year — if the aggregate exceeds Rs 50,000 during a financial year, the entire gift would be treated as the donee’s income.

The Income-tax Appellate Tribunal (ITAT) has accepted the apparently disingenuous plea of the Uttar Pradesh Chief Minister that the huge assets she has built were either gifts or built out of such gifts received from her political faithfuls and followers.

Artistes, politicians and industrialists all have got away in the past by proffering this alibi without batting an eyelid with judicial opinion veering to the view that testimonials given out of personal love and affection cannot be treated as income.

Pursuing the donors

That left the tax administration with the rather daunting task of pursuing the donors to verify the claim made by the donee. The task was daunting because there invariably were thousands of donors eager to play footsie with the donee who often was a mighty powerful or influential person.

The tax administration for obvious reasons was not enthused about the idea of putting the donors in the dock not only because of the difficulty of the job but, more importantly, because of the futility of the job — thousands of donors can easily sing in unison to bail out the donee by owning up but a small slice of the munificence each.

Job cut out

The Government must thus be complimented for ushering in a regime of taxing the donee but the hardboiled tax sleuths have the job cut out for them — of verifying the vintage of the gifts. If the gifts are explained away as having been received during the pre-April 2006 era, they would be stumped. But their ingenuity lies in calling the bluff of such glib assertions.

It however seems that those who were active during the pre-April 2006 era would get away especially if they take care by not contradicting themselves in other fora about the vintage of their assets.

The gift horses can be depended upon to canter them out of trouble. Gen-next however would not be as lucky. But then for all one knows they might dream up something better than the alibi of gift to checkmate the taxman.

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

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