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Section 5(1)(ii) of the Gift-tax Act, 1958 - Exemptions - Gift of movable property situate outside India - Assessment year 1983-84 - Whether a gift which is made in Kashmir would fall outside purview of section 3 as it is specifically exempted by section 5(1)(ii) - Held, yes FACTS The assessee was a NRI. By way of a demand draft amount of Rs. 7,90,000 lying in the assessee's name in a bank at Vasco was transferred to a bank in Kashmir. Thereafter, on 1-11-1982, the assessee arrived in India and on the next day, gave gifts of Rs. 1,58,000 to 5 trusts of A's family in Kashmir. Thereafter, on 2-12-1982, the assessee sold her equity shares to 3 companies in Kashmir by an agreement which was executed at Kashmir and the 3 companies received loan from the 5 trusts of Rs. 7,85,631. Thereafter, on 20-12-1982, by a demand draft Rs. 8,00,000 was transferred from Kashmir to Vasco, and that amount was withdrawn and advanced to 'M/s. C' Brothers. Thereafter, on 27-4-1983, the assessee received an amount of Rs. 8,00,000 from 'M/s. C Brothers' and that amount was invested in Rural Development Bonds and, thereafter, exemption was claimed in the return of income for the assessment year 1983-84. Both the Deputy Commissioner (Appeals) and Tribunal had held that the assessee was not liable to pay gift-tax and her case was exempted under section 5(1)(ii). On appeal, the revenue submitted that the said transaction of gift was a colourable transaction which had been resorted to solely for the purpose of avoiding tax. HELD The section clearly contemplates grant of exemption to individuals who are not ordinarily residing in India and secondly where movable property is given by way of gift outside the territory in India. A gift, therefore, which is made in Kashmir would, therefore, fall outside the purview of section 3 as it is specifically exempted by section 5(1)(ii). In the instant case, it was an admitted position that the assessee No. 1 was a non-resident Indian who was permanently residing in Dubai. The assessee arrived in India on 1-11-1982 and on 2-11-1982, a gift was given to 5 trusts in Kashmir. On the same day, the assessee sold her equity shares to 3 companies in Kashmir by…

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