Law: Income Tax Act, 1961

Section: 256(2)

Income-tax----Reference---Question of law---Assessee gifting certain shares to donee --¬Donee receiving bonus shares thereon as also dividend on bonus shares--¬Question whether dividend income should be assessed in hands of assessee depends on answer to question whether gift made by assessee was valid or not---Question regarding validity of gift already referred to High Court--¬Hence both questions should be disposed of together---Tribunal directed to refer question of law---Indian Income Tax Act, 1961. S.256(2). The assessee made a gift of a certain number of shares to the donee. A certain number of bonus shares as also a sum of Rs.25,000 as dividend income on the bonus shares came to be received by the donee during the relevant assessment years. In proceedings under the Gift Tax Act, 1958, the Gift Tax Officer held that the gift was void. The Commissioner (Appeals) affirmed the order of the Gift Tax Officer. On further appeal, the Tribunal held that the gift was valid. During the pendency of the gift-tax proceedings before the High Court, in the assessment proceedings under the Income Tax Act, 1961, the Assessing Officer held that since the gift to the donee was void, the sum of Rs.25,000 received by -the donee had to be assessed in the hands of the donor-assessee. The Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal, after referring to its earlier decision in the gift-tax appeal, in which it held that the gift was valid, observed that there was no justification for the addition of Rs.25,000 in the hands of the assessee and deleted the addition. The Tribunal rejected the application of the Revenue under section 256(1) of the Income Tax Act, 1961, to refer a question of law. On an application under section 256(2) for a direction to the Tribunal to refer a question of law, the assessee contended that since the Department had not challenged the finding of the Tribunal regarding the validity of the gift, the question sought to be raised could not be referred to the High Court: Held, that the finding regarding the validity of the gift had been challenged, by the Department and the Tribunal itself had referred that…

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