Written in : May 1998

There is an interesting incident which I think is worth knowing. So, here it is.

One Venkateswaran from Madras filed a return showing a loss of about Rs.70,000. His records showed that he had received about Rs.1.25 crores from one Haji Abdul Rahim, Leh, Ladakh and shares in Shaw Wallace Ltd. valued at about Rs.2.48 lakhs from one Chandrakumar of Madras.

When asked, he explained that the amount received from Haji Abdul Rahim was a gift, yes a gift, given to him. When the officer asked him to produce evidence, Venkateswaran offered an affidavit executed and sworn by Haji Abdul Rahim before a Judicial Magistrate which confirmed that Rahim had given a gift of the said amount to Venkateswaran.

The officer took sworn statements from Venkateswaran which contained the following facts. According to Venkateswaran, he knew Rahim from 1960; that he was introduced to Rahim by his classmate Sultan Vazir who is a Kashmiri doing business in Bombay. He said the gift was made by Rahim in the presence of Vazir at Srinagar at a company's guest house whose address he had forgotten. He said the gift was received in cash (!) in 9 suit cases and it was not counted when it was taken over. He said that the amount was brought to Delhi by road and partly from Delhi to Madras and Delhi to Bangalore by flight. He said the amount was carried to Bangalore by a personal friend whose name he did not reveal.

Incidentally, you may want to know that gifts made of movable property in Jammu & Kashmir are not taxable to gift tax in India. So, Rahim was not required to have paid gift tax. Hence, the gift was made in Srinagar.

The department examined Vazir again in a sworn statement. It turned out that he was not a common friend of Venkateswaran and Rahim. He had come to know of Rahim only when the 'gift' was made. He was introduced to Rahim by Venkateswaran himself. Vazir also did not know the amount of gift said to have been made by Rahim nor other details like number of suitcases etc.

The department then recorded the sworn statement of Haji Abdul Rahim. After initial denial, Rahim confessed as follows. He confirmed having given the affidavit, but said that he was made to execute it on a payment of Rs.50,000 by Venakteswaran. He confirmed that he had not given any money to Venkateswaran as gift or otherwise.

The department did not rest with this. It went ahead and made more enquiries. It asked the RBI as to what Rs.1.25 crores would weigh if packed. The RBI said that it would weigh about 125 kgs., and would required at least 3 suitcases of size 24x10x12 inches. The department also made enquiries with Indian Airlines which showed that Venkateswaran had travelled from Madras to Delhi on the 14th January with a checked in baggage of only 10 kgs. The Superintendent of Police, Road Traffic, Udhampur informed the department that the road from Jammu to Srinagar was thorough for up-convey only on 10th January and down convey only on the 11th. The officer considered that the distance between Jammu and Delhi was 585 kms and Venkateswran could not have reached Srinagar on the 11th January to receive the alleged gift.

More enquiries revealed more interesting facts. Rahim - who was supposed to have given a gift of Rs.1.25 crores - was enjoying overdraft facilities with Bank of Jammu & Kashmir with a limit of Rs.1 lakh. He continued to be a debtor of the bank when the gift was given. Further enquiries showed that Rahim had not travelled from Leh to Srinagar by air and that at that time road traffic was closed between Leh and Srinagar, being winter.

Some more interesting facts: Venkateswaran did not go beyond Delhi at the time. He stayed at a hotel in Delhi and did not stir out.

Enquiries with Chandrakumar showed that he had not gifted the shares in Shaw Wallace to Venkateswaran but had sold them.

When confronted with all this, Venkateswaran filed a revised return showing both amounts as his income.

But the officer did not rest there. He made an addition of Rs.50,000 to his income. This was the amount given by Venkateswaran to Rahim to make him sign an affidavit. Venkateswaran contested this addition and ultimately the matter came to the Tribunal. The Tribunal discussed all these facts and concluded that Rahim could not have signed the affidavit without consideration. His statement under oath that he had received Rs.50,000 was good evidence and should lead to the addition of the amount in Venkateswaran's hands.

Finally, not only Venkateswaran had to pay tax on both 'gifts' received but also the additional Rs.50,000. Undoubtedly, interest, penalty and prosecution were natural consequences.

Interesting? Yes. But my intention of narrating it is not to entertain you. Venkateswaran's attitude is not exceptional - though many may not be as brazen as he was or as adventurous.

Taxpayers often tend to believe that any 'transaction' would become acceptable if the paperwork was good - just like Venkateswaran would have believed that the gift should have been accepted because of a sworn affidavit.

I often tell people that truth can always be unearthed, if there is the will to do so. No amount of paperwork, howsoever good, can hide the truth.

There is an excellent example closer home. Over the past few years we had witnessed many 'sale and lease back' transactions of assets. Most of these were mere paper transactions where often even the assets (claimed to have been sold and leased back) did not exist. As it turned out, good work by some officers unearthed this entire racket and many taxpayers had to cough up huge amounts of tax.

Aren't these good lessons for us?

A lawyer won a case for a client. He sent a telegram to the client: 'Justice has triumphed!'. The client shot back a telegram: 'Appeal at once!'