GST Updates

Gifts and GST:-Part –I-Meaning of Gift

Before moving on to the statutory provisions, let’s try to understand the meaning of Gift and essential ingredients of Gift. Although the term” Gift” has been used frequently in the CGST Act, 2017, however it has not been defined under the law.

  • If a word has not been defined and it’s of day to day use, then interpretation of the word should be in its popular sense:

Hon’ble Apex Court in the matter of Ku. Sonia Bhatia vs State Of U.P. & Ors on 17 March, 1981 Equivalent citations: 1981 SCR (3) 239, 1981 SCC (2) 585 observed as follows:

“It is well settled that whenever the legislature uses certain terms or expressions of well-known legal significance or connotation the courts must interpret them as used or understood in the popular sense. In the case of C.I.T. Andhra Pradesh v. M/s. Taj Mahal Hotel, Secundrabad  this Court while laying down guidelines for holding how a particular expression has been defined, observed as follows:-

“Now it is well settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means “that sense which people conversant with the subject matter with which the statute is dealing, would attribute to it”.

 

  • Meaning of the Term “Gift”

Let’s refer to some of the judicial interpretations of India and outside and meaning of the term “gift” as provided under various dictionaries:

a) Hon’ble Apex Court in the matter of Sonia Bhatia vs State Of U.P. & Ors on 17 March, 1981 Equivalent citations: 1981 SCR (3) 239, 1981 SCC (2) 585 observed as follows:

 “A gift inter vivos (a) may be defined shortly as the transfer of any property from one person to another gratuitously. Gifts then, or grants, which are the eighth method of transferring personal property, are thus to be distinguished from each other, that gifts are always gratuitous, grants are upon some consideration or equivalent.”

Thus, according to Lord Halsbury’s statement the essential distinction between a gift and a grant is that whereas a gift is absolutely gratuitous, grant is based on some consideration or equivalent. Similarly in Volume 38 of Corpus Juris Secundum, it has been clearly stated that a gift is a transfer without consideration and in this connection while defining the nature and character of a gift the author states as follows:

“A gift is commonly defined as a voluntary transfer of property by one to another, without any consideration or compensation therefore. Any piece of property which is voluntarily transferred by one person to another without compensation or consideration. A gift is a gratuity, and an act of generosity, and not only does not require a consideration but there can be none; if there is a consideration for the transaction it is not a gift.”

It is, therefore, clear from the statement made in this book that the concept of gift is diametrically opposed to the presence of any consideration or compensation. A gift has aptly been described as a gratuity and an act of generosity and stress has been laid on the fact that if there is any consideration then the transaction ceases to be a gift.

                                                                                                                                                “Emphasis Supplied”

b) Black’s Law Dictionary (Fourth Edition) defines gift:-

“A voluntary transfer of personal property without consideration. A parting by owner with property without pecuniary consideration. A voluntary conveyance of land, or transfer of goods, from one person to another made gratuitously, and not upon any consideration of blood or money.”

                                                                                                                                                “Emphasis Supplied”

 

c) Webster’s Third New International Dictionary (Unabridged) defines gift as :

“Something that is voluntarily transferred by one person to another without compensation; a voluntary transfer of real or personal property without any consideration or without a valuable consideration- distinguished from sale.”

“Emphasis Supplied”

 

d) Volume 18 of Words & Phrases (Permanent Edition) defines gift thus:

“A ‘gift’ is a voluntary transfer of property without compensation or any consideration. A ‘gift’ means a voluntary transfer of property from one person to another without consideration or compensation.”

                                                                                                                                                “Emphasis Supplied”

e) Press Release issued by the Government clarifies the term “Gift” as follows:

“Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.”

                                                                                                                                                                “Emphasis Supplied”

 

f) In the matter of Commissioner v. Duberstein, U.S. Supreme Court held that

The cases at bar are fair examples of the settings in which the problem usually arises. They present situations in which payments have been made in a context with business overtones — an employer making a payment to a retiring employee; a businessman giving something of value to another businessman who has been of advantage to him in his business.

 The U S Supreme Court further observed that

A gift in the statutory sense, on the other hand, proceeds from a “detached and disinterested generosity,” Commissioner v. LoBue, 351 U. S. 243, 351 U. S. 246; “out of affection, respect, admiration, charity or like impulses.” Robertson v. United States, supra, at 343 U. S. 714.

“Emphasis Supplied”

 

g) In an Australian Judgement, Leary v. Federal Commissioner of Taxation 80 ATC 4438; (1980) 11 ATR 145; (1980) 32 ALR 221 (Leary)

The usual attributes of a gift are that:

… a gift will ordinarily be by way of benefaction, a gift will usually be not made in pursuance of a contractual obligation and that a gift will ordinarily be without any advantage of a material character being received in return. I would add, to those usual attributes of a gift, the attribute that a gift ordinarily proceeds from a ‘detached and disinterested generosity’.

                                                                                                                                                        “Emphasis Supplied”

 

  • Key Ingredients of “Gift” coming out of the above definitions

a) Gift is a voluntary transfer of property: Gift must be voluntary in nature. The term voluntary would in normal parlance mean any act which is an act based upon acting on one’s own will and through own conscience. It should not be under the influence of anybody and should be according to one’s own will.

b) Gift involves transfer of property from one person to another gratuitously:- This issue has been further discussed by Hon’ble Apex Court in the matter of Ku. Sonia Bhatia vs State Of U.P. & Ors on 17 March, 1981 Equivalent citations: 1981 SCR (3) 239, 1981 SCC (2) 585 observed that

“It has already been pointed out that in considering the nature of a gift one should not confuse the motive, which may be love and affection, or spiritual benefit, with valuable consideration which has to be either in the shape of a money compensation or equivalent of the same. It is true that in every gift the donor has a particular motive and objective or a reason to part with his property in favour of the donee, the reason being, in some cases, love and affection where the gift is in favour of a relation or friend, or spiritual benefit in other cases but this will be the immediate motive for making the gift and cannot be regarded as a consideration for the gift because the very concept of gift is based on a purely gratuitous consideration

                                                                                                                                                “Emphasis Supplied”

The two important conclusions coming out of the above discussion is that consideration has to be in the form of the money compensation or other equivalent of the same and the very concept of gift is based on a purely gratuitous consideration. The next term which becomes important is then what is meant by consideration.

 

c) Gift is a transfer without consideration and gratuitous consideration is not a consideration in the eyes of the law- Hon’ble Apex Court in the matter Ku. Sonia Bhatia vs State Of U.P. & Ors on 17 March, 1981 Equivalent citations: 1981 SCR (3) 239, 1981 SCC (2) 585 observed that

 Before closing this aspect of the matter we might also refer to the definition of consideration given in various books. Black’s Law Dictionary defines ‘consideration’ thus:

Consideration” is not to be confounded with motive. Consideration means something which is of value in the eye of the law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant”.”

                                                                                                                                                “Emphasis Supplied”

Hon’ble Apex Curt further observed that

 “In Volume 17 of Corpus Juris Secundum (p.420-421 and 425) the import of ‘consideration’ has been described thus:-

“Various definitions of consideration are to be found in the textbooks and judicial opinions. A sufficient one, as stated in Corpus Juris and which has been quoted and cited with approval is, “a benefit to the party promising, or a loss or detriment to the party to whom the promise is made……………

At common law every contract not under seal requires a consideration to support it, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee……………..

There is a sufficient consideration for a promise if there is any benefit to the promisor or any detriment to the promisee……….It may be laid down as a general rule, in accordance with the definition given above, that there is a sufficient consideration for a promise if there is any benefit to the promisor or any loss or detriment to the promisee.”

The gist of the term ‘consideration’ and its legal significance has been clearly summed up in s. 2(d) of the Contract Act which defines ‘consideration’ thus:

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstrains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

From a conspectus, therefore, of the definitions contained in the dictionaries and the books regarding a gift or an adequate consideration, the inescapable conclusion that follows is that ‘consideration’ means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. “

                                                                                                                                                “Emphasis Supplied”

 

d) If there is a consideration for a transaction, it is not a gift

 Hon’ble Apex Court in the matter of Ku. Sonia Bhatia vs State Of U.P. & Ors on 17 March, 1981 Equivalent citations: 1981 SCR (3) 239, 1981 SCC (2) 585 observed as follows:

 A gift has aptly been described as a gratuity and an act of generosity and stress has been laid on the fact that if there is any consideration then the transaction ceases to be a gift.

Gift is an act of generosity and it lacks consideration. Consideration can be in monetary form but it can also be in form of benefit to the transferor or detriment to the transferee. Consideration can be a reasonable equivalent or other valuable benefit passed on by the transferor to the transferee. The consideration should flow from the transferor to the transferee. Therefore, gift will ordinarily be without any advantage of a material character being received in return by the transferor from the transferee. Gift is something which proceeds from “‘detached and disinterested generosity’.

 

Conclusion: On a concluding would like to refer following observations made by the Apex Court, which would hold the key in the discussions on treatment of gifts under GST Regime:

Observation 1:  “A gift is commonly defined as a voluntary transfer of property by one to another, without any consideration or compensation therefore”

 Observation 2: the very concept of gift is based on a purely gratuitous consideration”

 Observation 3: “If there is any consideration, then the transaction ceases to be a gift.”

 Observation 4:  “That there is a sufficient consideration for a promise if there is any benefit to the promisor or any loss or detriment to the promisee.”                

 Observation 5: “Consideration” is not to be confounded with motive. Consideration means something which is of value in the eye of the law.”

I have refrained from quoting examples, as it would be appropriate to refer to the principles as envisaged herein at appropriate places wherein particular situations would be discussed in ensuing parts.

The next part would be deliberating on the impact of Section 17(5) of CGST Act, 2017 read with section 16 of CGST Act, 2017 and whether the concept of “in the course or furtherance of business with reference to provisions of Section 17(5) of CGST Act, 2017.

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