The fundamental question is whether there was in fact a gift of 14,000 bonus shares made by the assessee to the transferee. The answer to this question lies in s. 4(1)(c) of the Gift-tax Act which provides that “where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the AO to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment“. On facts, the assessee had made a valid revocable gift of 6000 equity shares in the company on 20.2.1982 to the transferee. The only event that took place in AY 1989-90 was the revocation of the gift by the assessee on 15.6.1988. The question whether the revocation of the gift of the original shares in AY 1989-90 constitutes a gift of the bonus shares that were allotted to the transferee on 29.09.1982 and 31.05.1986 requires to be answered in the light of s.4(1)(c). The question of applicability of Escorts Farms has to be decided after a finding is reached on the applicability of the first part of s. 4(1)(c) (matter remanded).

S. 32 requires that the asset must be “owned, wholly or partly, by the assessee and used for the purposes of the business”. The Department’s argument that the assessee is not the “owner” of the vehicles is not acceptable because the lease agreement specifically provided that the assessee was the exclusive owner of the vehicle at all points of time and that it was empowered to repossess the vehicle (and not merely recover money) if the lessee committed a default. At the conclusion of the lease period, the lessee was obliged to return the vehicle to the assessee. Also, the assessee had the right of inspection of the vehicle at all times. As the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. The fact that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle does not make a difference. Also the fact that the Motor Vehicles Act deems the lessee to be the “owner” has no relevance

For a receipt to be exempt on the principles of Mutuality, three conditions have to be satisfied. The first is that there must be a complete identity between the contributors and participators. The second is that the actions of the participators and contributors must be in furtherance of the mandate of the association. The third is that there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. On facts, though the interest was earned from banks which were corporate members of the club, it was not exempt on the ground of mutuality because (i) the arrangement lacks a complete identity between the contributors and participators. With the funds of the club, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the ‘privity of mutuality’, and consequently, violating the one to one identity between the contributors and participators, (ii) the surplus funds were not used in furtherance of the object of the club but were taken out of mutuality when the member banks placed the same at the disposal of third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality & (iii) The Banks generated revenue by paying a lower rate of interest to the assessee-club and loaning the funds to third parties. The interest accrued on the surplus deposited by the club like in the case of any other deposit made by an account holder with the bank. A façade of a club cannot be constructed over commercial transactions to avoid liability to tax. Such setups cannot be permitted to claim double benefit of mutuality

S. 158B(b) defines the expression “undisclosed income” to mean that income “which has not been or would not have been disclosed for the purposes of this Act”. The only way of disclosing income on the part of an assessee is through filing of a return and therefore an “undisclosed income” signifies income not stated in the return filed. It cannot be said that payment of Advance Tax by an assessee per se is tantamount to disclosure of total income. There can be no generic rule as to the significance of payment of Advance Tax in construing intention of disclosure of income. This depends on the time at which the search is conducted in relation to the due date for filing return. If the search is conducted after the expiry of the due date for filing return, payment of Advance Tax is irrelevant in construing the intention of the assessee to disclose income because it is a case where income has clearly not been disclosed. The possibility of the intention to disclose does not arise since the opportunity of disclosure has lapsed. If search is conducted prior to the due date for filing return, the opportunity to disclose income by filing a return still persists. In such a case, payment of Advance Tax may be a material fact for construing whether an assessee intended to disclose. An assessee is entitled to make the legitimate claim that even though the search or the documents recovered show income earned by him, he has paid Advance Tax for the relevant assessment year and has an opportunity to declare the total income, in the return of income, which he would file by the due date. Hence, the fulcrum of such a decision is the due date for filing of return of income vis-à-vis date of search. Also, because Advance Tax is based on estimated income, it cannot result in the disclosure of the total income assessable and chargeable
to tax. The proposition that payment of Advance Tax is tantamount to disclosure of income would be contrary to the very purpose of filing of return. On facts, as the assessee had not filed the ROI by the date of search and the due date had lapsed, the income found was “undisclosed” even though advance-tax thereon had been paid. Similarly, as TDS is also computed on the estimated income of an assessee for the relevant FY, it does not amount to disclosure of income, nor does it indicate the intention to disclose income if the ROI is not filed