V.M. Kanade, J.

The Revenue is challenging the judgment and order passed by the Income Tax Appellate Tribunal which has confirmed the order passed by the Deputy Commissioner of Income Tax (Appeals) and has held that respondent No. 1 was not liable to pay gift-tax and her case was exempted under Section 5(1)(ii). The appeal was admitted by this Court and the following substantial question of law was framed :-

"A. Whether the gifts made in Kashmir by the assessee a non-resident of India, out of the money transferred from other part of the country, is exempted from tax under the Gift Tax Act, 1957?"

2. The brief facts which are necessary for deciding this appeal are as under :-

It is the case of the Revenue that one Ashok Chowgule deposited an amount of Rs. 7,85,631/- in Central Bank, Vasco on 21.10.1982. Before the said amount was deposited in August, 1981, 20 Companies of Chowgule House were floated at Kashmir. Thereafter on 25.10.1982 a Demand Draft of 7,90,000/- was issued by State Bank of India. Vasco in assessee's name and it was made payable in SBI Bank, Kashmir. On 30.10.1982 a Savings Bank Account was opened at State Bank of India, Kashmir. Thereafter, on 1.11.1982 the assessee arrived in India and on the next day i.e., on 2.11.1982 the assessee gave gift of Rs. 1,58,000/- to 5 trusts of Chowgule family in Kashmir in favour of the children of Vijay and Ashok Chowgule. Thereafter on 2.12.1982, the assessee sold her 12,340 equity shares to 3 Companies in Kashmir at the rate of Rs. 65/- per share aggregating to Rs. 8,02,100/- by an agreement which was executed at Kashmir. The 3 Companies received loan from the 5 trusts of Rs. 7,85,631/-. Thereafter, on 20.12.1982 by Demand Draft of Rs. 8,00,000/- was transferred from Kashmir to Central Bank, Vasco and this amount was withdrawn and advanced to M/s. Chowgule Brothers. Thereafter on 27.4.1983 the assessee received an amount of Rs. 8,00,000/- from M/s. Chowgule Brothers and on 29.4.1983 this amount was invested in Rural Development Bonds and thereafter exemption was claimed in the return of income for the assessment year 1983-84.

3. The learned counsel appearing on behalf of the appellant submitted that the aforesaid transaction of gift was a colourable transaction which had been resorted to solely for the purpose of avoiding tax. He submitted that it was open for the Court to gather from the circumstances the real nature of the transaction and to draw inference whether the said transaction was made with an intention to escape tax liability. He relied on a judgment of the Supreme Court in the case of McDowell and Co. Ltd. v. Commercial Tax Office reported 154 ITR 148. He invited our attention to the observation made by Justice Chinnappa Reddy, J. who had given a separate concurring judgment and submitted that in view of the aforesaid observation it was the duty of the Court to examine whether a legal device had been used to avoid tax. He submitted that both the lower authorities had not taken into consideration the ratio of the said judgment and had not examined whether the transaction was in fact a colourable device to escape tax liability. He submitted that in the present case respondent No. 1 though is admittedly a non-resident Indian she was also not residing in Kashmir and had no business or interest b whatsoever in Kashmir and on the contrary had interest only in Goa. The respondent No. 1 had made a gift by issuing a cheque on State Bank of India, Sri nagar and this amount was transferred from Bank balance from Vasco to Kashmir. He, therefore, submitted that this was clearly a colourable transaction for avoiding the gift-tax.

4. Mr. R. Srinivasan, the learned counsel appearing on behalf of respondent No. 1 submitted that the question of law which was framed was not a substantial question of law. He submitted that whether a transaction amounts to a colourable device or not is a question of fact and since there was a concurrent finding given by the two lower authorit