SHIV SHANKER LAL Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) In a family partition, the assessee, who is an individual, was allotted land measuring 14,716 sq. yards and a small garden house situated in the said land as his share. Out of this land, the assessee sold 5,678 sq. yards of land on 25-8-1961 to Ganesh Flour Mills at the rate of Rs. 60 per sq. yard. On 26-6-1961, the assessee, his wife, his son and his daughter-in-law formed a company known as New Delhi Theatres Private Limited, the assessee having 10 shares out of the total 35 shares. On 13-7-1961, the assessee sold 6,120 sq. yards of the land as well as the garden house to this company for Rs. 93,450. In his income-tax return for the assessment year 1962-63, the assessee claimed that the lands which he had sold to the company were agricultural lands and, therefore, no capital gains could be assessed on account of this transaction. The Income-tax Officer did not accept the assessee's claim and not only held that the lands were not agricultural lands but also held that the provisions of section 52 of the Income-tax Act, 1961 were attracted to the transaction. He estimated the market value of the property sold by the assessee to the company at Rs. 5,14,600 and on that basis, he determined the capital gains that accrued to the assessee as a result of this transaction at Rs. 4,47,956. The Incometax Officer also called upon the assessee to file a gift return in respect of this transaction. The assessee filed a return on 16-2-1965 showing the taxable gift as nil with an explanatory note to the effect that no gift was involved in the transaction of transfer of the land from the assessee to the company. The Gift-tax Officer, however, held that the assessee had made a gift of the lands to the company within the meaning of section 4(a) of the Gift-tax Act, 1958 (hereinafter referred to as the Act) and determined the value of the gift at Rs. 4,21,160. The Gift-tax Officer also issued notices to the assessee under section 17 of the Act for levy of penalty under sections 17(1) (a) and 17(l)(c) of the Act. The assessee filed a reply to the notices opposing the levy of penalty. The Gift-tax Officer over-ruled the objections of the assessee and levied penalties both under sections 17(1) (a) as well as 17(l)(c) of the Act. The amount of penalty levied under section 17(l)(c) of the Act is not available on record. The penalty levied under section 17(l)(a) of the Act was, however, Rs. 11,633. The Income-tax assessment as well as the gift-tax assessment and the penalty orders under sections 17(l)(a) and 17(l)(c) of the Act were confirmed by the Appellate Assistant Commissioner. On further appeals to the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal), the Tribunal cancelled the assessment of capital gains but confirmed the gift-tax assessment subject to some modification regarding the value of the gift. The Tribunal while cancelling the penalty under section 17(l)(c) of the Act, however, confirmed the penalty under section 17(1) (a) of the Act. But at the instance of the assessee, the Tribunal has referred the following question to this Court under section 26(1) of the Act :-

(2.) Before considering the respective contentions of the parties, it may be stated that the penalty under section 17(l)(a) of the Act was levied for not filing the return within the time prescribed under section 13(1) of the Act. The assessee had sold the land to the company on 13-7-1961. If by this sale the assessee had made a gift to the company of the value determined by the Tribunal in the Gift Tax Appeal, then under section 13(1) of the Act, the assessee had to file a gift-tax return by 30-6-1962. He did not file the return by this date and it was only in response to a notice under section 13(2) of the Act that he filed a return on 16-2-1965, i.e., after a delay of over 2 hours. Under section 17(l)(i) of the Act, the penalty prescribed is 2 per cent of the tax for every month during which the default continued but subject to a maximum of 50 per cent of the tax. The penalty calculated at 2 per cent would amount to Rs. 14,657. But the Gift-tax Officer levied a penalty of Rs. 11,633 which was the maximum which could be levied under section 17(l)(i) of the Act. There is no dispute regarding the quantum of penalty. The controversy is whether a penalty at all is leviable under the circumstances.

(3.) The learned counsel for the assessee, Sh. Randhawa, has first contended that it was not obligatory on the part of the assessee to file a gift-tax return in respect of transactions which do not amount to gifts as such under section 3 of the Act but which are deemed to be gifts under section 4 of the Act. In support of this contention, the learned counsel sought reliance on the following three decisions:-