GAUR HARI SINGHANIA Vs. GIFT-TAX OFFICER

JUDGEMENT

(1.) The question raised in this appeal is whether the Commissioner (Appeals) was justified in confirming the imposition of penalty on the assessee under section 17(1)(c) of the Gift-tax Act, 1958 (the Act).

(2.) The assessee is a HUF. The karta of the HUF was Sir Padampat Singhania, who died sometime after the assessment was completed by the GTO and the present karta representing the HUF is Dr. Gaur Hari Singhania. The gift-tax assessment for the assessment year 1969-70 was originally completed on 24-9-1969. Subsequently, the assessment was reopened under section 16(a) if the Act, on the basis of a letter dated 17-1-1969 written by the assessee HUF and the HUFs of the other two Singhania brothers, namely, the HUFs of late Lala Kailashpat Singhania and late Lala Lakshimpat Singhania, addressed to JK Investors (Bombay) Ltd. (the Bombay company) whereby the Bombay company was authorised to recover its loss to the extent of Rs. 6,61,421.97 out of the balance of Rs. 2,20,473.99, each standing to the credit of the three Singhania Brothers HUFs aforesaid in the books of the Bombay company as on 31-12-1968. It came to notice of the GTO in September 1970, in connection with another proceeding. This fact had not been disclosed by the assessee-HUF in its return field on 30-6-1969. The case of the assessee was that the Bombay company was asked by the three Singhania HUFs to purchase a block of shares of New Kaiser-i-Hind Spinning and Weaving Mills Co. Ltd., Bombay (N. K. H. Shares for short), in order to acquire its effective control and management and that for this purpose certain advances were made by the three Singhania brothers HUFs to the Bombay company in 1947. According to the assessee, in 1965, the three Singhania brothers were compelled by adverse circumstances to give up the control and management of N. K. H. to Shri Nandlal Jalan and others. In order to effective this divesting of the management, the Bombay company is said to have been requested to dispose of the above shares which resulted in losses. The contention of the assessee was that while requesting the Bombay company to dispose of the shares, there was an unwritten understanding and assurance by the Singhania brothers to compensate its losses out of their deposits and that the letter dated 17-1-1969 was written by the assessee-HUF to fulfill that assurance or understanding. The release of the debt being in consideration of the said losses, it was submitted by the assessee that the transaction did not amount to a gift. The GTO, however, construed the said letter as amounting to the release of a debt without consideration and the reasons for compensating the Bombay company for any loss on sale of shares were not considered bona fide. Accordingly, holding the amount of Rs. 2,20,474 as constituting a deemed gift within the meaning of sections 2(xii) and 4(1)(c) of the Act, the GTO brought it to tax and completed the reassessment on 27-1-1978. The commissioner (Appeals) vide his order dated 24-12-1979 upheld the order of the GTO. The second appeal preferred by the assessee-HUF was also dismissed by the Appellate Tribunal on 11-6-1981.

(3.) The GTO initiated penalty proceedings against the assessee under section 17(1)(c) for the concealment of the said deemed gift of Rs. 2,20,474. The explanation of the assessee, insofar as it is material for the present proceedings, was that the act of the release of the debt did not amount to a gift and that the act of omission committed by the person in his lifetime could not be thrust upon his legal heir. The GTO held that there was a clear release of debt in favour of the Bombay company without any consideration which was covered within the definition of deemed gift under section 4(1)(c). He held that there was no evidence to support the contention that there was any consideration flowing from the loss suffered on the sale of shares by the assessee-HUF. So far as the second contention is concerned, the GTO did not accept it as the assessee is a HUF. The GTO held that the alleged arrangement between the Bombay company and the assessee to share the loss on sale of shares was only a device to save the incidence of tax. Holding, therefore, that the assessee had concealed the amount of gift and had deliberately furnished inaccurate particulars thereof, levied a penalty of Rs. 6,838 which was the minimum prescribed under section 17(1)(c).