TARA RANI Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) BRIEFLY, the case of the petitioner is that that she owned a double storeyed house bearing No. 230 in Sector 21-A, Chandigarh. She gifted the same in favour of her grandchildren, Miss Babloo, daughter of Baldev Raj and Mr. Duke, son of Tilak Raj, on account of love and affection, vide gift deed dated April 17, 1971. She also duly paid the gift-tax amounting to Rs. 7,000 as assessed by the GTO on March 8, 1978.

(2.) THE petitioner, it is alleged, received a notice under Section 281 of the I. T. Act, 1961 (hereinafter referred to as "the Act") from the ITO, District 1 (4), Chandigarh, respondent No. 2, to show cause as to why the gift of the property in question be not treated as void and why the rent of the property be not attached to realize the tax demand outstanding against her. She filed a reply to the notice. The said respondent, it is next alleged, without applying his mind to the facts passed an order on August 30, 1978, holding the gift deed to be void. She challenged the order in this court in a writ petition (C. W. P. No. 3784/78) which was accepted by the Division Bench on September 29, 1978, and it was ordered that the matter be decided afresh after taking into consideration the reply filed by the petitioner. The respondent again passed an order on December 15, 1978, holding that the;gift had been made by the petitioner to defraud the revenue and escape liability to pay the outstanding demand of income-tax against her, of the firm, M/s. Tilak Raj, Baldev Raj in which she was a partner and, therefore, the gift of property by her in favour of the grandchildren was void under Section 281 (1) of the Act. She has challenged the aforesaid order through this writ petition, inter alia, on the ground that the gift was admitted by the GTO as a valid and legal transaction against which the revenue did not go up in appeal. The petitioner, it is alleged, also paid the tax (G. T.) on the basis of the order. In the circumstances, it is averred that the Revenue was not entitled to reopen the matter. It is further averred that no demand was outstanding against the petitioner, when the gift was made, and consequently it cannot be said that the gift was not a bona fide one. It was incumbent upon the respondents to prove that the gift was made with a purpose to defraud the Revenue which it (the respondents Revenue) had failed to do. It is next stated that the firm, in which the petitioner was a partner, was a registered one and it was on March 24, 1972, that the ITO treated it as an unregistered firm and taxed as such. It is further said that, in case the firm had not been treated as unregistered, the liability of the petitioner would not have been to the tune of Rs. 1,17,000.

(3.) IT is contended by the learned counsel for the petitioner that the ITO while declaring the gift void took into consideration a letter dated April 12, 1971, to which she was not a party. The letter was written by the ITO, Collection Ward, Chandigarh to the TRO, Patiala. He further submits that the petitioner cannot be held liable, on the basis of that letter, for the shares of the other partners. He has then argued that when the gift was made no tax was due from her and she could not foresee that the firm would be treated as an unregistered firm by the ITO for the assessment year 1969-70, while it was being treated as a registered firm in the earlier assessment years. According to him, in the aforesaid situation, the gift was a valid one and could not be held void-by the ITO.