ORDER Per Shri V. P. Elhence, Judicial Member - 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 fulfil 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).
4. The assessee, being aggrieved, came up in appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) upheld the order of the GTO regarding the preliminary objection of the assessee that penalty could not be levied on the assessee since the original karta had died. on merits, it was submitted on behalf of the assessee that noninclusion in the return, of the value of surrender of deposits with the Bombay company, was under the bona fide belief that the same was not liable to gift-tax. This contention was not accepted by the learned Commissioner (Appeals) on the ground that no disclosure regarding surrender of the deposit with the Bombay company was made before the GTO. He held, relying upon the order of the Appeals Tribunal, on the quantum side that the concealment of particulars of gift and furnishing of inaccurate particulars was deliberate. On behalf of the assessee, a chart was also submitted before the Commissioner (Appeals) to show that there was no net gain with respect to the wealth-tax liability of the assessee and that, in fact, the wealth-tax liability had increased. However, the learned Commissioner (Appeals) held that he had only to consider the impact of the surrender on the wealth-tax assessment of the assessee and not on the global effect of the surrender and that the assessees wealth-tax liability had certainly decreased. He held that the contention raised on behalf of the assessee regarding the reimbursement of the loss of the Bombay company was a mere afterthought. He also observed that in Part IIIB of the gift-tax return which required the assessee to furnish the details of the release, discharge, surrender, forfeiture or a abandonment made by the assessee of any debt, contract or other actionably claim or of any interest in property had been left blank by the assessee and no information on this point had been given in the course of the original assessment proceedings. He, therefore, held that it amounted to a concealment. For this proposition, reliance was placed by him on the decision of the Honble Supreme Court in the case of CIT v. Smt. P. K. Kochammu Amma [1980] 125 ITR 624. With these observations, he confirmed the penalty and upheld the order of the GTO.
5. The assessee, being aggrieved, has come up in appeal before us. Shri B. P. Agarwal, the learned counsel for the assessee, reiterated the contentions already raised on behalf of the assessee before the gift-tax authorities. He pointed out that the assessee having made a claim, it was not its duty to disclose at the same time that the claim not permissible. Reliance was placed by him on the assessment order of the Bombay company for the assessment year 1967-68 in which the capital loss of Rs. 13,20,400, as declared was accepted in the income-tax assessment. He also furnished the details of the said capital loss. He pointed out that the letter dated 17-1-1969 was voluntarily field by the assessee in August 1970. He referred to the resolution dated 29-4-1969 passed by the board of directors of the Bombay company after receiving the aforesaid letter dated 17-1-1969. Next, he referred to the copy of entry appearing in the memo book of late Lala Kailashpat Singhania, HUF, wherein it was shown that the amount of Rs. 2,20,473.99 was advanced as an act in the continuous process of supporting the Bombay company in holding substantial block of shares in N. K. H., so that the Singhania brothers could have the effective control and management over the affairs of N. K. H. This account also shows that in pursuance of the arrangement with Shri Nandlal Jalan and others to give up their control and management in the N. K. H., the Bombay company had to dispose of its entire holding at Rs. 10 per share causing a heavy loss and the aforesaid advance was allowed to be set off against the loss sustained by the company. Next, he referred to the letter dated 18-8-1979 of the Bombay company and the assessees replies dated 26-9-1977, 16-12-1977, 10-6-1980 and 23-6-1980 in corroboration. He also relied upon the wealth tax calculations and he argued on their basis that the net wealth-tax saving in the hands of the three HUFs, on account of the non-inclusion of Rs. 2,20,470, was only Rs. 9,407. He reiterated that the reimbursement of the loss was made in accordance with section 70 of the Indian Contract Act, 1872, which obliged the assessee to repay or reimburse the Bombay company for the benefit by it. Referring to the provisions of section 17(1)(c), he pointed out that since no Explanation was appended to it, onus of proving the concealment remained with the department and that the principles laid down by the Honble Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 applied. He submitted that the mere rejection of the explanation of the assessee could not attract penalty. He also submitted that since the contention of the assessee was that the release of the debt was of a bona fide nature and in consideration of the losses suffered by the Bombay company, the non-disclosure in Part IIIB of the return was not material. Lastly, he submitted that since what was taxed was a deemed gift under section 4(1)(c) no penalty could be attracted. For this proposition, reliance was placed by him on the decision of the Honble Karnataka High Court in the case of CIT v. Jewels Paradise [1975] 101 ITR 265 and the dicision ofthe Honble Calcutta High Court in the case of CIT v. Bhuramal Manikchand [1981] 130 ITR 129. Summing up his arguments, Shri B. P. Agarwal submitted that it was not a case for any penalty and that the penalty imposed and sustained was not justified.
6. On the other hand, Shri K. K. Rai, the learned departmental representative, placed strong reliance on the orders of the gift-tax authorities. He submitted that by virtue of Part IIIB in the gift-tax return, the assessee was obliged to furnished the details of release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property and, therefore, the learned Commissioner (Appeals) was justified in relying upon the decision of the Honble Supreme Court in the case of Smt. P. K. Kochammu Amma (supra). He, therefore, argued that there was no justification or warrant for any interference with the orders of the gift-tax authorities.
7. We have considered the rival submissions as also the decisions referred to above. Section 17(1)(c) prescribes for penalty if the assessee conceals the particulars of any gift or deliberately furnishes inaccurate particulars thereof. It is true that there being no Explanation appended to the section whereby a presumption of concealment could be raised, the burden of establishing that the assessee had concealed the particulars of any gift or had deliberately furnished inaccurate particular thereof would be on the department. Further, it cannot be said that the finding given in the assessment proceedings for determining or computing the gift-tax is conclusive. Penalty cannot be levied just on the basis of the reasons for which the assessment was made. Before penalty can be imposed, the entirely of the circumstances must reasonably point to the conclusion that the amount in question was the subject-matter of a gift and that the assessee had consciously concealed the particulars of the gift or had deliberately furnished inaccurate particulars thereof. In this case, therefore, the assessee is right in placing reliance on the observations of the Honble Supreme Court in the case of Anwar Ali (supra). Section 4(1)(c) is to the following effect :
"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 Gift-tax Officer to have bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment;"
It deals with a case where there is no transfer or assignment at all, but the owner of the right or interest passively allows his right or interest to be extinguished. The law then comes upon the scene and takes the property to its proper destination. The object is to rope in the so-called business transaction which are really gifts in a camouflaged form. It is not, however, forfeiture or abandonment has been made for bona fide reasons. This provision of collusion between in cases where the circumstances justify an inference of collision between the person who makes the discharge, surrender or abandonment, etc., and the person in whose favour the discharge, surrender or abandonment, etc., has been made. The language of section 4(1)(c) requires the satisfaction of the GTO that the release, discharge, surrender, forfeiture or abandonment was not bona fide. This satisfaction would be arrived at on the basis of appreciation of evidence. However, such satisfaction can not attract penalty under section 17(1)(c) automatically because it nowhere says so. We have, therefore, to see as to whether the entirely of the circumstances reasonably point to the conclusion the the assessee had concealed the particulars of any gift or had deliberately furnished inaccurate particulars thereof. In this connection, it is also relevant to notice that so far as the loss in the sale of shares is concerned, the Bombay company had claimed the loss in its income-tax assessment of the assessment year 1967-68 which was completed on 16-1-1978. The letter of the three Singhania brothers HUFs, addressed to the Bombay company was written on 17-1-1969 and the resolution was passed by the Bombay company on 29-4-1969, i.e., before 30-6-1969, the date when the return was field by the assessee. Therefore, whatever may be the final result of the quantum proceedings, it could not be said that the claim raised by the assessee was not bona fide. Since the assessees case on the basis of the said letter dated 17-1-1969 was that the deposits were made in the continuous process of supporting the Bombay company in holding substantial block of shares in N. K. H., the facts that the assessee did not disclose in part IIIB of the gift-tax return the details of such surrender was understandable. Those details would have been furnished by the assessee only if the assessee had admitted that it was a surrender, forfeiture or abandonment of the debt, and not in pursuance of an oral assurance of understanding. Such a course of conduct would have been inconsistent with the claim which was being raised by the assessee even before the return was field. Therefore, in this factual context by the mere reason of the assessees comission or failure to fill up Part IIIB, no presumption of concealment could be raised. If this were so, no claim could ever be raised by the assessee. Thus, the decision of the Supreme Court in the case of Smt. P. K. Kochammu Amma (supra) could not be availed by the department on facts. It is true that there was no written agreement fixing the liability for the losses on the HUFs and the Bombay company had claimed the loss as its own, but then the case of the assessee was hat the Bombay company was authorised to recover its loss out of th balances standing to the credit of the account of the Singhania brothers HUFs. It was not its case that the said agreement had taken place before the loss occurred. A past consideration is a good consideration. It is also true the assessee-HUF was showing this debt as an asset in its wealth-tax return till 31-3-1968 but this would be understandable in the background of the fact that the letter was sent to the Bombay company only on 17-1-1969. The question of claiming the loss by the assessee-HUFs in its own return would have arisen only if the assessees case was that from the very beginning it was agreed that the loss would be borne by the assessee. The assessee is justified in its submission that the mere rejection of its explanation could not attract penalty under section 17(1)(c). In the case of Jewels Paradise (supra), the Karnataka High Court held that the section 271(1)(c) of the 1961 Act could be invoked if an assessee concealed an income which he was bound to disclose for the relevant assessment year and not in respect of an amount which is included by virtue of section 69A of the 1961 Act in the assessment for the said year. In the case of Bhuramal Manikchand (supra), the Calcutta High Court held that the provisions of section 68 of the 1961 Act, under which cash credit found in accounts are treated as income of the previous year in which they are found are confined to the assessment proceedings and do extend to penalty proceedings. No decision of the Honble Allahabad High Court was brought to our notice on behalf of the department on this point. In the following cases, however, a similar view was taken - D. R. Dhanwate v. CIT [1961] 42 ITR 253 (Bom.), V. S. Arulanandam v. CIT [1968] 67 ITR 305 (Mad.) CIT v. Smt. Rani Duleiya [1972] 84 ITR 770 (MP) and CIT v. Biju Patnaik [1976] 103 ITR 713 (Ori.) On the order hand, in the case of CIT v. Aya Singh Ishar Singh [1973] 92 ITR 182 (Punj. & Har.), it was held that penalty could be imposed for failure to disclose an income which was deemed to accrue. In the case of Hindustan Tools Mfg. Co. v. CIT [1976] 102 ITR 174 (Punj. & Har.), it was held that penalty could be imposed for failure to disclose income in the balance sheet or returns There is also no direct authority of the Honble Supreme Court on this point although in the case of CIT v. S. Teja Singh [1959] 35 ITR 408, the Honble Supreme Court had approved the following observations of the house of Lords in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 AII. ER 587 :
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompained it ... : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." (per Lord Asquith) (p. 413) Even if for the sake of argument, it was to be presumed that penalty under section 17(1)(c) could be attracted even in respect of a deemed gift, we are of the view that, on facts, no penalty for concealment could have been levied in the present case. Apart from the fact that the transaction was treated in the deemed gift under section 4(1)(c), there was no other material from which it could be inferred that it was a gift. A perusal of the quantum orders shows that the contention put forward on behalf of the assessee was held to be not proved or not established for want of a written agreement or assurance regarding reimbursement or recoupment of the loss in question. On facts, therefore, the non-inclusion in the return of the value of the surrender of deposits with the Bombay company could well be under the bona fide belief that the same was not liable to gift-tax. So far as the observation made by the GTO in the assessment order regarding advantage derived by the assessee in respect of its wealth-tax liability is concerned, the chart placed before us by the assessee show that there was no net gain and that, in fact, the wealth-tax liability had increased. The wealth-tax saving in the hands of the three HUFs on account of the non-inclusion of RS. 2,20,470 was only amount of Rs. 9,407 and the extra wealth-tax liability payable by the members of the three HUFs only worked out to Rs. 10,441. In the case of assessee-HUF, the taxable wealth of the assessee for the assessment year 1970-71 was Rs. 7,07,370 on which the wealth-tax payable was Rs. 3,574 and after including the amount of Rs. 2,20,474, the wealth-tax would have increased by Rs. 2,204 only. Therefore, whichever way the matter is looked at, it cannot be said that the penalty under section 17(1)(c) could be attracted in the facts and circumstances of the present case referred to above. We hold, accordingly.
8. The appeal field by the assessee is accordingly, allowed and the penalty of Rs. 6,848 under section 17(1)(c) is cancelled.