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Judgment
M.R.A. Ansari, J.
(1) In a family partition, the assessed, 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 assessed 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 assessed, his wife, his son and his daughter-in-law formed a company known as New Delhi Theatres Private Limited, the assessed having 10 shares out of the total 35 shares. On 13-7-1961, the assessed 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 assessed 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 assessed''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 assessed to the company at Rs. 5,14,600 and on that basis, he determined the capital gains that accrued to the assessed as a result of this transaction at Rs. 4,47,956. The Incometax Officer also called upon the assessed to file a gift return in respect of this transaction. The assessed 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 assessed to the company. The Gift-tax Officer, however, held that the assessed 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 assessed u/s 17 of the Act for levy of penalty under sections 17(1)(a) and 17(l)(c) of the Act. The assessed filed a reply to the notices opposing the levy of penalty. The Gift-tax Officer over-ruled the objections of the assessed and levied penalties both under sections 17(1)(a) as well as 17(l)(c) of the Act. The amount of penalty levied u/s 17(l)(c) of the Act is not available on record. The penalty levied u/s 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 u/s 17(l)(c) of the Act, however, confirmed the penalty u/s 17(1)(a) of the Act. But at the instance of the assessed, the Tribunal has referred the following question to this Court u/s 26(1) of the Act :-
" WHETHER on the facts and in the circumstances of the case, the default contemplated u/s 17(l)(a) of the Gift Tax Act was borne out?"
(2) Before considering the respective contentions of the parties, it may be stated that the penalty u/s 17(l)(a) of the Act was levied for not filing the return within the time prescribed u/s 13(1) of the Act. The assessed had sold the land to the company on 13-7-1961. If by this sale the assessed had made a gift to the company of the value determined by the Tribunal in the Gift Tax Appeal, then u/s 13(1) of the Act, the assessed 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 u/s 13(2) of the Act that he filed a return on 16-2-1965, i.e., after a delay of over 2" hours. u/s 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 u/s 17(l)(i) of the Act. There is no dispute regarding the quantum of penalty. The controversy is whether a penalty at all is livable under the circumstances.
(3) The learned counsel for the assessed, Sh. Randhawa, has first contended that it was not obligatory on the part of the assessed to file a gift-tax return in respect of transactions which do not amount to gifts as such u/s 3 of the Act but which are deemed to be gifts u/s 4 of the Act. In support of this contention, the learned counsel sought reliance on the following three decisions:-
" ALL the three cases cited by the learned counsel were cases of an assessed not having included in his Income Tax returns the income which was assessable in his hands u/s 16(3) of the Indian Income Tax Act, 1922 and it was held that no statutory obligation was cast on the assessed in filing a return of his total income to include therein the income which was assessable in his hands u/s 16(3) of the said Act and that section 16(3) of the said Act imposed an obligation upon the Income Tax Officer to compute the total income of an individual for the purposes of assessment by including the items of income set out in clauses (a) (i) to (iv) and (b) of section 16 (3) of the said Act. It was further held in V. S. ARULANANDAM Vs. COMMISSIONER OF Income Tax, MADRAS., that no penalty u/s 28(1) (c) of Income Tax Act, 1922 could be levied on an assessed on the ground that he had not disclosed in his returns the income which was assessable in his hands u/s 16(3) of the said Act. The learned counsel has not cited any case under the Act in support of his contention that an assessed was not bound to file a return in respect of a gift made by him which came within the scope of section 4 of the Act. But the learned counsel argued that the principle laid down in the cases cited by him was also applicable to failure on the part of an assessed to disclose a gift which came within the scope of section 4 of the Act."
(4) We are unable to accept this contention. The income which is assessable u/s 16(3) of the Income Tax Act, 1922 is not the assessed''s real income. The income u/s 16(3) is the real income either of the assessed''s wife or of his minor children. Such income is assessed in the hands of the assessed by reason of the fact that such income has arisen out of the assets transferred to his wife or children without adequate consideration. On the other hand, a gift which is deemed to be a gift u/s 4 of the Act is not a gift which is made by a person other than the assessed and it is not treated as a gift made by the assessed by some special provision. A gift u/s 4 of the Act is a gift which is made by a person other than the assessed and it is not treated as a gift made by the assessed by some special provision. A gift u/s 4 of the Act is a gift which is made by the assessed himself. Section 3 of the Act, which is the charging section, reads as follows :-
" SUBJECT to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957) at the rate or rates specified in the Schedule."
(5) Section 2(xii) of the Act as it stood before its amendment in 1971 defines gift as follows :-
" GIFT'' means the transfer by the one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money''s worth, and includes the transfer of any property deemed to be a gift u/s 4."
(6) Therefore, a gift which is assessable to tax u/s 3 of the Act is a gift as defined in section 2(xii) of the Act which includes a gift u/s 4 of the Act. There are similar provisions in the Income Tax Act also. Section 2(6C) of the Income Tax Act, 1922 defines income as including :-
"(I)dividend; (iv) any sum deemed to be profits under the second proviso to clause (iii) of sub-section (2) of section 10, and any sum deemed to be profits and .gains under subsection (2A) of that section or under sub-section (5) of section 12; (v) any sum deemed to be profits and gains of business, profession or vocation under sub-section (5A) of section 10."
Section 2(6A) of the said Act defines dividend as follows :-
"(E)any payment by a company, not being a company in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits."
(7) These are instances of deemed income which an assessed is obliged to show in his Income Tax return as his own income. Such deemed income is quite distinct from the income which is assessable in his hands u/s 16(3) of the said Act which reads as follows :-
" IN computing the total income of any individual for the purpose of assessment, there shall be included- (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly- (b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both."
(8) Section 16(3) of the Income Tax Act, 1922 thus makes a clear distinction between the income of the assessed himself and the income derived by the wife or a minor child. Although for Income Tax purposes the income of the wife or a minor child is included in the assessment of the assessed, it is not treated as the deemed income of the assessed himself. Therefore, the rule laid down in the cases cited by the learned counsel u/s 16(3) of the said Act will not be applicable to cases of gifts u/s 4 of the Act.
(9) The next contention urged by the learned counsel for the assessed is that as the assessed had filed the gift tax return before the completion of the assessment in answer to the notice u/s 13(2) of the Act, he could not be considered as having committed a default u/s 17(l)(a) of the Act. In support of this contention, reference is made to section 14 of the Act which reads as follows :-
"IF any person has not furnished a return within the time allowed u/s 13, or having furnished a return under that section, discovers any omission or a wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made."
(10) The learned counsel also refers to the analogous provisions of the Income Tax Act, 1922, namely section 22(3) of the said Act and to a decision of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., which considered the effect of filing a return u/s 22(3) of the said Act. The learned counsel specially relies upon the following observations of the Supreme Court in the said case :-
" IT can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time sub-section ( 1 ) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with."
(11) The above observations of the Supreme Court have, however, to be read in the context in which they were made. In the case before the Supreme Court, the assessed had not filed any return u/s 22(1) of the Act and no notice was served upon the assessed to file a return u/s 22(2) of the Act. The assessed, however, voluntarily filed a return before the assessment was completed disclosing a loss and claiming that the loss should be carried forward u/s 24(2) of the said Act. The assessed''s claim was disallowed by the Income Tax authorities on the ground that the assessed had not filed the return disclosing the loss within the time prescribed u/s 22(1) of the Act. The Supreme Court, however, held that sub-section (3) of section 22 enabled an assessed to file return of income at any time before the assessment was completed even though he had not filed the return within the time prescribed u/s 22(1) or within the time given in the notice u/s 22(2) of the Act and that if the return had been filed before the assessment was completed, such a return was a valid return and could not be ignored by the Income Tax Officer and the assessment could not be made according to the best judgment of the Income Tax Officer on the assumption that the assessed had not filed any return at all. We cannot consider the observations of the Supreme Court relied upon by the learned counsel for the assessed as supporting his contention that an- assessed cannot be deemed to have committed a default u/s 22(1) when he did not file his return within the time prescribed u/s 22(1) but had filed a return of income u/s 22(3) of the Act before the assessment was completed. Such a construction would nullify the effect of section 28(l)(a) of the Income Tax Act, 1922 which is analogous to section 17(l)(a) of the Act.
(12) Another contention which was advanced before the Tribunal was also urged before us, though not very vehemently, namely, that the assessed having filed a return in response to the notice u/s 13(2) of the Act, he could not be held to have committed any default u/s 13(1) of the Act. This contention has no merit at all. There is a direct decision of the Gujarat High Court on the analogous provisions of the Income Tax Act, 1961, namely, sections 139(1) and 139(2) of the said Act. In The Commissioner of Income Tax, Rajasthan, Jaipur Vs. Indra and Co., Jodhpur, it was held that-
" AN assessed is liable to penalty for not submitting his return as required in a notice u/s 139(1) of the Income Tax Act, 1961, even though he subsequently files a return in pursuance of a notice u/s 139(2) and an assessment is made on the basis of that return."
(13) We are in respectful agreement with the view expressed by the Gujarat High Court.
(14) The last contention urged by the learned counsel for the assessed is that there was a reasonable cause for the assessed for not filing a return u/s 13(1) of the Act. In the first instance, the question whether there was a reasonable cause for not filing the return is purely a question of fact and the finding of the Tribunal on this question is binding upon this Court. The Tribunal after considering the Explanation offered by the assessed for not filing the gift-tax return u/s 13(1) of the Act has rejected the Explanation. Even if it was permissible for this Court to re-examine the Explanation given by the assessed, we see no valid reason to differ from the finding of the Tribunal on this point. The Explanation offered by the assessed was two-fold, namely,-
(I)that the Revenue itself had treated the transaction in question as one resulting in capital gains and has also treated it as a gift u/s 4 of the Act which, according to the assessed, indicated that the Revenue itself was not certain regarding the true position, and (ii) that the transfer of the property to the company in which the members of his family were interested for consideration which were not equivalent to the market value of the property was not considered by the assessed but amount to a gift.
(15) Neither of these Explanations, in our view, can be accepted as amounting to a reasonable cause for the assessed for not filing the gift-tax return.
(16) In view of the above discussion, the question referred to us has to be answered in the affirmative, i.e., in favor of the Department and against the assessed. Under the circumstances, we make no order as to costs.
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