ORDER UNDER S. 29--Demand notice issued to donee for payment of gift tax.
Assessee has the right of appeal under section 22(1A)(a) since the issue of a demand notice amounted to determination of tax as payable by the donee.
Recovery order under s. 29--DEATH OF DONOR--Legal representative unable to pay tax.
Where there is death of donor and legal representative are unable to pay tax, demand from donee constitutes on order under section 29.
The demand notice issued by the Gift Tax Officer was an order passed under section 29. The Gift Tax Officer had not only written a letter but had also issued a formal demand notice to the assessee. The letter was a formal order. The order was, however, liable to be cancelled as it was made without giving an opportunity of being heard.
1. This is a departmental appeal arising out of the order of the Commissioner (Appeals) in the case of Smt. Rasheedunnisa Begum of Hyderabad in respect of the gift-tax assessment for the assessment year 1966-67.
2. Late Nawab Mir Osman Barkat Ali Khan, legal representative of Sir Mir Osman Ali Khan, had made certain gifts during his lifetime. The assessee, Smt. Rasheedunnisa Begum, received gifts to the extent of Rs. 2,67,030. It appears that the gift-tax was levied on the donor and such tax had not been paid by him. A letter is stated to have been written by the executor of the estate of the deceased-donor that he was unable to pay the gift-tax. Invoking Section 29 of the Gift-tax Act, 1958 ('the Act') the GTO allocated the tax payable by the donee at Rs. 65,070 in a letter issued on 3-11-1979. He further modified the demand by another letter dated 26-4-1982 wherein, apparently, on the basis of joint and several liability, he sought to claim the gift-tax arrears to the extent of the assets got by the assessee, that is, on Rs. 2,67,030.
Along with the letter, he enclosed the revised demand notice and challan. The assessee treated this as an order without proper opportunity. It was also stated that the conditions for invoking Section 29 were not satisfied. The first appellate authority treated this letter as an order and cancelled the same as 'no opportunity was given to the taxpayer before making her responsible for the amount of Rs. 2,67,030'. The revenue is in appeal stating that the order of the first appellate authority is illegal. The reasons for such a claim were not apparent in the grounds of appeal. The learned departmental representative, however, pointed out the reasons. He claimed that an opportunity is not necessary as Section 29 does not provide for the same. He further claimed that the letter, even if it is treated as an order, is not an order appealable under the Act. The learned Counsel for the assessee disputed both the propositions and relied upon the order of the first appellate authority.
3. We have carefully considered the records as well as the arguments.
As for the claim that Section 29 does not provide for an opportunity, we find it difficult to accept the same. Here is an assessee who was not primarily responsible for the payment of the gift-tax as the statute places this responsibility on the donor. Section 29 no doubt, gives an alternative power to the GTO to pursue and collect the gift-tax from the donees under given circumstances. Vaidyalingam, C.J., as he then was, speaking for the Bench in the case of Kamalammal v.GTO  45 ITR 80 (Ker.) stated as under : Section 29 of the Act makes the donor primarily liable for payment of the gift-tax. It is only when the Gift-tax Officer is of the opinion that the gift-tax cannot be recovered from the donor, it can be recovered from the donee. The proviso to Section 29 of the Act, in my view, also places a restriction regarding the extent to which a donee is liable for payment of gift-tax. But the point is Section 29 of the Act refers only to gift-tax and to no other sums due from the donor. Again, Section 30 of the Act provides that the gift-tax payable in respect of any gift comprising immovable property shall be a first charge on that property. Here again, it is to be noted that a first charge on the property in the hands of the donee, is given only for the gift-tax that is payable and not in respect of any other amounts ....
Since the GTO had not only written this letter but also issued the assessee with a formal demand notice under the Act, there is hardly any justification for the claim of the learned departmental representative that it is only a letter and not a formal order. The demand notice seeking the claim of an amount of Rs. 2,67,030 could only be in pursuance of an order in the form of a letter dated 26-4-1982. Hence, the first appellate authority was right even in the view that it was an order under the Act. We will, therefore, hold that it is an order and that such order is passed under Section 29. Such an order has to take into consideration the various questions. In the judgment quoted earlier, the guidelines to be followed by the GTO have also been briefly mentioned as under : ...The Gift-tax Officer has to consider, in the first instance, and form an opinion as to whether the tax or the balance tax under exhibit P-3 cannot be recovered from the donors, namely, Saraswathi Bai and Padmavathi Ammal either from each of them individually or jointly from both of them. It is only after he forms an opinion regarding this aspect on the basis of Section 29 of the Act, it may be open to him to call upon the donees for meeting the tax liability under exhibit P-3. Even there, when a notice is issued to the petitioners the petitioners will be at perfect liberty to object to their being called upon for payment of the tax and it is open to them to place any material that may be available before them to satisfy the officer that the tax can still be recovered from the donors. Ultimately, if the petitioners are being made liable for the payment of gift-tax, the officer even on those cases, must have due regard to the provisions of the proviso to Section 29 of the Act.
From the above, it is clear that the GTO has first to form an opinion as to the invokability of Section 29 and issue notice to the donees so that the donees could object in case the circumstances justify such objections. In fact, it is precisely the case of the taxpayer in this case that she has such objections inasmuch as the estate, in her opinion, is capable of meeting the liability and that such liability in respect of the various taxes are being met from day-to-day as and when the estate is realised. The letter from the executor of the estate may justify a prima facie inference on the part of the GTO, but he has to apply his own mind about the applicability of Section 29. Even then, as pointed out by the High Court, a notice should be issued to the donees so that they could place their objections, if any. Such a notice was not issued in this case. It is for this reason that the order was cancelled. The argument that such a notice was not necessary can hardly be accepted. Merely because there is no such provision, it does not mean that the GTO can ignore the principles of natural justice. The decision cited earlier specifically mentions that such a notice is necessary. It is in view of absence of such a notice, the High Court allowed the writ petition and set aside the orders of the GTO making the donee responsible in that case.
4. There is yet one more argument to be considered. The learned departmental representative would say that the Kerala High Court had decided the issue on a writ petition and that there could be no formal appeal. We find that even this argument is not acceptable because Clause (a) of Sub-section (1A) of Section 22 of the Act specifically provides an appeal, inter alia, where any person is 'objecting to the amount of gift-tax determined as payable by him ...' . In this case, the issue of a demand notice certainly amounts to determination of that amount of gift-tax specified in the demand notice as payable by the donee-respondent in this case. Hence, even this argument of the learned departmental representative has to be stated only to be rejected.
5. As a final alternative, it was contended that we should authorise the GTO to impose the tax after due notice. He apprehended that the cancellation may be interpreted by the taxpayer as a direction not to pursue the matter further. Even this argument, in our opinion, is not only justified on the facts, but even otherwise does not warrant interference with the order of the first appellate authority. Any order passed without observing the principles of natural justice can either be set aside or cancelled. In either case, it is certainly open to the GTO to proceed further if the law as well as the facts warrant such a course. No direction in this regard is necessary. If such course is not warranted by law, a direction by this Tribunal to proceed further could not help the revenue. If it is so warranted, this Tribunal cannot debar such an action. All that the first appellate authority was concerned was with the order before him. If such an order was bad, it was liable to be cancelled. No further direction was either necessary or warranted under the circumstances. Neither the taxpayer nor the revenue could expect an adjudication on issues which may arise on any subsequent action by the authorities under the Act, as such a course would amount to advance ruling which is not contemplated by the law. Hence, even this alternative plea for a direction has to fail.