In all these three writ petitions Mr. V. Rama Shenoi, learned counsel for the petitioner, contests the notices issued by the Gift-tax Officer, Alleppey, dated August 23, 1960.
All the three petitioners are sisters and they are the daughters of one Giriraya Kammath. The said Giriraya Kammath had three wives, viz., Saraswathi Bai, Lekshmi Ammal and Padmavathi Ammal. All the three petitioners are the children of Giriraya Kammath and Lekshmi Ammal. Giriraya Kammath is no more and it will be seen that the properties obtained by the three widows, as heirs to the estate of Giriraya Kammath, were partitioned by metes and bounds under exhibit P-4. After the death of Lekshmi Ammal, namely, the mother of the three petitioners, her share in the properties also developed absolutely on the other two widows, namely, Saraswathi Bai and Padmavathi Ammal. Saraswathi Bai and Padmavathi Ammal executed a gift deed exhibit P-1 on May 2, 1957, in favour of the three petitioners. The properties gifted to each of the petitioner have been very elaborately and clearly dealt with under the gift deed, exhibit P-1.
The Gift-tax Officer, Alleppey, started proceedings as against Saraswathi Bai and Padmavathi Ammal for assessment to gift-tax in respect of the gift executed by them under exhibit P-I. Ultimately, it is seen under the order of assessment that the Gift-tax Officer has fixed the liability for gift-tax on the two persons in the sum of Rs, 9,598.80. A copy of the gift tax assessment order is exhibit P-3 available in O. P. No. 1063 of 1960. Similarly, copies of the assessment order have been furnished in the connected O. P. also. One of the donors, namely, Padmavathi Ammal, appears to have paid a sum of Rs. 5,269.40 towards the tax liability fixed under the order of assessment exhibit P-3.
Later, on August 23, 1960, again under exhibit P-2 in O. P. No. 1063 of 1960, a notice was issued to the petitioner therein by the Gift-tax Officer stating that a sum of Rs. 5,269.40 is due from her by way of gift-tax and penalty. It is also stated that since the gift-tax is a charge on the property donated, the officer makes a request to the petitioner to pay the dues within 10 days of the receipt of the notice under intimation to him and there is also a threat of coercive action being taken if the amount is to be paid. A similar notice has been also issued to each of the petitioners in the two other original petitions.
It is this notice, exhibit P-2, that is attacked by Mr. V. Rama Shenoi, learned counsel for the petitioner. Before I consider his contentions I may also state that the Gift-tax Officer appears to have made a demand on the other donor, namely, Saraswathi Bai, for payment of the gift tax; but inasmuch as she failed to comply with the demand, a penalty was also levied. It is this penalty that is included in the demand made on each of the petitioners under exhibit P-2.
Two contentions have been raised by the learned counsel for the petitioner, namely :-
(a) that there is nothing on record to show that the conditions necessary for the application of the provisions of section 29 of the Gift-tax Act exist in this case so as to enable the Gift-tax officer to proceed against the donee for recovery of gift-tax; and
(b) that, in any event, the donees are not liable for payment of the penalty levied as against Saraswathi Bai by the Gift-tax Officer.
A further contention also has been raised by Mr. Rama Shenoi to the effect that, even assuming that the donees are liable under the provisions of section 29 of the Act, the liability of each of the donees cannot exceed that portion of the gift-tax which is attributable to them and which they have got actually under exhibit P-1 and these aspects have not been considered at all by the officer and total demand in respect of the entire balance has been made as against each of these petitioners.
Before I advert to the contentions of Mr. G. Rama Iyer, learned counsel for the Revenue, this is a convenient stage for adverting to the actual provisions of the Act which give jurisdiction to the officer for recovery of gift-tax from the donees as well. The particular section is section 29 occurring in chapter VII of the Gift-tax Act, to the effect that gift-tax shall be payable by the donor and where in the opinion of the Gift-tax Officer, tax cannot be recovered from the donor, it may be recovered from the donee, provided that the amount of the tax which may be recovered from the donee shall not exceed that portion of the gift-tax which is attributable to the value of the gift made to the donee by the donor as on the date of the gift.
Mr. Rama Shenoi also referred to the provisions of section 30 of the Act stating that the gift-tax is a charge on the property gifted. In contrast to the expressions used in sections 29 and 30, Mr. Shenoi further urged that, in view of the provisions of sections 31 and 32 which deal with tax and penalty, the position will be that the liability of the donees, in any event, can only be restricted under proper circumstances, to the liability for payment of the tax as such, but in no event of the penalty. No doubt, Mr. Shenoi did not go to the extent of saying that even after a proper demand has been made against the donee for payment of gift tax and when the latter has committed default, no penalty can under any circumstances be levied also. But that does not arise in the particular circumstances of this case.
The provisions of section 29 of the Act, to which reference has been made by me earlier, clearly show that before the Gift-tax Officer proceeds to recover the gift-tax from the donee, he has to form an opinion that the tax cannot be recovered from the donor and learned counsel Mr. Shenoi places considerable reliance upon the expression' where in the opinion of the Gift-tax Officer the tax cannot be recovered from the donor' and urges that there is nothing on record to show that the Gift-tax Officer has, before issuing the notices exhibit P-2 to each of the petitioners, formed such an opinion. The learned counsel quite naturally relied upon the various items of properties mentioned in exhibit P-4 in support of his contention that apart from the fact that the Gift-tax Officer cannot recover the gift-tax from the donees, there is material to show that both the donors are possessed of properties and other assets and the Gift-tax Officer could very well recover the tax from any one of these persons either separately of jointly.
On the other hand, Mr. G. Rama Iyer, learned counsel for the Revenue, drew my attention to the statements contained in the counter affidavit filed on behalf of the respondent to the effect that the petitioner in each of these cases has to prove that the donor Padmavathi Ammal has property sufficient to pay the entire tax and has also drew my attention to the further statement in the counter-affidavit to the effect that the Gift-tax Officer made a demand on Saraswathi Bai, one of the donors, and she has pleaded her inability to pay the amount as per letter dated March 19, 1960. That, according to Mr. G. Rama Iyer, will clearly show that the Income-tax Officer has really considered the question as to whether it is possible for him to collect the tax from the donor and he has formed an opinion that the Gift-tax cannot be recovered from the donor. If really the Gift-tax Officer has considered all the materials and has come to the conclusion or has formed an opinion that it is not possible for him to collect the tax from the donor, certainly I would be very reluctant to interfere with the orders, on this ground at any rate. But even the statements contained in the counter-affidavit, to which my attention has been drawn, in my view, do not lead to the conclusion that the Gift-tax Officer has really formed an opinion that he is bound to do under section 29 of the Act that the tax cannot be recovered from the donor. No doubt, it would have been better if the petitioners, immediately on receipt of exhibit P-2, had objected to the liability and placed the necessary materials before the Gift-tax Officer to convince him that there are properties available with the donors against whom the Gift-tax Officer can very well proceed for recovery of the tax. But in this case, I am satisfied that the conditions necessary as required by section 29 of the Gift-tax Act before the Gift-tax Officer can proceed for recovery of the tax from the donee do not exist and, at any rate, there is nothing show to that the Gift-tax Officer has applied his mind to all the circumstances and formed an opinion definitely that the tax cannot be recovered from the donor. It may be that after a consideration of the entire materials it is possible that the Gift-tax Officer may form an opinion in that direction. But in so far as he has not formed an opinion in that direction in the manner indicated under section 29 of the Act, in my view the issue of the notices exhibit P-2 which are under attack, is premature.
Even the statements relied upon by Mr. G. Rama Iyer, learned counsel for the Revenue, in the counter-affidavit filed by the Gift-tax Officer, will only show that Saraswathi Bai, one of the donors, expressed her inability to pay the gift-tax. Admittedly, there is nothing stated in the counter-affidavit as to how the Gift-tax Officer can form an opinion regarding his inability to collect the tax from Padmavathi Ammal, who is also admittedly a donor under the gift-deed. In fact, there is nothing at all in the record available to show that the Gift-tax Officer has ever considered this aspect in order to enable him to form an opinion that the gift-tax cannot be recovered from the other donor, Padmavathi ammal, also.
There is also the further contention that has been raised by Mr. Shenoi, namely, that in any event, in view of the proviso to section 29 of the act, the liability of each of these petitioners cannot be the entire half, the amount that still remains payable under the original order of assessment. Here again, the learned counsel, Mr. G. Rama Iyer, found considerable difficulty in supporting the notices exhibit P-2 as they now stand. Surely, the Gift-tax Officer must have due regard to the provisions of the proviso to section 29 of the Act before he finally decides to call upon the respective petitioners for meeting the tax liability under the order exhibit P-3.
The last contention that has been urged is regarding the liability of any of the petitioners for payment of the penalty that has been levied as against Saraswathi Bai, one of the donors, for non-payment of the gift-tax. In my view, here again Mr. Rama Shenoi is well founded in his contention. Having due regard to the provisions contained in sections 29 - 32 of the Act, it has to be held that the Gift-tax Officer is not entitled to proceed against any of the donees for recovery of the penalty that has been levied as against Saraswathi Bai. When the donees, like the petitioners, have been called upon to pay the gift-tax under the provisions of section 29 after a due compliance of the various conditions stated therein and if nevertheless the donees default in payment of the tax, the question will have to be considered as to how far a penalty can be made as against them also.
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. Again, there is an obligation under section 31 of the Act cast upon the Gift-tax Officer to demand either the tax or penalty due in consequence of an order passed under the Act. This section clearly uses the two distinct expressions, namely,' any tax or penalty'. Therefore, when the expression 'penalty' is not used either in section 29 or 30, it has to be held that the liability of the donee or of the property in their hands is only in respect of the gift-tax as such and not of any other amounts like' penalty'. Therefore, the donees in this case cannot be made liable for the amount due by way of penalty which had been levied against one of the donors for non-payment of the tax. The donees can be considered to be in default in payment of the gift-tax only when a notice under section 31 demanding the tax has been made on them and when they have not paid the amount within the time mentioned in section 32 of the Act. Till that stage arises there is no question of the donees being made liable for payment of penalty also levied as against the donor.
In view of all the infirmities that have been pointed out above, the only course open to me is to set aside the orders dated August 23, 1960, issued by the Gift-tax Officer to each of these petitioners calling upon them to pay the sum of Rs. 5,269.40 by way of gift-tax and penalty. 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 what I have stated above, it also follows that the penalty as now levied against Saraswathi Bai cannot, in any event, be collected from either of these petitioner in these writ petitions. Subject to the directions and observations contained in this judgment, the notices under attack in each of these writ petitions are set aside with the reservations mentioned earlier. Parties will bear their own costs.
Though the competency of Parliament to enact the measure in question levying gift-tax on agricultural lands has also been raised in each of these writ petitions, this contention is no longer available, in view of the judgment of my learned brother Mr. Justice M. S. Menon and myself in Joseph v. Gift-tax Officer, Alleppey.