B.N. Banerjee, J.
1. Is Sections 6 of the Gift Tax Act, 1958 herein-after referred to as the Act) dealing with determination of the value of taxable gifts and that part of Section 29 of the Act, which authorises recovery of Gift from the donee, where, in the opinion of the Gift Tax Officer, the tax cannot be recovered from the donor, ultra vires the Constitution? That is the main question which calls for determination in this Rule.
2. 'Gift' is defined in Section 2(xii) of the Act in the following language : --
'Gift means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or moneys worth, and includes the transfer of any property deemed to be a gift under Section 4.'
Section 4 of the Act includes certain transfers within thedefinition of 'Gift' under the Act and reads as follows : Section 4. For the purposes of this Act,--
(a) 'Where property is transferred otherwise that for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor;
(b) Where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee, to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor;
(c) 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 been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment;
(d) Where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly withoutadequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be a gift made in his favour by the person who causes or has caused the property to be so vested'.
An assessee under the Act is defined in Section 2(iii) andreads as follows :
' 'assessee' means a person by whom gift-tax or anyother sum of money is payable under this Act, and includes every person in respect of whom any proceedingtinder this Act has been taken for the determination ofthe gift-tax payable by him'.
Section 13 of the Act relates to the return of gifts and is set out below :
'1. Every person who during a previous year has made any taxable gifts shall, before the thirtieth day of June of the corresponding assessment year, furnish to the Gift-tax Officer a return in the prescribed form and verified in the prescribed manner.
2. If the Gift-tax Officer is of opinion that in respect of the gifts made by a person during any previous year he is liable to gift-tax under this Act, then notwithstanding anything contained in Sub-section (1) he may serve a notice upon such person requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner.
3. The Gift-tax Officer may in his discretion extendthe date for the delivery of the return under this section'.
3. Section 6 of the Act provides for determination of value of taxable gifts and reads as follows :
'1. The value of any property other than cash transferred by way of gift shall, subject to the provisions of Sub-sections (2) and (3), be estimated to be the price which in the opinion of the Gift-tax Officer it would fetch if sold in the open market on the date on which the giftwas made.
2. Where a person makes a gift which is not revocable for a specified period, the value of the property gifted shall be the capitalised value of the income from the property gifted during the period for which the gift is not revocable.
3. Where the value of any property cannot be estimated under Sub-section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner.'
4. Section 15 of the Act deals with assessment of Gift-tax in the following language :
'1. If the Gift-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that a return made under Section 13 or Section 14 is complete, he shall assess the value of the taxable gifts made by the assessee and determine the amount payable by him as gift-tax.
2. If the Gift-tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return.
3. The Gift-tax Officer, after hearing such evidenceas the person may produce and such other evidence, ashe may require on any specified points shall, by order inwriting, assess the value of taxable gifts made by theassesee and determine the amount payable by him asgift-tax. 4. x x x x x5. x x x x x
5. Sections 3 and 30 are the charging Sections of the Act and set out below :
'Section 3 :--
Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, It 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'. Section 30 : -- Gift-tax payable in respect of any gift comprising immovable property shall be a first charge on that property but any such charge shall not affect the title of a bona fide purchaser for valuable consideration without notice of the charge'.
6. I need bear in mind the provisions of the above Sections of the Act in order to examine the point which was argued in the Rule.
7. I now turn to the circumstances under which the present application came to be made.
8. The petitioner is a private limited company and the entire shareholding of the company is now held by Kothari Charity Trust and Bharat Seva Nidhi, both said to be public charitable trusts, which trusts acquired the shares on June 17, 1958, from the shareholders, named, (1) Janab Fazlur Rahaman (2) Janab Mujibar Rahaman, (3) Janab Obaidur Rahaman, (4) Janab Sayeedur Rahaman and (5) Janab Ahmedur Rahaman. From the self-same persons, the petitioner Company had purchased certain immovable properties, namely, (i) 2.24 1/2 acres of land in Taluk Kharia, Pargana Baikunthapur, District Jalpaiguri, (ii) 5.75 1/2 acres of land including two buildings known as 'Alima Manzil' and 'Noor Manzil' in Taluk Kharia, ParganaBaikunthapur. District Jalpaiguri, (iii) One-half share of a tea estate known as Rheabari tea estate, for a total consideration of Rs. 1,25,000/- only. The purchase was made from different co-sharers on different dates in the year 1958, On December 14, 1959, the petitioner Company received the following letter from the Gift-tax Officer, Jalpaiguri :
'Enclosed please find the demand notice and chalan to respect of the Gift-tax payable by your company Under Section 29 of the Gift-tax Act on account of the gifts made to your Company by members of the Association of Persons composed of Jb. Fazlur Rahaman, Jb. Sayedur Rahaman, Jb. Mujibur Rahaman, Jb. Ahmedur kahaman end Jb. Obaidur Rahaman who transferred certain immovable properties to your company during the accouting period relevant to 1059/60 assessment for extremely Inadequate consideration for which Section 4(a) of the Gift Tax Act has been attracted.
As the tax cannot be recovered from the donors who have left India for good after having disposed of all their assets, I call upon you to pay the tax in terms of Section 29 of the Gift-tax Act'.
9. Along with the letter a notice of demand claiming Rs. 1,47,2557- as Gift-tax and a challan for payment of the tax, by December 24, 1959, were sent to the petitioner.
10. The petitioner characterised the said notice as Illegal and harassing and also as violating the principles of natural justice, because the petitioner Company had no opportunity of representing its case before the Gift-tax Officer and, therefore, it called upon the said Officer to withdraw the notice. Failing to get redress from the Gift-tax Officer, the petitioner Company moved this Court praying for a Writ of Certiorari to quash the notice and for a Writ of Mandamus restraining the respondents from enforcing the demand against the petitioner and obtained the present Rule.
11. Mr. A. C. Mitter, the learned Standing Counsel, who appeared for the petitioner Company, contended in the first place, that the determination of the value of a gift, under Section 6 of the Act, depended on the subjective opinion of the Gift-tax Officer and he was free to estimate the value at such price as in his opinion the transfer of the property would fetch, if sold in the open market at the date of the gift and that he was free to assess Gift-tax on such valuation. He contended that since such determination of value was by nature judicial determination, it must not be left to be determined subjectively by the Gift-tax Officer, without notice to the assessee or without opportunity to the donor or the donee to adduce evidence as to market value. He further contended that this was all the more so when the gift to be valued was a sale for Inadequate consideration, in respect of which the amount by which the market value of the property exceeded the value of the consideration was to be deemed, under Section 4(a) of the Act, as a gift made by the transferor. He characterised this sort of determination of tax as an unreasonable restriction on the right of disposal of the property guaranteed by the Constitution. He further contended that where Gift-tax assessed on such ex parte determination of valuation of taxable gifts was sought to be recovered from the donee, under Section 29 of the Act, there was an unreasonable restriction imposed on his right to acquire and hold property and that constituted breach of his fundamental rights guaranteed under Article 19(1)(g) of the Constitution, The argument is attractive and deserves consideration. The Act requires thatin determining the value of a taxable gift, the Gift-tax. Officer shall form an opinion as to the price, which the property, if sold in the open market, at the date of the gift, would have fetched. Any opinion which does not take into account all the aforesaid ingredients is of no value at all. Therefore, although the Gift-tax Officer is to form an opinion, it is not really subjective opinion but has to be formed according to certain objective standards. Since it is opinion as to taxation, it has also to be judicially arrived at and has to be stated with reasons for forming the opinion. Such reasoning as to valuation may thereafter be tested by way of appeals to the hierarchy of appellate courts provided in the Act.
12. Mr. Balai Lal Pal, learned Advocate for the respondents strongly relied upon, the judgment of the Supreme Court in Sadasib Prokash Brahmachari v. State of Orissa, : 1SCR43 in which the Constitutional validity of schemes framed under the Orissa Hindu Religious Endowments Act came up for Consideration. In that case Jagannathadas, J. observed :
'But in order to judge whether the provisions in the present Act operate by way of unreasonable restriction for Constitutional purposes, what is to be seen is whether the person affected gets a reasonable chance of presenting his entire case before the original Tribunal which has to deter-mine judicially the questions raised and whether he has a regular appeal to the ordinarily constituted Court or Courts to correct the errors, if any, of the Tribunal of first Instance'.
Mr. Pal contended that under Section 15(2) of the Act, if the Gift-tax Officer is not satisfied with the return made by the assessee, he shall call upon the assessee to produce evidence in support of the return and that gave opportunity to the assessee to contest any incorrect valuation of gift. He also contended that even if the Gift-tax Officer went wrong, his error could be rectified by way of successive appeals provided in the Act. Mr. Pal, therefore, argued that the observations in Sadasib Frokash Brahmachari's case : 1SCR43 (supra) should be applied to test the question or constitutional validity of Sections 6 of the Act and on such test being applied must be answered in file affirmative. I am unable to accept this argument. If Gift-tax had been recoverable only from the donor, I might have upheld the contention of Mr. Pal. But Section 29 of the Act provides that Gift-tax though payable by the donor, may be recovered from the donee, if in the opinion of the Gift-lax Officer the tax cannot be recovered from the donor. So far as the donee is concerned, he is not the assessee, within the definition of the term in Section 2(iii), because the tax is not payable by him although it may be recovered from him. He is not entitled to make a return of gift under Sections 13 of the Act, because such return can- be furnished only by a person who made a taxable gift. If the donor does not file the return, the donee is helpless and cannot remedy the situation by filing a return himself. Since the donee does not file a return, he is not to be served with a notice to produce evidence in support of the return. Such notice is to be given to the donor assesses only and the donee has no control in the matter of production of evidence. So at the stage of the determination of the value of taxable gifts and also determination of the Gift-tax the donee is completely out of the picture. Even the notice of demand under Section 31 of the Act, is to be served upon the assesses or other person liable to pay such tax The expression 'other person liable to pay such tax' includes legal representatives of a deceased donor (see Section 19 of the Act), members or groups of members of aquondum Hindu undivided family in case of gifts made by a donor which was an undivided family (see Section 20 of the Act) and firm or association of persons, in case of gifts made by such a firm or association of persons, even after its discontinuance or dissolution (see Section 21 of the Act). The expression does not include, the donee because the Act does not make the donee liable to pay the tax but only makes the tax recoverable from him. The position in law being such as stated above, it is difficult to save the Constitutional validity of Section 6 of the Act on the analogy of the reasonings in Sadashib Prokash Brahmachari's case : 1SCR43 (supra), because the donee does not get any opportunity whatsoever of presenting his case before the Gift-tax Officer.
13. Moreover, I am not sure, if the donee has at all a right of appeal. Section 22 of the Act, which provides for an appeal to the Appellate Assistant Commissioner and Section 23, which provides for an appeal to the Appellate Tribunal read as follows :
(1) Any person, --
(a) objecting to the value of his taxable gifts determined under this Act; or
(b) objecting to the amount of gift-tax determined as payable by him under this Act; or
(c) x x x x x(d) x x x x x(e) x x x x x(f) x x x x x may appeal to the Appellate Assistant Commissioneragainst the assessment or order, as the case may be, inthe prescribed form and verified in the prescribed manner;
(2) x x x x x(3) x x x x x(4) x x x x x(5) x x x x x(6) x x x x x Section 23
(1) Any assessee objecting to an order passed by the Appellate Assistant Commissioner under Section 17 or Section 22 or to an order passed by the Commissioner under Section 17 may appeal to the Appellate Tribunal within sixty days of the date on which he is served with notice of such order. (2) to (11) X X X X X XX X X XX X X X X X'
14. The word 'any person' in Section 22 should be read as referring to the assessee and not to the donee as is expressly made clear in Section 23, where the right of appeal to the Appellate Tribunal is given to the assessee only. To read 'any person' in Section 22 differently from the word 'assessee', as in Section 23, may lead to this incongruity that a donee may appeal to the Appellate Assistant Commissioner but the assessee may appeal both to the Appellate Assistant Commissioner and to the Appellate Tribunal. I do not think that is the scheme of of the Act. If a donee has no right of appeal, that is all the more reason why the analogy of reasoning in Sadashib Prokash Brahmachari's case : 1SCR43 (supra) shall not save the validity of Section 6 of the Act.
15. Mr. Pal made a desperate effort to include within the scope of the words 'persons by whom Gift-tax is payable' also person from whom Gift-tax is recoverable.I must repel this argument for reasons which I shall presently state. As in the Income-tax Act, so also in the scheme of the Gift-tax Act, there are three stages in the Imposition of the tax. 'There is the declaration of liability, that is the part of the Statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend upon assessment. That, ex hypothesi, has already been fixed. But the assessment particularises the exact sum which a person liable has to pay. Lastly, comes the methods of recovery, if the person taxed does not pay' (vide Whitney v. Inland Revenue Commissioners, 1926 AC 37, at p. 56). That being so, persons who are liable to pay the tax do not necessarily include persons from whom the tax may be ultimately recovered. In that view, the position of a donee under Section 29 of the Act is that he is presented with an accomplished fact, namely, an assessment of Gift-tax on a valuation arrived at by the Gift-tax Officer, beyond his Knowledge and without any opportunity to him of contesting the correctness of the same. In my opinion, this makes the provision of Section 6 and 29 of the Act both bad and unconstitutional.
16. Dealing with the Constitutionality of Section 5A of the Travancore-Cochin. Land Tax Act, 1955, as amended in 1957, the Supreme Court observed in the case of K. T. Mopil Nair v. State of Kerala, : 3SCR77 : --
'We find that Sections 5(A) is also equally objectionable because it imposes unreasonable restrictions on the rights to hold property, safeguarded by Article 19(1)(f) of the Constitution. Section 5(A) declares that the Government is competent to make a provisional assessment of the basic tax payable by the holder of unsurveyed land. Ordinarily, a taxing statute lays down a regular machinery for making assessment of the tax proposed to be imposed by the statute. It lays down detailed procedure as to notice to the proposed assessee to make a return in respect of property proposed to be taxed, prescribes the authority and the procedure for hearing any objections to the liability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceedings in a higher Civil Court. The Act merely declares the competence of the Government to make a provisional assessment, and by virtue of Section 3 of the Madras-Revenue Recovery Act, 1864, the land-holders may be liable to pay the tax. The Act being silent as to the machinery and procedure to be followed in making the assessment leaves it to the Executive to evolve the requisite machinery and procedure. The whole thing, from beginning to end, is treated as of a purely administrative character, completely ignoring the legal position that the assessment of a tax on person or property is at least of a quasi-judicial character. Again, the Act does not Impose an obligation on the Government to undertake survey proceedings within any prescribed or ascertainable period, with the result that a land-holder may be subjected to repeated annual provisional assessments on more or less conjectural basis and liable to pay the tax thus assessed. Though the Act was passed about five years ago, we were informed at the Bar that survey proceedings had not even commenced. The Act thus proposes to impose a liability on land-holders to pay a tax which is not to be levied on a Judicial basis, because (1) the procedure to be adopted does not require a notice to be given to the proposed assessee; (2) there is no procedure for rectification of mistakes committed by the Assessing Authority; (3) there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law, as is generallyfound in all taxing statutes, and (4) no duty is cast upon the Assessing Authority to act judicially in the matter of assessment proceedings. Nor is there any right of appeal provided to such assessees as may feet aggrieved by the order of assessment'.
17. If I apply the above tests to the donee in the matter of assessment of Gift-tax 1 find that (i) no notice is required to be served on him (ii) there is no procedure by which a donee can obtain rectification of mistakes committed by taxing authorities (iii) there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law, by application for reference or otherwise at the instance of the donee and (iv) nor has he any right of appeal. Therefore, the tax has been made recoverable from the donee under Section 29 of the Act, without giving him any opportunity to contest the correctness of the demand and that makes the demand an unreasonable restriction on the donee's right to hold 'property guaranteed by Article 19(1)(f) of the Constitution.
18. Faced with this position, Mr. Pal argued that under Section 3 read with Section 30 of the Act, Gift-tax was a first charge on the property gifted and whoever accepted gift of immovable property accepted property charged with tax and should not dispute recovery of tax from the charged property. The donee's position was sought to be equated to that of a universal donee under Section 128 of the Transfer of Property Act, which made him personally liable for all the debts due by and liabilities of the donor at the time of the gift to the extent of the property comprised in the gift This argument is not well conceived. The donee may not dispute the charge but he is entitled to dispute the quantification of the charge, arrived at behind his back and without any opportunity to him to have the incorrectness, if any, in the quantification rectified. A procedure for quantification, which keeps the donee out of the picture and does not afford to him any opportunity to present his case about the value of the taxable gift but yet then makes the tax recoverable from him is certainly an unreasonable restriction on the right to hold and acquire property and must be struck down as unconstitutional.
19. There is yet another aspect of the matter which I need consider. Even if I had held that Sections 6 and 29 of the Act were constitutionally valid, in so far as the donee was concerned, even then I have to quash the determination of valuation of the property as made by the Gift-tax Officer. Mr. Pal produced the assessment order, in terms of the Rule issued by this Court, and I find that that valuation was made in the manner hereinafter quoted :
'The value of the gifted properties is computed as under:
RHEABARI TEA ESTATEThe value of net wealth of the Estate as on the date oftransfer is taken as follows on the basis of the auditedbalance sheet of the Estate for the year ended 31stDecember, 1957Subscribed capital Rs. 2,00,000Reserves and surplus 8,49,485Provision for taxation 31,000--------------- 10,80,485Deduct Advance tax paid 3,97,935--------------(Net Wealth) 6,82,550 Half of it belonged to the assessee association andwas therefore transferred to the Ltd. Company i.e.Rs. 3,41,275.
Value of extensive agricultural, non-agricultural and other lands and house properties of the assessee transferred to the company is estimated at Rs. 7,50,000.
(Note : Only one house property alone namely Nurmanzil subsequently fetched a price of Rs. 1,36,000).
The total value of immovable assets, besides ofRheabari Tea Estate, is taken at a moderate figure ofRs. 7,50,000/-. A complete list of the properties transferred is appended hereto
20. The valuation was not made keeping in view the standards by which such valuation has to be made. The reason given is unconsequential and the assessment order smacks of arbitrariness. The figure Rs. 7,50,000/-was taken by guess and the valuation was not made by reference to any objective standard. That is an additional reason why I cannot uphold the assessment order as against the donee.
21. Lastly, the Gift-tax Officer formed the opinion that the tax cannot be recovered from the donor quite arbitrarily. This will appear from the following two passages from the assessment order ; --
'Notice Under Section 13(2) of the Gift Tax Act was sought to be served on Shri Khurshed Ali, Constituted Attorney for the members of the Association of persons, the assessee. But he refused to accept the Notice. The notice was, therefore, served by affixation by the Departmental Inspector in the presence of witness at the last known address of the assessee.
X X X X X XX X X X X X As the tax cannot be recovered from the Donors who have all left India for Pakistan for good after having transferred all their properties the tax is to be collected from the Donee that is Khan Bahadur Waliur Rahaman Tea and Lands Co. (Pr.) Ltd. Under Section 29 of the Gift Tax Act.'
22. From the fact that the constituted attorney did not accept service of notice on the assessee donors, it does not follow that they left India for Pakistan for good after having transferred all their properties and that the tax cannot be recovered from them. If Section 29 authorises that Gift-tax Officer to recover Gift-tax from the donee merely on his subjective opinion that it cannot be recovered from the donor, that is an additional infirmity of that Section, clothes as it does the Gift-tax Officer with arbitrary powers to recover tax, not from the person primarily liable but from the donee, who is liable only if the tax cannot be recovered from the donor.
23. For the reasons aforesaid, I hold that Sections 6 and 29 of the Act put unreasonable restrictions on the donee's right to acquire and hold property and is unconsitutional to that extent. I, therefore, quash the assessment order so far as the donee petitioner company is concerned and command the respondents not to enforce the same against the petitioner company.
24. Let Writs of Certiorari and Mandamus, accordingly, issue.
25. This Rule is made absolute with costs -- hearing fee being assessed at five gold mohurs.