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Kalyan Sen Vs. Gift-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberCivil Order Nos. 19, 570 of 1984
Judge
Reported in[1987]164ITR565(Cal)
ActsGift Tax Act, 1958 - Sections 2, 13(2), 16, 35 and 35(1); ;Income Tax Act; ;Wealth-tax Act
AppellantKalyan Sen
RespondentGift-tax Officer and ors.
Appellant AdvocateR. Murarka and ;Jaydeb Ch. Saha, Advs.
Respondent AdvocateRam Chandra Prosad, Adv.
Excerpt:
- .....the allegation that the gift-tax officer did not issue any notice to the petitioner to file returns under section 13(2) or section 16 of the gift-tax act, for the assessment year 1967-68, with full knowledge of the share transfers must be accepted as correct.12. the gift-tax officer did not think it fit to initiate any proceedings against the petitioner for assessment of the alleged gift of the shares but a complaint was lodged in the court of the metropolitan magistrate, 12th court, calcutta, on march 26, 1983, under section 35 of the gift-tax act. if the transfers of the shares to the petitioner's wife and children constituted taxable gifts under the gift-tax act, why was no attempt made to assess the gift-tax the affidavit of the gift-tax officer does not throw any light.....
Judgment:

Suhas Chandra Sen, J.

1. The petitioner has challenged the initiation of criminal proceedings against the petitioner under Section 35(1)(a) of the Gift-tax Act.

2. In or about 1959, the petitioner and his brother and some other members of his family promoted M/s. Allied Resins and Chemicals (Private) Limited. The petitioner had a large block of shares in that company. The shareholdings of the petitioner and other assets were shown in the petitioner's wealth-tax return and the petitioner was regularly assessed to income-tax and wealth-tax.

3. On or about June 20, 1966, the petitioner transferred to his wife, Kalpana Sen, 500 ordinary shares of the company of the face value of Rs. 10 each.

4. On the same date, that is, June 20, 1966, the petitioner also transferred 2,500 shares of Rs. 10 each to his son, Dilip Sen, who had attained majority on May 12, 1966.

5. On September 28, 1966, the petitioner created a trust and transferred to the trustees 3,500 ordinary shares of the company for meeting the expenses of education and other vocational training of his son, Dilip Sen, in India or outside India.

6. The case of the petitioner is that the petitioner was under a legal obligation to maintain his wife and also to maintain and educate his children. The shares that were transferred were made in partial discharge of the legal obligations of the petitioner. The transfers were effected for valid and lawful consideration and could not be regarded as gifts within the meaning of Section 2(xii) of the Gift-tax Act, 1958.

7. The petitioner disclosed these transactions in his wealth-tax return for the period ending on December 31, 1966, for which the assessment year was 1967-68, Since these transactions did not come within the mischief of the Gift-tax Act, he did not file any return of gift for the assessment year 1967-68.

8. The petitioner's case is that the Income-tax Officer, 'A' Ward, District 111(3), Calcutta, had jurisdiction over the petitioner's income-tax and wealth-tax matters and as such had also jurisdiction over the petitioner's case under the Gift-tax Act. Full particulars of the share transfers were provided by the petitioner to the officer-in-charge of his case and were accepted in the wealth-tax assessment of the petitioner.

9. The petitioner was not served with any notice at any time either under Section 13(2) or under Section 16 of the Gift-tax Act, although the officers concerned were fully aware of the share transfers in the period relevant to the assessment year 1967-68. Since the transfer of shares was for lawful and valid consideration, the petitioner did not think it fit to file any return of gift under Section 13(1) of the Gift-tax Act.

10. The affidavit filed on behalf of the respondents is most unsatisfactory and sketchy. Vedprakash Tyagi, who has affirmed the affidavit, has not stated who was the officer-in-charge of the petitioner's case at the material time. He has not specifically denied the allegations made by the petitioner that all the details of the share transfers were disclosed in the wealth-tax case of the petitioner and the officer concerned was fully aware of the share transfers and yet did not choose to issue any notice for filing the return under the Gift-tax Act. Detailed allegations made in paragraph 7 of the petition have been denied generally 'save and except what appears from the records of the case'.

11. In these circumstances, the allegation that the Gift-tax Officer did not issue any notice to the petitioner to file returns under Section 13(2) or Section 16 of the Gift-tax Act, for the assessment year 1967-68, with full knowledge of the share transfers must be accepted as correct.

12. The Gift-tax Officer did not think it fit to initiate any proceedings against the petitioner for assessment of the alleged gift of the shares but a complaint was lodged in the Court of the Metropolitan Magistrate, 12th Court, Calcutta, on March 26, 1983, under Section 35 of the Gift-tax Act. If the transfers of the shares to the petitioner's wife and children constituted taxable gifts under the Gift-tax Act, why was no attempt made to assess the gift-tax The affidavit of the Gift-tax Officer does not throw any light on this question. It is not the case of the Department that the Gift-tax Officer was unaware of the transactions at the material time and the assessment proceedings became time-barred when he came to know of the transactions.

13. Mr. Prosad, appearing on behalf of the Department, argued that it was not necessary to initiate any assessment proceedings before lodging the complaint in the criminal court. He also prayed for adjournment of the case by a week to enable the Gift-tax Officer to complete the assessment proceedings.

14. The first argument of Mr. Prosad discloses the casual manner in which the criminal proceedings have been initiated. The complaint lodged against the petitioner is :

'That the gifts of the said shares being assessable to gift-tax, the assessee, Sri Kalyan Sen, was obligated to file a return of the same as required under Section 13(1) of the Gift-tax Act. The assessee had no reasonable cause or excuse for his failure to file in due time the return under Section 13(2) of the same Act in respect of the said gifts.'

15. This charge can only be levelled on the basis of a prima facie finding that there was a taxable gift and the petitioner has not filed a return in respect of that gift as required under Section 13(1) of the Gift-tax Act. Whether there is a taxable gift or not can only be decided in a proper assessment proceeding. If the petitioner's contention is correct that the transfers of shares were made in the discharge of his legal obligation to maintain his wife and children and to pay the expenses of the children's education, then the gifts will not come within the mischief of the Act at all. The entire question was whether the alleged consideration for the transfers made by the petitioner will take the gifts 'outside the ambit of the Gift-tax Act'. This contention of the petitioner could have been examined in an assessment proceeding. If the decision went against the petitioner, the petitioner had a right to challenge it by way of revision, appeal and reference. If there was no taxable gift, there was no obligation on the petitioner to file a return under Section 13(1) of the Gift-tax Act. If the Gift-tax Officer's contention is right and there was a taxable gift, why did he not initiate proceedings to assess the taxable gift of the petitioner under the provisions of the Gift-tax Act? If such proceedings had been started, the petitioner could have established that the alleged gifts did not come within the mischief of the Gift-tax Act.

16. In my opinion, without deciding the question whether the alleged 'gifts' came within the mischief of the Gift-tax Act, it was not open to the Gift-tax Officer to lodge a complaint in the criminal court. There is also another aspect of the case. Under Section 35(1), a person is punishable only if he 'fails without reasonable cause', inter alia, to furnish in due time any return of gifts under the Act. Now, the case of the petitioner is that he did not file a return of gift under the Act because he thought that the transfer of shares that he made did not constitute gifts within themeaning of the Gift-tax Act. He did not conceal the transactions but disclosed them in his wealth-tax returns. A complaint cannot be lodged only on the prima facie satisfaction that a gift has been made. There Has to be a further satisfaction that a return had not been furnished without any reasonable cause. If the Gift-tax Officer was of the view that the gifts were assessable under the Gift-tax Act and the assessee was under an obligation to file a return in respect of that gift, he should have called upon the assessee to file a return of income. The petitioner was right in his contention that the officer who was in charge of the assessment of the petitioner under the Income-tax Act, the Wealth-tax Act and the Gift-tax Act, thought it fit not to proceed against the petitioner under the Gift-tax Act with full knowledge of the facts. The officer now in charge of the case of the petitioner has taken a different view and has lodged this complaint.

17. In that view of the matter, it must be held that the criminal complaint was lodged without any basis and in colourable exercise of power and must be quashed.

18. It may be mentioned that by a letter dated February 4, 1980, the Income-tax Officer, C. C. VII, requested the petitioner to let him know whether he filed any gift-tax return and had paid any gift-tax for the assessment year 1967-68. The petitioner, in his letter dated February 11, 1980, stated that he had not filed any gift-tax returns and gave his reasons for not filing the return. After the criminal complaint was lodged, the petitioner applied to the Commissioner of Gift-tax, respondent No. 2 herein, for compounding the alleged offence under Section 35(4) of the Act. This application was made as early as September 12, 1983. Respondent No. 2 has not passed any order at all on that application. There is no explanation why respondent No. 2 did not deal with or dispose of the application for compounding the alleged offence.

19. It has not been explained in the affidavit why suddenly in the year 1980, the Income-tax Officer woke up and made an enquiry whether a return of gift had been filed by the petitioner in respect of the share transfer which had been effected in the year 1966. It appears that the criminal case has been started without any application of mind. A criminal complaint in exercise of statutory powers should not be lodged in such a casual manner.

20. The prayer of Mr. Prosad, that if this case is adjourned for a week, the gift-tax assessment proceedings can be completed is incomprehensible. I fail to see how the gift-tax proceedings can be completed at this stage without serving any notice under Section 16. A notice can only be served under Section 16(1)(a) at any time within 8 years of the end of the relevantassessment year. The case of the petitioner is that no notice under Section 16 has at all been issued for the assessment year 1967-68. I fail to see how the assessment proceedings can at all be initiated and completed if this case is adjourned for a week.

21. Mr. Murarka, on behalf of the petitioner, argued that the criminal proceedings against the petitioner could not be initiated because the petitioner had not filed any return at all. His contention is that only if the petitioner filed a return and supplied untrue particulars or suppressed material particulars in the return, a criminal proceeding can be initiated against the petitioner. There is nothing in Section 35 of the Gift-tax Act to justify this contention. Section 35 makes non-filing of a return punishable. The obligation to file a return is imposed by Section 13(1) which requires every person who had made any taxable gift to file a return of gift in the prescribed manner within the prescribed time. Section 13(2) casts an obligation upon a person to file a return when he is served with a notice by the Gift-tax Officer. In my judgment, the distinction sought to be drawn by Mr. Murarka between a return to be filed under Section 13(1) and Section 13(2) in respect of the criminal liability is without any substance.

22. Under the circumstances and for the reasons stated hereinabove, the writ petition succeeds. There will be an order in terms of prayers (a) and (c) of the petition.

23. There will be no order as to costs.

24. An oral prayer has been made for stay of operation of the order on behalf of the respondents. In the facts and circumstances of the case, the prayer is refused.


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