COMMISSIONER OF GIFT TAX vs LATE H. H. MAHARAJA BHAGWAT SINGH.

BY THE COURT :

The Revenue, by this application under s. 26(3) of the GT Act has prayed that the Tribunal, Jaipur Bench, Jaipur may be directed to refer the following question of law for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was under a bona fide belief that amount in question was not chargeable to gift-tax and as such no penalty under s. 17(1)(c) is leviable ?"

Briefly stated, the facts of the case are that deceased H. H. Maharana Bhagwat Singhji of Mewar (now represented through his son and legal heir M. K. Arvind Kumar Singhji), in response to the notice under s. 16 of the GT Act issued by the GTO, District B-Ward, Udaipur, filed a nil data under protest. The GTO, also, issued a notice under s. 15(2) of the Act to the assessee for the asst. yr. 1969-70 and in pursuance to which the authorised representative of the assessee attended the proceedings. The assessee was required to file reasons as to why gift of Rs. 2,50,000 to M. K. Arvind Kumar Singhji; Rs. 50,000 to Smt. Nirupamma Kumariji and Rs. 50,000 to Smt. Raghuraj Kumariji made by the assessee may not be taxed. The assessee was also required to file reasons as to why the gift be not calculated for sale of 1/4th share of Daisyles House on the basis of the valuation adopted by the Government Valuer at Bombay. The assessee filed reply and contended that the amount paid to these persons including others, were paid from the privy purse for the maintenance of the members of the Royal Family.

The AO, by its order dt. 3rd March, 1979 completed the assessment under s. 15(3) of the Act and held that the following amounts are chargeable to the gift-tax :

" (a) Deemed gift of Rs. 1 lakh made by the assessee to M. K. Mahendra Singhji on account of transfer of 1/4th share in the Daisylea House Property at Bombay.

(b) Gift of Rs. 4,800 made by the assessee to his real parents.

(c) Gift of Rs. 15,000 made to Shri Raghuraj Kumar, married sister of the assessee.

(d) Gift of Rs. 25,000 made to Princess Yogeshwari Kumar, married daughter.

(e) Gift of Rs. 2,50,000 made to M. K. Arvindkumar Singhji otherwise for maintenance out of privy purse."

The AO, also, simultaneously initiated the penalty proceedings against the assessee under s. 17(1)(c) of the GT Act as according to the GTO the assessee has concealed the particulars of the taxable gifts. Notices were issued to the assessee and after giving an opportunity of hearing to the assessee, the GTO levied the penalty of Rs. 32,600.

The assessee, aggrieved with the order passed by the AO, filed an appeal before the CGT(A). The appeal was heard by the CGT(A) on 11th Aug., 1989 and the Commissioner allowed the appeal filed by the assessee and set aside the order imposing the penalty of Rs. 32,600 under s. 17(1)(c) passed by the AO. He, also, upheld the gift to the extent of Rs. 3,09,750 against the gift assessed by the GTO at Rs. 3,94,800.

Aggrieved with the order passed by the CGT(A), both, i.e., the assessee and the Revenue, preferred appeals before the Tribunal, Jaipur Bench, Jaipur. The Tribunal, by its order dt. 13th Nov., 1991 allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue relating to imposition of the penalty.

Aggrieved with the order dt. 13th Nov., 1991 passed by the Tribunal, Jaipur Bench, Jaipur, affirming the order passed by the CGT(A), cancelling the penalty, the Revenue moved an application under s. 26(1) of the Act to state the case and refer the questions of law mentioned in the application for the opinion of the High Court. The Tribunal, by its order dt. 17th Feb., 1993 refused to refer the question of law for the opinion of the High Court on the ground that the findings arrived at by the Tribunal are purely findings of fact which do not give rise to any question of law fit to be referred for the opinion of the High Court. The Tribunal, therefore, declined to refer the proposed questions for the opinion of the High Court.

Aggrieved with the order dt. 17th Feb., 1993 passed by the Tribunal refusing to refer the question of law for the opinion of the High Court, the Revenue has filed this application under s. 26(3) of the GT Act for directing the Tribunal to state the case and refer the question of law, mentioned in para 1 above, for the opinion of this Court.

It is contended by the learned counsel for the Revenue that (i) the Tribunal was not justified in refusing to refer the question proposed by the Revenue in the application for the opinion of the High Court though it is purely a question of law; and (ii) in the quantum case, the Tribunal has referred the question of law for the opinion of this Court. In these circumstances the Tribunal was not justified in refusing to refer the question referred in the application which is purely a question of law. Learned counsel for the assessee, on the other hand, has submitted that no question of law arises in the present case and the findings arrived at by the Tribunal are purely the findings of fact. It is further submitted by the learned counsel for the assessee that even if the quantum reference is answered in favour of the Revenue even then the penalty cannot be imposed on the basis of the findings arrived at in the assessment proceedings.

We have considered the submissions made by the learned counsel for the parties.

An order imposing the penalty is the result of quasi-judicial proceedings and the finding in the assessment proceedings are not conclusive so far as the penalty proceedings are concerned. They cannot be automatically adopted as a finding to that effect in the penalty proceedings. In a penalty proceedings, the concerned authority has to consider the matter afresh on the material available before it and the finding recorded by the AO during the assessment proceeding cannot be regarded as conclusive for the purpose of penalty proceedings and a necessary conclusion attracting the penalty has to be drawn and finding has to be given that the assessee consciously concealed the particulars of the gift or has deliberately furnished inaccurate particulars.

While dealing an application under s. 23(3) of the Act, the Court has, also, to bear in mind that it is not called upon to decide whether the question sought to be referred is ultimately decided in whose favour ? At this stage, the Court is required to consider : whether the question of law does arise out of the order of the Tribunal and the Tribunal, which was even approached and was requested to refer the case, has wrongly refused to state the case. The Tribunal quashed the order of penalty on the grounds that (i) the penalty under s. 17(1)(c) would not survive since we have deleted the addition; (ii) Sec. 17(1)(c) requires that the assessee should have concealed the particulars of any gift or deliberately furnished incorrect particulars thereof and in his letter filed along with the Return, the assessee has disclosed the material fact; and (iii) the assessee entertained a belief that the amount in question do not represent the gifts.

The Tribunal, while refusing to state the case and refer the question of law referred in the application, held that these findings arrived at by the Tribunal are purely findings of fact which do not give rise to the question of law and, therefore, the Tribunal declined to refer the question. The finding recorded by the Tribunal in the penalty proceedings are based upon the findings arrived at by the Tribunal in the assessment proceedings and as the addition made-in the assessment proceeding has been set aside, the Tribunal therefore, observed that there is no question of levying the penalty. The Tribunal has stated the case and referred the question of law in the quantum proceedings and the matter is pending before the High Court for consideration. Since the matter has been referred in the quantum proceedings and the finding in the penalty proceedings arrived at by the Tribunal are based on the findings given by the Tribunal in the assessment proceedings, we are, therefore, of the opinion that the questions of law do arise in these circumstances and the Tribunal should have referred the question of law for the opinion of the High Court.

In a result, the application under s. 26(3) of the GT Act moved by the Revenue is allowed and the Tribunal, Jaipur Bench, Jaipur, is directed to state the case and refer the question of law mentioned in para 1 above, for the opinion of this Court.