Gift-tax assessment without notice or hearing held arbitrary; sections 6 and 29 struck down to that extent.

Sections 6 and 29 of the Gift-tax Act, 1958 were held unconstitutional to the extent they enabled valuation and recovery of gift tax against a donee without notice, hearing, or an effective appellate remedy. The Court held that gift valuation had to rest on objective standards, but the statutory scheme excluded the donee from the assessment process and left the quantification of tax and the first charge under section 30 effectively uncontestable. Recovery from the donee on the basis of an assessment made behind his back, and on a guesswork-based valuation, was therefore arbitrary. The assessment order against the donee was quashed.

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Issues: Whether sections 6 and 29 of the Gift-tax Act, 1958, insofar as they permitted valuation of taxable gifts and recovery of gift-tax from the donee without notice, hearing, or appellate remedy, were unconstitutional as imposing unreasonable restrictions on the donee's right to hold and acquire property.

Analysis: The valuation of a taxable gift under section 6 was held to require assessment on objective standards and not a mere unfettered subjective estimate. The statutory scheme left the donee outside the assessment process: the donee was not the assessee, could not file the return, could not be served with the notice contemplated for the assessee, and had no effective opportunity to contest the valuation. The appellate provisions were also treated as unavailable to the donee in the scheme of the Act. Recovery from the donee under section 29, on the basis of an assessment made behind his back and on the Gift-tax Officer's opinion that the tax could not be recovered from the donor, was therefore treated as arbitrary. The first charge created by section 30 did not cure the defect, because the donee could not dispute the quantification of the charge. The impugned assessment was also found to be made on arbitrary and guesswork-based valuation, reinforcing the illegality.

Conclusion: Sections 6 and 29 of the Gift-tax Act, 1958, were held unconstitutional to the extent they authorised such valuation and recovery against the donee without procedural safeguards, and the assessment order against the petitioner-donee was quashed.

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