1962 (3) TMI 126 - HC - Income Tax

Gift-tax Act provisions ruled unconstitutional, assessment order quashed, demand enforcement restrained. Petitioner company wins, costs awarded.

W. RAHMAN TEA AND LANDS COMPANY PRIVATE LIMITED Versus GIFT-TAX OFFICER AND OTHERS

The court found Sections 6 and 29 of the Gift-tax Act, 1958 unconstitutional as they imposed unreasonable restrictions on the donee's property rights. The ... - Issues Involved1. Constitutionality of Section 6 of the Gift-tax Act, 1958.2. Constitutionality of Section 29 of the Gift-tax Act, 1958.3. Determination of the value of taxable gifts.4. Recovery of gift-tax from the donee.5. Opportunity for the donee to contest the valuation and tax demand.Detailed Analysis1. Constitutionality of Section 6 of the Gift-tax Act, 1958The primary issue was whether Section 6 of the Gift-tax Act, 1958, which deals with the determination of the value of taxable gifts, is ultra vires the Constitution. The petitioner contended that the determination under this section depended on the subjective opinion of the Gift-tax Officer, without notice to the assessee or an opportunity to adduce evidence regarding market value. This was argued as an unreasonable restriction on the right to dispose of property guaranteed by the Constitution. The court held that although the Gift-tax Officer forms an opinion, it must be based on objective standards and judicial reasoning. The court found that the section did not provide adequate safeguards for the donee to contest the valuation, thus making it unconstitutional.2. Constitutionality of Section 29 of the Gift-tax Act, 1958The second issue was whether Section 29, which authorizes the recovery of gift-tax from the donee if it cannot be recovered from the donor, is ultra vires the Constitution. The court observed that the donee is not considered an assessee under the Act and has no right to file a return or produce evidence. The donee is also not entitled to a notice of demand or an appeal, making the recovery process unfair and unconstitutional. The court concluded that the section imposed an unreasonable restriction on the donee's right to hold property, violating Article 19(1)(f) of the Constitution.3. Determination of the Value of Taxable GiftsThe petitioner argued that the Gift-tax Officer's valuation was arbitrary and lacked objective standards. The court found that the valuation was indeed arbitrary, as it was based on guesses and not on any objective criteria. The assessment order was therefore quashed on the grounds of being arbitrary and not in compliance with the legal standards required for such determinations.4. Recovery of Gift-tax from the DoneeThe petitioner contested the demand notice for gift-tax recovery, arguing that it was illegal and violated natural justice principles. The court held that the Gift-tax Officer's opinion that the tax could not be recovered from the donor was arbitrary. The court noted that the refusal of the constituted attorney to accept the notice did not justify the conclusion that the donors had left India permanently. This arbitrary opinion further invalidated the recovery process from the donee.5. Opportunity for the Donee to Contest the Valuation and Tax DemandThe court emphasized that the donee did not have any opportunity to contest the valuation or the tax demand. The donee was not served with a notice to produce evidence and had no right of appeal. This lack of procedural fairness made the recovery of tax from the donee an unreasonable restriction on the right to hold and acquire property, thus unconstitutional.ConclusionThe court held that Sections 6 and 29 of the Gift-tax Act, 1958, imposed unreasonable restrictions on the donee's right to acquire and hold property, making them unconstitutional. The assessment order against the donee was quashed, and the respondents were restrained from enforcing the demand against the petitioner company. The rule was made absolute with costs, and writs of certiorari and mandamus were issued accordingly.