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Issues: (i) Whether the Gift-tax Officer could invoke section 29 of the Gift-tax Act, 1958 and fasten liability on the donee without issuing notice and affording an opportunity of objection; (ii) Whether the demand notice issued to the donee was an appealable determination under section 22(1A)(a) of the Gift-tax Act, 1958; (iii) Whether any further direction was necessary authorising the Gift-tax Officer to proceed afresh after cancellation of the demand.
Issue (i): Whether the Gift-tax Officer could invoke section 29 of the Gift-tax Act, 1958 and fasten liability on the donee without issuing notice and affording an opportunity of objection.
Analysis: Section 29 makes the donor primarily liable and permits recovery from the donee only when the officer forms an opinion that the tax cannot be recovered from the donor. Before proceeding against the donee, the officer must apply his own mind to the statutory preconditions and the donee must be given an opportunity to object, consistent with the requirements of natural justice. The donee's liability is not automatic and cannot be imposed merely on a letter from the executor or on a prima facie assumption without notice.
Conclusion: The invocation of section 29 without notice to the donee was invalid, and the cancellation of the demand was in favour of the assessee.
Issue (ii): Whether the demand notice issued to the donee was an appealable determination under section 22(1A)(a) of the Gift-tax Act, 1958.
Analysis: The issue of a demand notice determining the amount of gift-tax payable by the donee amounts to a determination of tax payable within the meaning of section 22(1A)(a). The form adopted by the Gift-tax Officer, whether styled as a letter or accompanied by a notice, did not alter its substantive character as an order affecting the assessee's tax liability.
Conclusion: The demand notice was appealable, and the assessee's challenge was maintainable.
Issue (iii): Whether any further direction was necessary authorising the Gift-tax Officer to proceed afresh after cancellation of the demand.
Analysis: An order passed in breach of natural justice can be set aside or cancelled, and the absence of an express direction to proceed afresh does not bar the authority from taking any action that is otherwise permissible in law. The Tribunal declined to issue an anticipatory direction on future proceedings, since that would amount to pronouncing on matters not yet arisen.
Conclusion: No further direction was required.
Final Conclusion: The order of the first appellate authority cancelling the demand was upheld and the departmental appeal failed.
Ratio Decidendi: A donee can be proceeded against under section 29 of the Gift-tax Act, 1958 only after the officer forms the requisite opinion and affords notice and opportunity in conformity with natural justice; a demand determining tax payable by the donee is appealable under section 22(1A)(a).
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