1983 (9) TMI 103 - AT - Income Tax

Issues Involved:
1. Justification of the imposition of penalty under section 17(1)(c) of the Gift-tax Act, 1958.
2. Whether the release of debt amounted to a gift.
3. Concealment of particulars of gift or furnishing inaccurate particulars.
4. Impact of the death of the original karta on penalty proceedings.
5. Bona fide belief in non-inclusion of the transaction in the return.
6. Application of section 4(1)(c) of the Gift-tax Act.
7. Applicability of penalty provisions to deemed gifts.
8. Relevance of wealth-tax liability in determining penalty.

Detailed Analysis:

1. Justification of the Imposition of Penalty under Section 17(1)(c) of the Gift-tax Act, 1958:
The primary issue was whether the Commissioner (Appeals) was justified in confirming the penalty imposed on the assessee under section 17(1)(c) for concealing particulars of a deemed gift. The Gift-tax Officer (GTO) initiated penalty proceedings against the assessee for not disclosing a deemed gift of Rs. 2,20,474. The GTO held that the release of debt in favor of the Bombay company without consideration constituted a deemed gift. The Commissioner (Appeals) upheld this view, leading to the appeal before the Tribunal.

2. Whether the Release of Debt Amounted to a Gift:
The assessee contended that the transaction did not amount to a gift because it was in consideration of losses suffered by the Bombay company. The GTO, however, construed the letter authorizing the Bombay company to recover its losses as a release of debt without consideration, thus constituting a deemed gift under sections 2(xii) and 4(1)(c) of the Act. The Tribunal noted that the assessee's explanation was that the release of debt was in fulfillment of an oral assurance and not a gift.

3. Concealment of Particulars of Gift or Furnishing Inaccurate Particulars:
The Tribunal examined whether the assessee had deliberately concealed the particulars of the gift or furnished inaccurate particulars. The Tribunal emphasized that the burden of proving concealment was on the department, especially since there was no Explanation appended to section 17(1)(c). The Tribunal concluded that the mere rejection of the assessee's explanation could not attract penalty.

4. Impact of the Death of the Original Karta on Penalty Proceedings:
The assessee argued that the penalty could not be levied since the original karta had died. The Commissioner (Appeals) rejected this argument, holding that the HUF continued to exist and was represented by the new karta. The Tribunal did not find this argument sufficient to negate the penalty proceedings.

5. Bona Fide Belief in Non-Inclusion of the Transaction in the Return:
The assessee claimed that the non-inclusion of the transaction in the return was under a bona fide belief that it was not liable to gift-tax. The Tribunal noted that the claim raised by the assessee was bona fide and that the details would have been furnished only if the assessee admitted it was a surrender, forfeiture, or abandonment of the debt.

6. Application of Section 4(1)(c) of the Gift-tax Act:
Section 4(1)(c) deals with the release, discharge, surrender, forfeiture, or abandonment of any debt, contract, or other actionable claim. The Tribunal observed that this provision is invoked where the circumstances justify an inference of collusion. The Tribunal found that the satisfaction of the GTO that the release was not bona fide did not automatically attract penalty under section 17(1)(c).

7. Applicability of Penalty Provisions to Deemed Gifts:
The Tribunal considered whether penalty under section 17(1)(c) could be attracted for a deemed gift. The Tribunal referred to various case laws, including CIT v. Jewels Paradise and CIT v. Bhuramal Manikchand, which held that penalty provisions do not extend to deemed gifts. The Tribunal concluded that, on facts, no penalty for concealment could have been levied.

8. Relevance of Wealth-tax Liability in Determining Penalty:
The Tribunal examined the impact of the transaction on the assessee's wealth-tax liability. The charts presented by the assessee showed no net gain and, in fact, an increased wealth-tax liability. The Tribunal held that this aspect further supported the view that the penalty under section 17(1)(c) was not justified.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, canceling the penalty of Rs. 6,848 under section 17(1)(c). The Tribunal concluded that the entirety of the circumstances did not reasonably point to the conclusion that the assessee had concealed the particulars of the gift or had deliberately furnished inaccurate particulars thereof.

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