1991 (11) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Rs. 19,750 as deemed gift under s. 4(1)(a) of the GT Act, 1958.
2. Taxation of Rs. 2.5 lakhs as a taxable gift.
3. Taxation of Rs. 25,000 and Rs. 15,000 as gifts.
4. Penalty proceedings under s. 17(1)(c) of the GT Act, 1958.

Detailed Analysis:

1. Taxability of Rs. 19,750 as Deemed Gift:
The first issue pertains to the taxability of Rs. 19,750 as a deemed gift under s. 4(1)(a) of the GT Act, 1958. The original assessee, H.H. Bhagwat Singhji, sold his 1/4th share in a property for Rs. 2.5 lakhs, while the Valuation Officer estimated the fair market value at Rs. 3,41,250. The GTO considered the difference as a deemed gift. However, the CIT(A) reduced the addition to Rs. 19,750, aligning with the valuation in the case of a co-sharer, Princess Yogesh Kumari. The Tribunal found that the property was rented and its value could not be increased, thus the market value would not have varied. Relying on the decision in CIT vs. Cawasji Jehangir Co. (P) Ltd. and other cited cases, the Tribunal concluded that the deemed gift addition was unwarranted and should be deleted.

2. Taxation of Rs. 2.5 Lakhs as Taxable Gift:
The second issue involves the taxation of Rs. 2.5 lakhs paid by the late H.H. Bhagwat Singhji to M.K. Arvind Singhji. The GTO taxed this amount as a gift, not recognizing it as "Hath Kharch" allowance or maintenance expense. The CIT(A) upheld this view, influenced by the Rajasthan High Court decision in M.K. Arvind Singhji vs. CIT. However, the assessee argued that the payment was a discharge of a personal, legal, and moral obligation. The Tribunal considered the provisions of s. 5(1)(xvi) of the GT Act, 1958, and the covenant stipulating that the privy purse covered family expenses. It found that the payment was for maintenance, residence, and marriage expenses, thus not a taxable gift. The addition was deleted.

3. Taxation of Rs. 25,000 and Rs. 15,000 as Gifts:
The third issue relates to the taxation of Rs. 25,000 paid to Princess Yogesh Kumari and Rs. 15,000 to Smt. Raghuraj Kumari. The GTO and CIT(A) held these amounts as gifts since the recipients were not dependent on the deceased assessee. The Tribunal, referencing the Andhra Pradesh High Court decision in CGT vs. Bandi Subba Rao and the Madras Bench decision in IAC vs. Varadarajan, concluded that the payments were obligations under Hindu Law and family arrangements, thus not taxable as gifts. The amounts were not considered gifts under s. 2(xii) of the GT Act, 1958, and were deleted.

4. Penalty Proceedings under s. 17(1)(c) of the GT Act, 1958:
The final issue concerns the penalty proceedings under s. 17(1)(c) of the GT Act, 1958. The GTO levied a penalty of Rs. 32,600 for alleged concealment of gifts. The CIT(A) deleted the penalty, noting that the assessee disclosed all material facts and believed the payments were not gifts. The Tribunal upheld this view, stating that the penalty could not survive since the additions were deleted. It emphasized that the assessee's disclosure and bona fide belief negated any deliberate furnishing of inaccurate particulars. The penalty was rightly cancelled.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the additions and penalties, while dismissing the Department's appeal.