Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Revn. Case No. 4170 of 1959

Judges

Banerjee, J.

Acts

SECTION 6 GIFT TAX ACT 1958
section 5A of the Travancore-Cochin Land Tax Act, 1955,
Section 3 of the Madras Revenue Recovery Act, 1864,
Article 19(1)(f) of the Constitution. Section 5(A)
SECTION 128 TRANSFER OF PROPERTY ACT
ORISSA HINDU RELIGIOUS ENDOWMENTS ACT
section 13(2) of the Gift Tax Act
SECTION 4 GIFT TAX ACT
SECTION 29 GIFT TAX ACT
manner:(2) ****(3) ****(4) ****(5) ****(6) ****Section 23(1)
section 13 or section 14
section 17 or section 22
Act; or(c) ****(d) ****(e) ****(f)
INCOME TAX ACT
GIFT TAX ACT

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Smart Summary

Structured Summary of the Court's Opinion

Factual and Procedural Background

The petitioner is a private limited company whose entire shareholding had come to be held by two public charitable trusts (Kothari Charity Trust and Bharat Seva Nidhi) which had acquired the shares on June 17, 1958 from certain named shareholders. The petitioner company had itself purchased several immovable properties and one-half share of a tea estate from the same persons during 1958 for a total consideration of Rs. 1,25,000.

On December 14, 1959 the Gift-tax Officer, Jalpaiguri, served the petitioner with a demand notice and challan under section 29 of the Gift-tax Act claiming Rs. 1,47,255 as gift-tax on account of gifts made to the company by those transferors, invoking section 4(a) (inadequate consideration) and stating that the tax could not be recovered from the donors who had left India for good. The petitioner characterised the notice as illegal, harassing and violative of natural justice because it had no opportunity to represent before the Gift-tax Officer. After failing to obtain relief from the Gift-tax Officer, the petitioner moved this Court seeking writs of Certiorari (to quash the notice) and Mandamus (to restrain enforcement) and obtained the present Rule.

Legal Issues Presented

Whether section 6 of the Gift-tax Act, 1958 (which prescribes that the value of non-cash gifts be estimated at the price which, in the opinion of the Gift-tax Officer, the property would fetch in the open market on the date of the gift) is ultra vires the Constitution.
Whether that part of section 29 of the Gift-tax Act which authorises recovery of gift-tax from the donee where, in the opinion of the Gift-tax Officer, the tax cannot be recovered from the donor, is ultra vires the Constitution.

Arguments of the Parties

Appellant's (Petitioner) Arguments — Mr. A.C. Mitra

Section 6 permits a determination of value based on the subjective opinion of the Gift-tax Officer as to what price the property would fetch in the open market on the date of the gift; such valuation affects tax liability and therefore should not be left to a solely subjective opinion of the officer without notice to the assessee or an opportunity to adduce evidence.
Determination of value is, by nature, a judicial determination and must be formed according to objective standards and stated with reasons so that it is susceptible to appellate review.
When the deemed gift arises under section 4(a) (sale for inadequate consideration), allowing an ex parte valuation and assessment is an unreasonable restriction on the right of disposal of property guaranteed by the Constitution.
Recovery of tax from the donee under section 29, based on an ex parte valuation, is an unreasonable restriction on the donee's right to acquire and hold property under Article 19(1)(f).

Respondents' Arguments — Mr. Balai Lal Pal

Relied on Sadashib Prokash Brahmachari v. State of Orissa to argue that what matters is whether the person affected gets a reasonable chance of presenting his case before the original tribunal and has regular appeals to ordinary courts; the Act provides opportunity under section 15(2) to call the assessee to produce evidence and also provides appellate remedies.
Argued that the assessment machinery (sections permitting notice and appeals) suffices to meet constitutional requirements and that the donee can be dealt with under the charging provisions and the charge on immovable property (sections 3 and 30).
Made an effort to treat persons from whom tax is recoverable as included within the term “persons by whom gift-tax is payable,” seeking to equate the donee's position with other provisions making recipients liable or charged.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sadashib Prokash Brahmachari v. The State of Orissa (1956 S.C.A 794)	Principle: To assess whether statutory provisions operate as an unreasonable restriction, consider whether the affected person gets a reasonable chance to present his case before the original tribunal and has a regular appeal to ordinarily constituted courts.	The Court considered this principle but held it inapplicable to save section 6 because the donee here does not get any opportunity to present his case (the donee is not the assessee, cannot file returns, and is not entitled to notices or appeals), so the analogy could not be used to uphold the provisions.
Whitney v. Inland Revenue Commissioners (1926 A.C. 37)	Principle: Taxation involves three stages — declaration of liability, assessment (particularising the sum payable), and methods of recovery; liability does not depend on assessment.	The Court invoked this distinction to explain that persons who are liable to pay tax (declaratory stage) are conceptually different from persons from whom tax may be recovered; consequently, persons from whom recovery is sought (donees) are not necessarily “assessee” and need separate procedural safeguards.
K.T. Moopil Nair v. State of Kerala (A.I.R. 1961 S.C. 552)	Principle: A taxing provision that allows provisional assessments without prescribed procedural safeguards (notice, ability to rectify mistakes, right to higher court reference, or obligation to act judicially) imposes unreasonable restrictions on Article 19(1)(f).	The Court adopted the tests articulated in this case to evaluate whether the donee in the Gift-tax Act had procedural safeguards; finding none (no notice, no rectification procedure, no reference to superior courts, no right of appeal), the Court concluded sections 6 and 29 impose unreasonable restrictions on the donee's fundamental rights.

Court's Reasoning and Analysis

The Court began by identifying and recalling key statutory provisions relevant to the challenge: the definitions of "gift" (section 2(xii)), the deeming provisions (section 4), the obligation to furnish returns (section 13), the statutory method for valuation of property gifted (section 6), the assessment procedure (section 15), and the charging provisions (sections 3 and 30). These provisions framed the legal context for the challenge.

The Court analysed the petitioner's contention that section 6 allowed the Gift-tax Officer a purely subjective valuation. While accepting that the Gift-tax Officer is required to form an opinion as to what price the property would fetch, the Court held that such an opinion cannot be merely subjective in the sense of being unconstrained: it must be formed according to objective standards, be judicial in character and be stated with reasons so that it can be subjected to appellate review.

The respondents relied on the Sadashib Prokash Brahmachari principle (that the statutory scheme is constitutional if the affected person can present his case and has adequate appellate remedies). The Court distinguished the present case on the ground that the donee is not an “assessee” within the Act's definition (section 2(iii)) and therefore does not have the procedural entitlements of an assessee: he cannot file the return under section 13, he is not the person upon whom notices under section 15 would be served to produce evidence, and the statutory appeal provisions (sections 22 and 23) are framed for the assessee. The Court analysed section 22 and section 23 and concluded the phrase “any person” in section 22 must be read as referring to the assessee, not to a donee, because section 23 expressly confines the right of further appeal to the assessee.

The Court applied the Whitney distinction (declaration of liability, assessment, recovery) to emphasise that the class of persons who are liable to pay is not identical to the class from whom tax may ultimately be recovered. Thus, merely because recovery is possible from the donee under section 29 does not mean the donee enjoys the procedural rights of an assessee at the assessment stage.

The Court further applied the tests from K.T. Moopil Nair to the donee's position and found the following defects with respect to the donee: (i) no notice is required to be served on him; (ii) no procedure exists for rectification of mistakes by taxing authorities at his instance; (iii) no procedure is prescribed for obtaining the opinion of a superior Civil Court on questions of law at his instance; and (iv) he has no right of appeal. These omissions mean that the donee is excluded from the assessment process yet may be held liable for recovery, which the Court considered an unreasonable restriction on the donee's Article 19(1)(f) right to hold and acquire property.

Separately, and even if sections 6 and 29 were constitutionally valid, the Court examined the particular assessment order produced and found the valuation to be arbitrary. The assessment's valuation methodology (e.g., computing the tea estate's value by reference to select balance-sheet items and assigning a flat Rs. 7,50,000 figure to other immovable assets) did not follow objective standards and appeared to be guesswork. The Gift-tax Officer's stated basis for concluding the tax could not be recovered from donors (notice refused by constituted attorney, so they must have left India for Pakistan for good) was likewise viewed as an arbitrary inference not justified by the facts.

On these combined grounds — procedural exclusion of the donee and arbitrariness in the particular valuation and conclusion about recoverability from donors — the Court concluded that sections 6 and 29, insofar as they permitted valuation and recovery against a donee excluded from assessment procedure, imposed unreasonable restrictions on the donee's constitutional rights.

Holding and Implications

Holding: The Court held that sections 6 and 29 of the Gift-tax Act, 1958 put unreasonable restrictions on the donee's right to acquire and hold property and are unconstitutional to that extent.

Direct consequences ordered by the Court (as stated in the opinion):

The assessment order as against the donee petitioner company was quashed.
The respondents were commanded not to enforce the assessment against the petitioner company.
Writs of Certiorari and Mandamus were issued accordingly.
The Rule was made absolute with costs — hearing fee assessed at five gold mohurs.

Implications: The opinion focuses on the direct effect in this case — quashing the assessment and restraining enforcement against the petitioner donee. The opinion does not contain an explicit statement that it is laying down a broader precedent beyond the reasoning that sections 6 and 29 are unconstitutional insofar as they permit valuation and recovery from a donee excluded from procedural safeguards; no separate discussion identifying novel precedent beyond the direct ruling for the parties is contained in the provided text.

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Khan Bahadur W. Rahaman Tea And Lands Co., (P) Ltd. v. Gift-Tax Officer, A Ward, Jalpaiguri And Ors.

The Judgment of the Court was as follows:

2. Is section 6 of the Gift-tax Act, 1958 (hereinafter referred to as the Act) dealing with determination of the Value of taxable gifts and that part of Section 29 of the Act, which authorises recovery of Gift-tax from the donee, where, in the opinion of the Gift-tax Officer, the tax cannot be recovered from the donor, ultra vires the Constitution? That is the main question which calls for determination in this Rule.

3. “Gift” is defined in section 2(xii) of the Act in the following language:—

“Gift means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4.”

4. Section 4 of the Act includes certain transfers within the definition of “Gift” under the Act and reads as follows:

Section 4. “For the purposes of this Act,—

(a) Where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor;

(b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee, to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor;

(c) Where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bonafide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment;

(d) Where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be a gift made in his favour by the person who causes or has caused the property to be so vested.”

5. An assessee under the Act is defined in section 2(iii) and reads as follows:—

“‘assessee’ means a person by whom gift-tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the determination of the gift-tax payable by him.”

6. Section 13 of the Act relates to the return of gifts and is set out below:—

“(1) Every person who during a previous year has made any taxable gifts shall, before the thirtieth day of June of the corresponding assessment year, furnish to the Gift-tax Officer a return in the prescribed form and verified in the prescribed manner.

(2) If the Gift-tax Officer is of opinion that in respect of the gifts made by a person during any previous year he is liable to gift-tax under this Act, then notwithstanding anything contained in sub-section (1), he may serve a notice upon such person requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner.

(3) The Gift-tax Officer may in his discretion extend the date for the delivery of the return under this section.”

7. Section 6 of the Act provides for determination of value of taxable gifts and reads as follows:—

“(1) The value of any property other than cash transferred by way of gift shall, subject to the’ provisions of sub-sections (2) and (3), be estimated to be the price which in the opinion of the Gift-tax Officer it would fetch if sold in the open market on the date on which the gift was made.

(2) Where a person makes a gift which is not revocable for a specified period, the value of the property gifted shall be the capitalised value of the income from the property gifted during the period for which the gift is not revocable.

(3) Where the value of any property cannot be estimated under sub-section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner.”

8. Section 15 of the Act deals with assessment of Gift-tax in the following language:—

“(1) If the Gift-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that a return made under section 13 or section 14 is complete, he shall assess the value of the taxable gifts made by the assessee and determine the amount payable by him as gift-tax.

(2) If the Gift-tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely. In support of his return.

(3) The Gift-tax Officer, after hearing such evidence as the person may produce and such other evidence, as he may require on any specified points shall, by order in writing, assess the value of taxable gifts made by the assessee and determine the amount payable by him as gift-tax.

(4) ********

(5) * * * * * * * *”

9. Sections 3 and 30 are the charging sections of the Act and set out below:—

“Section 3:—

Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the 1st day of April 1. 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957) at the rate or rates specified in the Schedule.”

Section 30:—

Gift-tax payable in respect of any gift comprising immovable property shall be a first charge on that property but any such charge shall not affect the title of a bona, fide purchaser for valuable consideration without notice of the charge.”

10. I need bear in mind the provisions of the above sections of the Act in order to examine the point which was argued in the Rule.

11. I now turn to the circumstances under which the present application came to be made.

12. The petitioner is a private limited company and the entire share-holding of the company is now held by Kothari Charity Trust and Bharat Seva Nidhi, both said to be public charitable trusts, which trusts acquired the shares on June 17, 1958, from the shareholders, named, (1) Janab Fazlur Rahaman (2) Janab Mujibar Rahaman, (3) Janab Obaidur Rahaman, (4) Janab Sayeedur Rahaman and (5) Janab Ahmedur Rahaman. From the selfsame persons, the petitioner Company had purchased certain immovable properties, namely, (i) 2.24½ acres of land in Taluk Kharia, Pargana Baikunthapur. District Jalpaiguri, (ii) 5.75½ acres of land including two buildings known as “Alima Manzil” and “Noor Manzil” in Taluk Kharia, Pargana Baikuntha-pur, District Jalpaiguri, (iii) One-half share of a tea estate known as Rheabari Tea Estate, for a total consideration of Rs. 1,25,000/- only. The purchase was made from different cosharers on different dates in the year 1958. On December 14, 1959, the petitioner Company received the following letter from the Gift-tax Officer, Jalpaiguri:—

“Enclosed please find the demand notice and chalan in respect of the Gift-tax payable by your company under section 29 of the Gift-tax Act on account of the gifts made to your Company by members of the Association of Persons composed of Jb. Fazlur Rahman, Jb. Sayedur Rahman, Jb. Mujibur Rahman, Jb. Ahmedur Rahman and Jb. Obaidur Rahman who transferred certain immovable properties to your company during the accounting period relevant to 1959/60 assessment for extremely inadequate consideration for which section 4(a) of the Gift-tax Act has been attracted.

As the tax cannot be recovered from the donors who have left India for good after having disposed of all their assets, I call upon you to pay the tax in terms of section 29 of the Gift-tax Act.” Along with the letter a notice of demand claiming Rs. 1,47,255/- as Gift-tax and a challan for payment of the tax, by December 24, 1959, were sent to the petitioner.

13. The petitioner characterised the said notice as illegal and harassing and also as violating the principles of natural justice, because the petitioner Company had no opportunity of representing its case before the Gift-tax Officer and, therefore, it called upon the said Officer to withdraw the notice. Failing to get redress from the Gift-tax Officer, the petitioner Company moved this Court praying for a Writ of Certiorari to quash the notice and for a Writ of Mandamus restraining the Respondents from enforcing the demand against the petitioner and obtained the present Rule.

14. Mr. A.C Mitra, the learned Standing Counsel, who appeared for the petitioner Company, contended, in the first place, that the determination of the value of a gift, under section 6 of the Act, depended on the subjective opinion of the Gift-tax Officer and he was free to estimate the value at such price as in his opinion the transfer of the property would fetch, if sold in the open market at the date of the gift and that he was free to assess Gift-tax on such valuation. He contended that since such determination of value was by nature judicial determination, it must not be left to be determined subjectively by the Gift-tax Officer, without notice to the assessee or without opportunity to the donor or the donee to adduce evidence as to market value. He further contended that this was all the more so when the gift to be valued was a sale for inadequate consideration in respect of which the amount by which the market value of the property exceeded the value of the consideration was to be deemed, under section 4(a) of the Act, as a gift made by the transferor. He characterised this sort of determination of tax as an unreasonable restriction on the right of disposal of the property guaranteed by the Constitution. He further contended that where Gift-tax assessed on such ex parte determination of valuation of taxable gifts was sought to be recovered from the donee, under section 29 of the Act, there was an unreasonable restriction imposed on his right to acquire and hold property and that constituted breach of his fundamental rights guaranteed under Article 19(1)(f) of the Constitution. The argument is attractive and deserves consideration. The Act requires that in determining the value of a taxable-gift, the Gift-tax Officer shall form an opinion as to the price, which the property, if sold in the open market, at the date of the gift, would have fetched. Any opinion which does not take into account all the aforesaid ingredients is of no value at all. Therefore, although the Gift-tax Officer is to form an opinion, it is not really subjective opinion but has to be formed according to certain objective standards. Since it is opinion as to taxation, it has also to be judicially arrived at and has to be stated with reasons for forming the opinion. Such reasoning as to valuation may thereafter be tested by way of appeals to the hierarchy of appellate courts provided in the Act.

15. Mr. Balai Lal Pal, learned Advocate for the respondents strongly relied upon the judgment of the Supreme Court in Sadashib Prokash Brahma-chari v. The State of Orissa (1) (1956 S.C.A 794) in which the constitutional validity of schemes framed under the Orissa Hindu Religious Endowments Act came up for consideration. In that case Jagannadhadas, J. observed:—

“But in order to judge whether the provisions in the present Act operate by way of unreasonable restriction for Constitutional purposes, what is to be seen is whether the person affected gets a reasonable chance of presenting his entire case before the original Tribunal which has to determine judicially the questions raised and whether he has a regular appeal to the ordinarily constituted Court or Courts to correct the errors, if any, of the Tribunal of first instance.”

16. Mr. Pal contended that under section 15(2) of the Act, if the Gift-tax Officer is not satisfied with the return made by the assessee, he shall call upon the assessee to produce evidence in support of the return and that gave opportunity to the assessee to contest any incorrect valuation of gift. He also contended that even if the Gift-tax Officer went wrong, his error could be rectified by way of successive appeals provided in the Act. Mr. Pal, therefore, argued that the observations in (1) Sadasib Prokash Brahmachari's case (supra) should be applied to test the question of Constitutional validity of section 6 of the Act and on such test being applied must be answered in the affirmative. I am unable to accept this argument. If Gift-tax had been recoverable only from the donor, I might have upheld the contention of Mr. Pal. But section 29 of the Act provides that Gift-tax, though payable by the donor, may be recovered from the donee, if in the opinion of the Gift-tax Officer the tax cannot be recovered from the donor. So far as the donee is concerned, he is not the assessee, within the definition of the term in section 2(iii), because the tax is not payable by him although it may be recovered from him. He is not entitled to make a return of gift under section 13 of the Act, because such return can be furnished only by a person who made a taxable gift. If the donor does not file the return, the donee is helpless and cannot remedy the situation by filing a return himself. Since the donee does not file a return, he is not to be served with a notice to produce evidence in support of the return. Such notice is to be given to the donor assessee only and the donee has no control in the matter of production at evidence. So at the stage of the determination of the value of taxable gifts and also determination of the Gift-tax the donee is completely out of the picture. Even the notice of demand, under section 31 of the Act, is to be served upon the assessee or other person liable to pay such tax. The expression “other person liable to pay such tax” includes legal representatives of a deceased donor (see Section 19 of the Act), members or groups of members of a quondam Hindu undivided family in case of gift made by a donor which was an undivided family (see section 20 of the Act) and firm or association of persons, in case of gifts made by such a firm or association of persons, even after its discontinuance or dissolution (see section 21 of the Act). The expression does not include the donee because the Act does not make the donee liable to pay the tax but only makes the tax recoverable from him. The position in law being such as stated above, it is difficult to save the constitutional validity of section 6 of the Act on the analogy of the reasonings in (1) Sadashib Prokash Brahmahari's case (supra), because the donee does not get any opportunity whatsoever of presenting his case before the Gift-tax Officer.

17. Moreover, I am not sure, if the donee has at all a right of appeal. Section 22 of the Act, which provides for an appeal to the Appellate Assistant Commissioner and section 23, which provides for an appeal to the Appellate Tribunal read as follows:—

“Section 22

(1) Any person,—

(a) objecting to the value of his taxable gifts determined under this Act; or

(b) objecting to the amount of gift-tax determined as payable by him under this Act; or

(d) ****

(e) ****

(f) ****

may appeal to the Appellate Assistant Commissioner against the assessment or order, as the case may be, in the prescribed form and verified in the prescribed manner:

(2) ****

(3) ****

(4) ****

(5) ****

(6) ****

Section 23

(1) Any assessee objecting to an order passed by the Appellate Assistant Commissioner under section 17 or section 22 or to an order passed by the Commissioner under section 17 may appeal to the Appellate Tribunal within sixty days of the date on which he is served with notice of such order.

(2) to (rdquo) ********”

18. The word “any person” in section 22 should be read as referring to the assessee and not to the donee as is expressly made clear in section 23, where the right of appeal to the Appellate Tribunal is given to the assessee only. To read “any person” in section 22 differently from the word “assessee”, as in section 23, may lead to this incongruity that a donee may appeal to the Appellate Assistant Commissioner but the assessee may appeal both to the Appellate Assistant Commissioner and to the Appellate Tribunal. I do not think that is the scheme of the Act. If a donee has no right of appeal, that is all the more reason why the analogy of reasoning in (1) Sadashib Prokash Brahmachari's case (supra) shall not save the validity of section 6 of the Act.

19. Mr. Pal made a desparate effort to include within the scope of the word “persons by whom Gift-tax is payable” also persons from whom Gift-tax is recoverable. I must repel this argument for reasons which I shall presently state. As in the Income-tax Act, so also in the scheme of the Gift-tax Act, there are three stages in the imposition of the tax. “There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend upon assessment. That exhypothesi, has already been fixed. But the assessment particularises the exact sum which a person liable has to pay. Lastly, comes the methods of recovery, if the person taxed does not pay” (vide Whitney v. Inland Revenue Commissioners, (2) 1926 A.C 37, 56). That being so, persons who are liable to pay the tax do not necessarily include persons from whom the tax may be ultimately recovered. In that view, the position of a donee under section 29 of the Act is that he is presented with an accomplished fact, namely, an assessment of Gift-tax on a valuation arrived at by the Gift-tax Officer, beyond his knowledge and without any opportunity to him of contesting the correctness of the same. In my opinion, this makes the provision of sections 6 and 29 of the Act both bad and unconstitutional.

20. Dealing with the Constitutionality of section 5A of the Travancore-Cochin Land Tax Act, 1955, as amended in 1957, the Supreme Court observed in the case of K.T Moopil Nair v. State of Kerala,. (3) (A.I.R 1961 S.C, 552):—

“We find that Section 5(A) is also equally objectionable because it imposes unreasonable restrictions on the rights to hold property, safeguarded by Article 19(1)(f) of the Constitution. Section 5(A) declares” that the Government is competent to make a provisional assessment of the basic tax payable by the holder of unsurveyed land. Ordinarily, a taxing statute lays down a regular machinery for making assessment of the tax proposed to be imposed by the statute. It lays down detailed procedure as to notice to the proposed assessee to make a return in respect of property proposed to be taxed, prescribes the authority and the procedure for hearing any objections to the liability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceeding in a higher Civil Court. The Act merely declares the competence of the Government to make a provisional assessment, and by virtue of Section 3 of the Madras Revenue Recovery Act, 1864, the land-holders may be liable to pay the tax. The Act being silent as to the machinery and procedure to be followed in making the assessment leaves it to the Executive to evolve the requisite machinery and procedure. The whole thing, from beginning to end, is treated as of a purely administrative character, completely ignoring the legal position that the assessment of a tax on person or property is at least of a quasi-judicial character. Again, the Act does not impose an obligation on the Government to undertake survey proceedings within any prescribed or ascertainable period, with the result that a land-holder may be subjected to repeated annual provisional assessments on more or less conjectural basis and liable to pay the tax thus assessed. Though the Act was passed about five years ago, we were informed at the Bar that survey proceedings had not even commenced. The Act thus proposes to impose a liability on land-holders to pay a tax which is not to be levied on a judicial basis, because (1) the procedure to be adopted does not require a notice to be given to the proposed assessee; (2) there is no procedure for rectification of mistakes committed by the Assessing Authority; (3) there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law, as is generally found in all taxing statutes, and (4) no duty is cast upon the Assessing Authority to act judicially in the matter of assessment proceedings. Nor is there any right of appeal provided to such assessees as may feel aggrieved by the order of assessment”.

21. If I apply the above tests to the donee in the matter of assessment of Gift-tax I find that (i) no notice is required to be served on him, (ii) there is no procedure by which a donee can obtain rectification of mistakes committed by taxing authorities, (iii) there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law, by application for reference or otherwise at the instance of the donee, and (iv) nor has he any right of appeal. Therefore, the tax has been made recoverable from the donee under section 29 of the Act, without giving him any opportunity to contest the correctness of the demand and that makes the demand an unreasonable restriction on the donee's right to hold property guaranteed by Article 19(1)(f) of the Constitution.

22. Faced with this position, Mr. Pal argued that under section 3 read with section 30 of the Act, Gift-tax was a first charge on the property gifted and whoever accepted gift of immovable property accepted property charged with tax and should not dispute recovery of tax from the charged property. The donee's position was sought to be equated to that of a universal donee under section 128 of the Transfer of Property Act, which made him personally liable for all the debts due by and liabilities of the donor at the time of the gift to the extent of the property comprised in the gift. This argument is not well-conceived.

23. The donee may not dispute the charge but he is entitled to dispute the quantification of the charge, arrived at behind his back and without any opportunity to him to have the incorrectness, if any, in the quantification rectified. A procedure for quantification, which keeps the donee out of the picture and does not afford to him any opportunity to present his case about the value of the taxable gift but yet then makes the tax recoverable from him is certainly an unreasonable restriction on the right to hold and acquire property and must be struck down as unconstitutional.

24. There is yet another aspect of the matter which I need consider. Even if I had held that sections 6 and 29 of the Act were constitutionally valid, in so far as the donee was concerned, even then I have to quash the determination of valuation of the property as made by the Gift-tax Officer. Mr. Pal produced the assessment order, in terms of the Rule issued by this Court and I find that that valuation was made in the manner hereinafter quoted:—

‘The value of the gifted properties is computed as under:—

RHEABAEI TEA ESTATE

The value of net wealth of the Estate as on the date of transfer ia taken as follows on the basis of the audited balance sheet of the Estate for the year ended 31st December, 1957

Subscripted capital Rs. 2,00,000 Reserves and surplus 8,49,485 Provision for taxation 31,000 10,80,485 Deduct: .. Advance tax paid. 3,97,935 (Net Wealth) 6,82,550

25. Half of it belonged to the assessee association and was therefore transferred to the Ltd. Company i.e, Rs. 3,41,275.

26. Value of extensive agricultural, non-agricultural and other lands and house properties of the assessee transferred to the company is estimated at Rs. 7,50,000.

(Note: Only one house property alone namely Nurmanzil subsequently fetched a price of Rs. 1,36,000).

27. The total value of immovable assets, besides of Rheabari Tea Estate, is taken at a moderate figure of Rs. 7,50,000|-. A completed list of the properties transferred is appended hereto

28. The valuation was not made keeping in view the standards by which such valuation has to be made. The reason given is unconsequential and the assessment order smacks of arbitrariness. The figure Rs. 7,50,000/- was taken by guess and the valuation was not made by reference to any objective standard. That is an additional reason why I cannot uphold the assessment order as against the donee.

29. Lastly, the Gift-tax Officer formed the opinion that the tax cannot be recovered from the donor quite arbitrarily. This will appear from the following two passages from the assessment order:—

“Notice under section 13(2) of the Gift Tax Act was sought to be served on Shri Khurshed Ali, Constituted Attorney for the members of the Association of persons, the assessee. But he refused to accept the notice. The notice was, therefore, served by affixation by the Departmental Inspector in the presence of witness at the last known address of the assessee.

As the tax cannot be recovered from the Donors who have all left India for Pakistan for good after having transferred all their properties the tax is to be collected from the Donee, that is, MJs. Khan Bahadur Walipur Rahman Tea & Lands Co. (Pr.) Ltd. under section 29 of the Gift Tax Act.”

30. From the fact that the constituted attorney did not accept service of notice on the assessees donors, it does not follow that they left India for Pakistan for good after having transferred all their properties and that the tax cannot be recovered from them. If section 29 authorises that Gift-tax Officer to recover Gift-tax from the donee merely on his subjective opinion that it cannot be recovered from the donor, that is an additional infirmity of that section, clothes as it does the Gift-tax Officer with arbitrary powers to recover tax, not from the person primarily liable but from the donee, who is liable only if the tax cannot be recovered from the donor.

31. For the reasons aforesaid, I hold that sections 6 and 29 of the Act put unreasonable restrictions on the donee's right to acquire and hold property and is unconstitutional to that extent. I, therefore, quash the assessment order so far as the donee petitioner company is concerned and command the respondents not to enforce the same against the petitioner company.

32. Let Writs of Certiorari and Mandamus, accordingly issue.

33. This Rule is made absolute with costs—hearing fee being assessed at five gold mohurs.

S.K.B

Khan Bahadur W. Raha... v. Gift-Tax Officer, A ...