G.T.A. NO. 9/LB OF 1987-88, DECIDED ON 5TH JUNE, 1988. Versus G.T.A. NO. 9/LB OF 1987-88, DECIDED ON 5TH JUNE, 1988.

P, A.A. ZUBARI (ACCOUNTANT MEMBER). -- This appeal has been filed at the instance of the Gift Tax Officer, Circle V, Lahore to impugned order, dated 31-3-1988 passed by the learned C.I T (A), Zone 3, Lahore in respect of assessment year 1973-74.

The facts giving rise to this appeal are that no return for Gift Tax was filed for the year under consideration. The Assessing Officer, however, came to have the knowledge that the respondent sold certain assets at below the market value hence provisions of clause (a) of section 4 of the Gift Tax Act were pressed into service to deem the difference as gift for charge of Gift Tax. Notice under section 16 was consequently issued on 29--4-1982 and was (allegedly) served on 8-5-1982. No compliance was made inasmuch as no return was filed. The Assessing Officer then issued notice under subsection (5) of section 15 of the Gift Tax Act on 12-1-1984 confronting the respondent with the facts and giving him a chance to explain his version of the transaction by 19-1-1984 and also to explain as to why the return summoned under section 16 was not filed. The respondent submitted reply, dated 24-1-1984, (first) contending that the assessment had become time-barred as it was covered by clause(b) of section 16(1) of the Gift Tax Act for which the limitation expired on 30-6-1978; (second) the validity of service of notice issued on 29-4-1982 under section 16 was disputed for the reason that section 40 of the Act required that the same should be served on 'the person therein, named' but no such service was made on the respondent as the notice was received by the employee (Mr. Taj, the Accountant), and (third) the respondent explained that he had sold shares of Lahore Textile Mills Limited and Tribal Textile Mills at face value (payment received through crossed cheques) and the break up value was lower because normal depreciation available under Rule 9 was to be taken into account for determining the value which in this case was not charged as the period was covered by the tax holiday exemption granted under section 15(BB) of the Income-tax Act. As respects the property (a residential plot) at Abid Majeed Road, Lahore Cantt. it was submitted that the same was to be valued at 10 times of the annual rent assessed which was less than the sale value. The Assessing Officer did not feel satisfied with any of these arguments. He discarded the plea for improper service of section 16 notice for the reason that (as per record) notices for earlier years as also for subsequent years were always received by the employees of the respondent and most of the time by Mr. Taj and these were invariably complied. The notice for wealth tax assessment of the respondent was also issued on the same date for the same year and was served on the same person (Mr. Taj, the Accountant) and was duly complied by the respondent. About the limitation the Assessing Officer felt that provisions of clause (a) of section 16(1) were attracted because there was 'omission or failure on the part of the assessee to make return under section 16' as (admittedly) no return for Gift Tax was filed. As the period of limitation for clause (a) is eight years, the assessment for the year 1973-74 could be validly reopened upto 30-6-1982, hence his action was well in time. Further, the Assessing Officer also disagreed with the stand of the respondent about the valuation of the properties also. According to him the shares were to be valued on the basis of the method prescribed in Rule 8(2)(c)(ii) of the Wealth Tax Rules, 1963 which had no provision for deduction of depreciation admissible under Rule 9 of the Income-tax Rules. As respects the residential lot the Assessing Officer felt that valuation at 10 times o the rent assessed was nowhere provided in the Gift Tax Rules rather provision of Rule 9(3-A) authorised the. Gift Tax officer to determine with the 'prior approval of the I.A.C. of Gift Tax ' the value of any 'property'. As the GARV means the sum for which the property might reasonably be expected to let from year to year, the G. T. O. was fully empowered to determine the same, remaining within the basic standard laid down in Rule 9(3-A).

3. The Assessing Officer finally estimated the face value of 112,554 shares of Lahore Textile and General Mills at Rs.3,590,473 against the declared sales price of Rs.1,125,540. The difference at Rs.2,464,933 was deemed as gift under section 4(a) of the Act. Similarly, the value of 2,859 shares of Tribal Textile Mills Ltd., was estimated at Rs.8,15,613 ,against the declared Rs.2,85,000, thus deeming Rs.5,30,613 as gift. 50% share in property No.111. at Abid Majeed Road, Lahore Cantt. was estimated at Rs.5,00,000 out of which Rs.1,00,000 representing the declared sale price were deducted to leave Rs.4,00,000 to be deemed as gift. The total value of the gift, therefore, came to Rs.33,95,546 with a Gift Tax demand of Rs.8,62,150. On appeal the learned Commissioner cancelled the assessment holding it illegal for improper service of notice. According to the learned Commissioner (Appeals), section 40 of the Gift Tax Act clearly prescribed that a notice 'may be served on the person therein named' but admittedly it was served on an employee (Mr. Taj, the Accountant) hence, it had not been served in the manner prescribed by law. The learned C.I.T. (A) relied on a Lahore High Court decision reported as 1988 P T D 135 wherein it was held that service procedure is mandatory and the same should be strictly adhered to. It was observed by the learned Commissioner that the notice had not been served and the mandatory requirement had not been fulfilled with the result that the proceedings got vitiated. The learned C.I.T.(A) further held that the proceedings were barred by time meaning thereby that the case fell under clause (b) of subsection (1) of section 16 and not under clause (a) .

4. It was now argued by the D. R. that admittedly the return was not filed with the result that taxable gift escaped assessment 'by reason of omission or failure on the part of the assessee to make a return under section 13'. It was illucidated by the D.R that clause (b) was applicable only to a situation where though a return was filed and assessment made, still taxable gift escaped assessment. Therefore, notwithstanding that there was no omission or failure on the part of the assessee the escapement or under assessment could be retrieved. The admitted failure to file return, therefore, placed the respondent's case in clause (a) for which the time limit was eight years from the end of the assessment year, which ran upto 30-6-1982 while the notice under section 16 was issued by the G.T.O. on 29-4-1982. It was well within the prescribed time. Therefore, the D.R. contended that the learned C.I.T.(A) clearly erred in holding that the assessment was time-barred. About the service, which the learned C.I.T. (A) characterised as illegal and in disregard of the mandatory requirements, the learned D.R. observed that it was accepted all over that service may be effected by 'conduct' also if it is made on a person who had been receiving the notices in the past which was good ground to assume that the person concerned had the authority from the assessee to receive the notice on his behalf. The D.R. presented various notices issued to the respondent in the past (and also in the subsequent years) both in the Gift Tax and in the parallel proceedings under the Wealth Tax to demonstrate Mr. Taj had been receiving these on behalf of the respondent. Most of the time those were complied.

5. We have heard the arguments by the D.R. and also gone through the record presented to us. It emerges that the notice issued on 29-4-1982 under section 16 of the Gift Tax Act was not complied with. The Assessing Officer then issued another notice under subsection (5) of section 15 on 12-1-1984, which, inter alia, called upon the respondent to explain as to why ex parte assessment should not be made for non-filing of return in response to notice under section 16. This notice also was served on the same employee (Mr. Taj) on whom the first notice under section 16 was served. In response to this notice a duly authorised A.R. (Kh. M. Iqbal) moved an application before the Assessing Officer contending that the proceedings may be deferred for a month to enable him to pursue his wealth tax assessments, which involved value of the same assets. The order sheet entry, dated 19-1-1984 is indicative that time was allowed up to 30-1-1984 but the respondent filed a detailed reply earlier than the stipulated date (i.e. on 25-1-1984) in the office of the G.T.O. of A which an entry was made on the order sheet of that day. This reply contested (i) the validity of service of notice under section 16 with reference to section 40 of the Gift Tax Act; (ii) disputed the valuation which the Assessing Officer intended to assign as per notice under section 15(5); and (iii) finally prayed 'in these circumstances kindly drop the proceedings'. On the basis of this document there can be no doubt that the respondent very well knew the factum of initiation of proceedings for escaped assessment against him and also about the situation of the G.T.O. to redetermine the value of the various sale transactions with a view to deem these as gift. We recall a decision by the Dacca High Court in re: Nasim Anwar (P L D 1968 Dacca 76) in which the learned Judges relied on a Lahore High Court decision reported as P L D 1956 Lah. 434 to hold that the object of service of summons is to appraise a defendant about the coming up of the case and the Court in which he has to appear. As the provisions of section 90(1) of the repealed Gift Tax Act and section 63(1) of the repealed income Tax Act are couched in exactly the same language, the verdict of the Dacca High Court is very pertinent where the learned Judges at p. 91 of the report observed:-

"From this it will appear that a question relating to the service of notice under the Income-tax Act is in the same line as it is in the Civil Procedure Code. Even under the Civil Procedure Code a person is not entitled to complain of illegality if he is informed of the contents of the notice or summons and if he takes steps to protes t his interest after receiving the intimation of such notice. The irregularity to the manner of communicating the contents of the notice cannot be considered to be fatal to' the subsequent proceedings in such, matters.

(underlined here for emphasis) ?

The learned Judges thus found no substance in the contention that the notice had not been served in accordance with the law and as such the proceedings are liable to be quashed.

6. Viewed on the criteria laid by the Dacca High Court as also by the Lahore High Court, we feel no hesitation in holding that the notice issued under section 16 on 29-4-1982 was validly served in the eye of law.

7. Coming to the limit of time for initiation of proceedings, we are of the opinion that clause (a) of section 16(1) was clearly attracted in the circumstances of the present case as admittedly no return was filed. We have already 'held in our decision, dated 19-4-1988 on G.T.A. No. 3(1,13 of 1986-87 that in such cases where return is note, filed proceedings can be initiated at any time within eight years of the end of the assessment year because such cases fall under clause ? (a) of section 16 due to 'omission or failure on the part of the assessee to make return under section 13'. The mere mention of the word 'information' in clause (b) would not altogether oust the basic requirement which in clause (b) is the factum of escapement or under assessment despite the filing of return by an assessee. For this reason we see no deficiency or illegality in the assessment and, therefore, hold the view that the case of the appellant clearly falls under clause (b) of section 16(1) hence proceedings invoking this section could be validly intiated upto 30-6-1982 thus the notice issued on 29-4-1982 was well within time. Therefore, the learned Commissioner erred in declaring the proceedings barred by time for which reason we vacate his verdict. ??????????

8. Coming to the valuation of the properties we refuse to adjudicate at this stage especially when the learned Commissioner had not touched upon the issue. We, therefore, remit the case back to the C.I.T.(A) for adjudication on this respect of the assessment. The appeal by the Department succeeds.

M.B.A./537/ T ???????????????????????????????????????????????????????????????????????????????????? Appeal accepted