- (1.) HEARD learned Counsel for the parties.
(2.) AT the directions of the High Court following question of law has been referred along with statement of case by the Tribunal in respect of gift -tax relating to assessment year under the GT Act, 1958: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was under a bona fide belief that amount in question was not chargeable to gift -tax and as such no penalty under Section 17(1)(c) is leviable? Briefly stated the facts are that the assessee -late H.H. Maharana Bhagwat Singh of Mewar (now represented through his son and his legal heir M.K. Arvind Singh) in response to notice under Section 16 of the GT Act had filed a return declaring value of taxable gifts at nil. In the assessment completed under Section 15(3) on 3rd March, 1979, the GTO held that the following amounts were chargeable to gift -tax. The assessee during the year under consideration sold his 1/4th share in the property known as Daisylea House situated at Bombay for a sum of Rs. 2,50,000. This property was purchased in 1959 by the four co -owners for Rs. 10 lakhs. The assessee's share carne to Rs. 2.5 lakhs. The assessee sold his 1/4th share to his son M.K. Mahendra Singh, one of the co -owners. The Departmental valuer valued this property as on 31st March, 1970 at Rs. 14 lakhs vide his report dt. 17th May, 1978. On the basis of this report, the GTO adopted the market value of the 1/4th share of the assessee at Rs. 3,50,000. The GTO held that the property worth Rs. 3,50,000 has been transferred by the assessee for Rs. 2,50,000 otherwise than for adequate consideration and the difference of Rs. 1 lakh was taken as deemed gift. The GTO noticed that the assessee had made payments out of privy purse, to various persons and claimed that these payments were for maintenance expenses of the members of the ruler's family. However, the following payments were treated by the GTO as taxable gift: (a) Rs. 25,000 to Princess Yogesh Kumari, married daughter. (b) Rs. 15,000 to Smt. Raghuraj Kumari, married sister. It was held that since they were married, they were not dependent upon the assessee for maintenance. (c) Rs. 4,800 to natural parents, on the ground that the assessee came to royal family by adoption and hence his real parents are not entitled for maintenance out of the privy purse. Hence the payment of Rs. 4,800 was treated as gift. (d) Rs. 2,50,000 paid to M.K. Arvind Singh, son in addition to 'Hath Kharcha' allowance of Rs. 23,404. This payment was not treated as paid for maintenance purposes and treated as gift.
(3.) THE assessment was completed on taxable gift of Rs. 3,84,800. Simultaneously proceedings to levy penalty under Section 17(1)(c) of the GT Act were initiated as according to GTO, the assessee has concealed particulars of taxable gift. After affording an opportunity to the assessee, the GTO levied penalty for Rs. 32,600. The CIT(A) cancelled the penalty on the ground that the assessee had disclosed all material facts in the letter filed along with the return of income about the 'Hath Kharch' allowance and although it was a good case for levy of gift -tax, it was not a fit case for levy of penalty under Section 17(1)(c). In second appeal, the Tribunal upheld the order of the CIT(A).;