M. R. A. ANSARI, J.

( 1 ) IN a family partition, the assessee, who is an individual, was allotted land

measuring 14,716 sq. yards and a small garden house situated in the said land as

his share. Out of this land, the assessee sold 5,678 sq. yards of land on 25-8-1961

to Ganesh Flour Mills at the rate of Rs. 60 per sq. yard. On 26-6-1961, the assessee,

his wife, his son and his daughter-in-law formed a company known as New Delhi

Theatres Private Limited, the assessee having 10 shares out of the total 35 shares.

On 13-7-1961, the assessee sold 6,120 sq. yards of the land as well as the garden

house to this company for Rs. 93,450. In his income-tax return for the assessment

year 1962-63, the assessee claimed that the lands which he had sold to the

company were agricultural lands and, therefore, no capital gains could be assessed

on account of this transaction. The Income-tax Officer did not accept the assessees

claim and not only held that the lands were not agricultural lands but also held that

the provisions of section 52 of the Income-tax Act, 1961 were attracted to the

transaction. He estimated the market value of the property sold by the assessee to

the company at Rs. 5,14,600 and on that basis, he determined the capital gains that

accrued to the assessee as a result of this transaction at Rs. 4,47,956. The

Incometax Officer also called upon the assessee to file a gift return in respect of this

transaction. The assessee filed a return on 16-2-1965 showing the taxable gift as nil

with an explanatory note to the effect that no gift was involved in the transaction of

transfer of the land from the assessee to the company. The Gift-tax Officer,

however, held that the assessee had made a gift of the lands to the company within

the meaning of section 4 (a) of the Gift-tax Act, 1958 (hereinafter REFERRED TO to

as the Act) and determined the value of the gift at Rs. 4,21,160. The Gift-tax Officer

also issued notices to the assessee under section 17 of the Act for levy of penalty

under sections 17 (1) (a) and 17 (l) (c) of the Act. The assessee filed a reply to the

notices opposing the levy of penalty. The Gift-tax Officer over-ruled the objections

of the assessee and levied penalties both under sections 17 (1) (a) as well as 17 (l)

(c) of the Act. The amount of penalty levied under section 17 (l) (c) of the Act is not

available on record. The penalty levied under section 17 (l) (a) of the Act was,

however, Rs. 11,633. The Income-tax assessment as well as the gift-tax assessment

and the penalty orders under sections 17 (l) (a) and 17 (l) (c) of the Act were

confirmed by the Appellate Assistant Commissioner. On further appeals to the

Income-tax Appellate Tribunal (hereinafter REFERRED TO to as the Tribunal), the

Tribunal cancelled the assessment of capital gains but confirmed the gift-tax

assessment subject to some modification regarding the value of the gift. The

Tribunal while cancelling the penalty under section 17 (l) (c) of the Act, however,

confirmed the penalty under section 17 (1) (a) of the Act. But at the instance of the

assessee, the Tribunal has REFERRED TO the following question to this Court under

section 26 (1) of the Act :-"whether on the facts and in the circumstances of the

case, the default contemplated under section 17 (l) (a) of the Gift Tax Act was borne

out"

( 2 ) BEFORE considering the respective contentions of the parties, it may be stated

that the penalty under section 17 (l) (a) of the Act was levied for not filing the

return within the time prescribed under section 13 (1) of the Act. The assessee had

sold the land to the company on 13-7-1961. If by this sale the assessee had made a

gift to the company of the value determined by the Tribunal in the Gift Tax Appeal,

then under section 13 (1) of the Act, the assessee had to file a gift-tax return by 30-

6-1962. He did not file the return by this date and it was only in response to a notice

under section 13 (2) of the Act that he filed a return on 16-2-1965,. e. , after a

delay of over 2 hours. Under section 17 (l) (i) of the Act, the penalty prescribed is 2

per cent of the tax for every month during which the default continued but subject

to a maximum of 50 per cent of the tax. The penalty calculated at 2 per cent would

amount to Rs. 14,657. But the Gift-tax Officer levied a penalty of Rs. 11,633 which

was the maximum which could be levied under section 17 (l) (i) of the Act. There is

no dispute regarding the quantum of penalty. The controversy is whether a penalty

at all is leviable under the circumstances.

( 3 ) THE learned counsel for the assessee, Sh. Randhawa, has first contended that

it was not obligatory on the part of the assessee to file a gift-tax return in respect of

transactions which do not amount to gifts as such under section 3 of the Act but

which are deemed to be gifts under section 4 of the Act. In support of this

contention, the learned counsel sought reliance on the following three decisions:-"all

the three cases cited by the learned counsel were cases of an assessee not having

included in his income-tax returns the income which was assessable in his hands

under section 16 (3) of the Indian Income-tax Act, 1922 and it was held that no

statutory obligation was cast on the assessee in filing a return of his total income to

include therein the income which was assessable in his hands under section 16 (3)

of the said Act and that section 16 (3) of the said Act imposed an obligation upon

the Income-tax Officer to compute the total income of an individual for the purposes

of assessment by including the items of income set out in clauses (a) (i) to (iv) and

(b) of section 16 (3) of the said Act. It was further held in 67. T. R. 305 that no

penalty under section 28 (1) (c) of Income-tax Act, 1922 could be levied on an

assessee on the ground that he had not disclosed in his returns the income which

was assessable in his hands under section 16 (3) of the said Act. The learned

counsel has not cited any case under the Act in support of his contention that an

assessee was not bound to file a return in respect of a gift made by him which came

within the scope of section 4 of the Act. But the learned counsel argued that the

principle laid down in the cases cited by him was also applicable to failure on the

part of an assessee to disclose a gift which came within the scope of section 4 of the

Act. "

( 4 ) WE are unable to accept this contention. The income which is assessable under

section 16 (3) of the Income-tax Act, 1922 is not the assessees real income. The

income under section 16 (3) is the real income either of the assessees wife or of his

minor children. Such income is assessed in the hands of the assessee by reason of

the fact that such income has arisen out of the assets transferred to his wife or

children without adequate consideration. On the other hand, a gift which is deemed

to be a gift under section 4 of the Act is not a gift which is made by a person other

than the assessee and it is not treated as a gift made by the assessee by some

special provision. A gift under section 4 of the Act is a gift which is made by a

person other than the assessee and it is not treated as a gift made by the assessee

by some special provision. A gift under section 4 of the Act is a gift which is made

by the assessee himself. Section 3 of the Act, which is the charging section, reads as

follows :-"subject to the other provisions contained in this Act, there shall be

charged for every assessment year commencing on and from the 1st day of April,

1958, a tax (hereinafter REFERRED TO 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. "

( 5 ) SECTION 2 (xii) of the Act as it stood before its amendment in 1971 defines

gift as follows :-"gift means the transfer by the one person to another of any

existing movable or immovable property made voluntarily and without consideration

in money or moneys worth, and includes the transfer of any property deemed to be

a gift under section 4. "

( 6 ) THEREFORE, a gift which is assessable to tax under section 3 of the Act is a

gift as defined in section 2 (xii) of the Act which includes a gift under section 4 of

the Act. There are similar provisions in the Income-tax Act also. Section 2 (6c) of the

Income-tax Act, 1922 defines income as including :-" (I) dividend; (iv) any sum

deemed to be profits under the second proviso to clause (iii) of sub-section (2) of

section 10, and any sum deemed to be profits and. gains under subsection (2a) of

that section or under sub-section (5) of section 12; (v) any sum deemed to be

profits and gains of business, profession or vocation under sub-section (5a) of

section 10. "section 2 (6a) of the said Act defines dividend as follows :-" (E) any

payment by a company, not being a company in which the public are substantially

interested within the meaning of section 23a, of any sum (whether as representing a

part of the assets of the company or otherwise) by way of advance or loan to a

shareholder or any payment by any such company on behalf or for the individual

benefit of a shareholder, to the extent to which the company in either case

possesses accumulated profits. "

( 7 ) THESE are instances of deemed income which an assessee is obliged to show

in his income-tax return as his own income. Such deemed income is quite distinct

from the income which is assessable in his hands under section 16 (3) of the said

Act which reads as follows :-"in computing the total income of any individual for the

purpose of assessment, there shall be included- (a) so much of the income of a wife

or minor child of such individual as arises directly or indirectly- (b) so much of the

income of any person or association of persons as arises from assets transferred

otherwise than for adequate consideration to the person or association by such

individual for the benefit of his wife or a minor child or both. "

( 8 ) SECTION 16 (3) of the Income-tax Act, 1922 thus makes a clear distinction

between the income of the assessee himself and the income derived by the wife or

a minor child. Although for income-tax purposes the income of the wife or a minor

child is included in the assessment of the assessee, it is not treated as the deemed

income of the assessee himself. Therefore, the rule laid down in the cases cited by

the learned counsel under section 16 (3) of the said Act will not be applicable to

cases of gifts under section 4 of the Act.

( 9 ) THE next contention urged by the learned counsel for the assessee is that as

the assessee had filed the gift tax return before the completion of the assessment in

answer to the notice under section 13 (2) of the Act, he could not be considered as

having committed a default under section 17 (l) (a) of the Act. In support of this

contention, reference is made to section 14 of the Act which reads as follows :-"if

any person has not furnished a return within the time allowed under section 13, or

having furnished a return under that section, discovers any omission or a wrong

statement therein, he may furnish a return or a revised return, as the case may be,

at any time before the assessment is made. "

( 10 ) THE learned counsel also refers to the analogous provisions of the Income-tax

Act, 1922, namely section 22 (3) of the said Act and to a decision of the Supreme

Court in Commissioner of Income Tax. v. Kulu Valley Transport Co. P. Ltd. (1970)

77. T. R. 518 (4) which considered the effect of filing a return under section 22 (3)

of the said Act. The learned counsel specially relies upon the following observations

of the Supreme Court in the said case :-"it can well be said that section 22 (3) is

merely a proviso to section 22 (1 ). Thus, a return submitted at any time before the

assessment is made is a valid return. In considering whether a return made is within

time sub-section ( 1 ) of section 22 must be read along with sub-section (3) of that

section. A return whether it is a return of income, profits or gains or of loss must be

considered as having been made within the time prescribed if it is made within the

time specified in section 22 (3 ). In other words, if section 22 (3) is complied with,

section 22 (1) also must be held to have been complied with. "

( 11 ) THE above observations of the Supreme Court have, however, to be read in

the context in which they were made. In the case before the Supreme Court, the

assessee had not filed any return under section 22 (1) of the Act and no notice was

served upon the assessee to file a return under section 22 (2) of the Act. The

assessee, however, voluntarily filed a return before the assessment was completed

disclosing a loss and claiming that the loss should be carried forward under section

24 (2) of the said Act. The assessees claim was disallowed by the Income-tax

authorities on the ground that the assessee had not filed the return disclosing the

loss within the time prescribed under section 22 (1) of the Act. The Supreme Court,

however, held that sub-section (3) of section 22 enabled an assessee to file return

of income at any time before the assessment was completed even though he had

not filed the return within the time prescribed under section 22 (1) or within the

time given in the notice under section 22 (2) of the Act and that if the return had

been filed before the assessment was completed, such a return was a valid return

and could not be ignored by the Income-tax Officer and the assessment could not

be made according to the best judgment of the Income-tax Officer on the

assumption that the assessee had not filed any return at all. We cannot consider the

observations of the Supreme Court relied upon by the learned counsel for the

assessee as supporting his contention that an- assessee cannot be deemed to have

committed a default under section 22 (1) when he did not file his return within the

time prescribed under section 22 (1) but had filed a return of income under section

22 (3) of the Act before the assessment was completed. Such a construction would

nullify the effect of section 28 (l) (a) of the Income-tax Act, 1922 which is analogous

to section 17 (l) (a) of the Act.

( 12 ) ANOTHER contention which was advanced before the Tribunal was also urged

before us, though not very vehemently, namely, that the assessee having filed a

return in response to the notice under section 13 (2) of the Act, he could not be

held to have committed any default under section 13 (1) of the Act. This contention

has no merit at all. There is a direct decision of the Gujarat High Court on the

analogous provisions of the Income-tax Act, 1961, namely, sections 139 (1) and 139

(2) of the said Act. In Commissioner of Income Tax. v. Indra and Company (1971)

79. T. R. 702, (5) it was held that-"an assessee is liable to penalty for not submitting

his return as required in a notice under section 139 (1) of the Income-tax Act, 1961,

even though he subsequently files a return in pursuance of a notice under section

139 (2) and an assessment is made on the basis of that return. "

( 13 ) WE are in respectful agreement with the view expressed by the Gujarat High

Court.

( 14 ) THE last contention urged by the learned counsel for the assessee is that

there was a reasonable cause for the assessee for not filing a return under section

13 (1) of the Act. In the first instance, the question whether there was a reasonable

cause for not filing the return is purely a question of fact and the finding of the

Tribunal on this question is binding upon this Court. The Tribunal after considering

the explanation offered by the assessee for not filing the gift-tax return under

section 13 (1) of the Act has rejected the explanation. Even if it was permissible for

this Court to re-examine the explanation given by the assessee, we see no valid

reason to differ from the finding of the Tribunal on this point. The explanation

offered by the assessee was two-fold, namely,- (I) that the Revenue itself had

treated the transaction in question as one resulting in capital gains and has also

treated it as a gift under section 4 of the Act which, according to the assessee,

indicated that the Revenue itself was not certain regarding the true position, and (ii)

that the transfer of the property to the company in which the members of his family

were interested for consideration which were not equivalent to the market value of

the property was not considered by the assessee but amount to a gift.

( 15 ) NEITHER of these explanations, in our view, can be accepted as amounting to

a reasonable cause for the assessee for not filing the gift-tax return.

( 16 ) IN view of the above discussion, the question REFERRED TO to us has to be

answered in the affirmative,. e. , in favour of the Department and against the

assessee. Under the circumstances, we make no order as to costs.