1986 PLP 233 (PTD)

NAIMUDDIN, J.‑‑By this Gift Tax Reference and Gift Tax Reference Nos. 95 of 1974 to 100 of 1974, filed under section 26(1) of the Gift Tax Act, 1963, the Commissioner of Income‑tax/Gift Tax (East Zone), Karachi, has referred following common question of law arising out of the identical orders, dated 18‑4‑1973, passed by the Income‑tax Appellate Tribunal (Karachi Bench), Karachi, in Gift Tax Appeals Nos. 14 to 20 of 1971‑72, relating to the assessment year 1970‑71, separately flied by the respondents:‑‑ "Whether on the facts and circumstances of the case the Tribunal was justified in vacating the order under section 15(3) of the Gift Tax Act as against the provisions of section 4(c) of the Gift Tax Act?"

2. The facts giving rise to the question, as stated in the Statement of Facts, are that during the course of assessment proceedings of Messrs Dada Oil Mills, under the Income‑tax Act, the Income‑tax Officer noticed that the respondents had advanced loans, as detailed below, to their father as sole proprietor of the said concern and had enjoyed interest income. At the time of completion of the Income‑tax assessment of the said concern the respondents separately informed that they had foregone the loans on 30‑9‑1969, and in support of the allegations copies of respondent's accounts in the accounts books of Messrs Dads Oil Mills were produced showing that the respondents accounts in the books of the said concern were debited with the amount of loan foregone and identical amounts were credited to the accounts of Tayeb H. K. Dada, proprietor of the said concern. The details of loans are: (i) G.T.R. No. 94 of 1974 Rs. 3,00,000 (ii) G.T.R. No. 95 of 1974 Rs. 3,50,000 (iii) G.T.R. No. 96 of 1974 Rs. 2,50,000 (iv) G.T.R. No. 97 of 1974 Rs. 5,00,000 (v) G. T.R. No. 98 of 1974 Rs. 5,00,000 (vi) G.T.R. No. 99 of 1974 Rs. 2,00,000 (vii) G.T.R. No. 100 of 1974 Rs. 3,50,000"

3. The Gift Tax Officer, Central Circle III, Karachi,, by the order, dated 14‑2‑1972, treated the purported remission of liability as amounting to making of gifts by the respondents under the Gift Tax Act, 19.63. Accordingly, he created gift tax liability as detailed below:‑‑ (i) G.T.R. No. 94 of 1974 Rs. 48,122 (ii) G.T.R. No. 95 of 1974 Rs. 45,056 (iii) G.T.R. No. 96 of 1974 Rs. 77,856 (iv) G.T.R. No. 97 of 1974 Rs. 35,455 (v) G.T.R. No. 98 of 1974 Rs. 73,674 (vi) G.T.R. No. 99 of 1974 Rs. 22,802 (vii) G.T.R. No. 100 of 1974 Rs. 46,073

4. Aggrieved by the orders the respondents filed separate appeals as stated before, which were allowed .by the Tribunal by the identical orders all, dated 18‑4‑1973, giving rise to the present references.

5. The Tribunal in allowing the appeals did not accept the finding of the Gift Tax Officer, that the remissions in question were not bona fide and, therefore, they were deemed to be gifts under section 4(c) of the Gift Tax Act, 1963.

6. Dealing with this finding the Tribunal has stated in the order that the remissions in question were 'quite bona fide inasmuch as the Gift Tax Officer has not been able to establish that the father of the respondent had capacity to pay back the loans and that he had not suffered heavy business losses. The Tribunal, however, further stated that due to heavy losses the father of the respondents had to close down his business in the year 1970‑71 altogether and under the Martial Law Declaration filed by the father of the respondents the assets shown were on debit side and from that the Tribunal concluded that all the aforesaid circumstances amply established the bona fide of remise on or release of loans by the respondents in favour of their father. The Tribunal further stated that the departmental representative had no been able to produce anything to controvert the above submissions.

7. We have heard Mr. Waheed Faruqui learned counsel for the applicant and Mr. Ali Athar learned counsel for the respondents in all the references.

8. At the very outset we may state that the finding that the release from payment of liability of the loans given by the respondents was bona fide is a finding of fact and, therefore, does not give rise to any question of law, and it is based on the following facts as stated in the order of the Tribunal:‑‑ (1) That due to heavy losses the father of the respondents had to close down his business in the year 1970‑71 altogether. (2) That in Martial Law 'declaration filed by the father of the respondents the assets shown by him were only on debit side. (3) That the remission was bona fide.

9. There is no doubt that the Tribunal was right when it observed that the submission of the appellant that the remissions in question were quite bona fide because the Gift 'fax Officer had not been able to establish that the father of the appellant had capacity to pay back the loan in question and that he had not suffered heavy losses in his business, for, the burden of proving lack of bona fide of the release from payment of debts was on the department. The Gift Tax Officer could point out from the State of Assess of Messrs Dada Oil Mills or from any other material that the father of the respondents had capacity to pay the debts. In any case the finding of the Tribunal is based on facts found by it, which were not controverted by the department and as such, it cannot be said that the finding of the Tribunal on the question of bona fide of the release from payment of debts is based on no material or evidence. 10 It may be of advantage if we may in support of the view we have taken refer to a decision from foreign jurisdiction i.e. Supreme Court of India in the case of The Commissioner of Income‑tax, Bombay City 1, v. Greaves Cotton and Co. Ltd., (1968) 68 I T R 200, which has been relied upon by Mr. Ali Athar, Advocate. In this case the matter for consideration before the Supreme Court of India was whether a sum of Rs.18 lacs appropriated by the respondent‑company in its accounts as compensation payable to its managing agents for termination of the managing agency agreement was admissible as an expenditure wholly and exclusively laid out by the respondent for the purpose of business under section 10 (2)(xv). The Appellate Tribunal had arrived at the finding that the termination of managing agency was not a bone fide transaction and it was done for an improper or oblique motive, and on a reference of the question whether the amount of Rs.18 lacs was an admissible deduction under 10(2)(xv), the High Court held that the termination of the managing agency agreement was in the interests of commercial expediency and there was no evidence which could lead to the inference that the termination of the managing agency agreement was done with any oblique motive. The Supreme Court of India held that the question whether the termination of the managing agency agreement by the respondent‑company was not a bona fide one and was done for an oblique or improper purpose was essentially a question of fact and the High Court had no jurisdiction to embark upon a re‑appraisal of the evidence before the Appellate Tribunal and interfere with the finding of fact that the termination of the managing agency agreement was not a bona fide transaction. It may, however, be mentioned that in this case the Supreme Court of India set aside the finding of the Tribunal holding it to be defective in law as it was arrived at without taking into account all the relevant material adduced by the parties and remanded the case for disposal by the Appellate Tribunal after recording a clear finding on the question, leaving open to it to re‑hear‑ the appeal under section 66(5).

11. It was argued by Mr. Waheed Faruqui that the respondents lacked bona fide in that they did not file any return of gift tax and the liability to pay gift tax was discovered while examining the accounts books of Messrs Dada Oil Mills. In our view this will not reflect on the bona fide of the respondents for they had not made any express gifts. We may state that bona fide means "honestly" as held by Bramwell L. J. in R. v. Holl 7 Q B D

575. Even otherwise, it may be pointed out that under section 3, subsection (20) of the General Clauses Act, 1897 'a thing is deemed to be done in "good faith" where it is in fact done honestly, whether it is done negligently or not'. In such circumstances it could not be said that there was intention to suppress the fact of making gifts. Indeed, it is only under the deeming clause of section 4(c) that the release or abandonment of debts could be treated as gifts provided they were not made bona fide.

12. Mr. Waheed Faruqui referred to the case of the Commissioner of Gift Tax, Kanpur v. Padampat Singhania (1979) 117 I T R 323, wherein the facts as stated in the headnote of the report were that the assessee alongwith his two brothers advanced a sum of Rs.2 94,763, to one S somewhere between 1941 and 1946, out of their secret profits which were outside the books. They arrived at a settlement with the Central Board of Revenue on January 17, 1957, as a result of which each of the three, brothers entered an amount of Rs.94,921 In his books of account to the debit of S and continued to repeat the entry year after year. But in the year 1967‑68 they wrote off the debt from their books and the assessee did not show the debit in his return under the W.T. Act on the ground that the debt had become bad. The G.T.O. issued notices under section 16 of the Act asking the assessee to show cause why the sum of Rs.94,921 be not treated as a gift under section 4(1)(c) of the Act. The G.T.O. did not believe the assessee's explanation and held that the assessee had abandoned the debt and the abandonment was not bona fide and amounted to a gift under section 4(1)(c) of the Act. The A.A.C. dismissed the appeal filed by the assessee. On further appeal, the Appellate Tribunal held that the debt had become barred by time and was irrecoverable even in January, 1957, when it was brought into the books of the assessee for the first time and the fact that S had simultaneously entered the debt in his books was not very material because he in his books had shown the amount as debt standing to the credit of another company and continued to claim deduction under the W.T. Act on that basis. Therefore, there was no acknowledg ment forthcoming even in S's books in favour of the assessee or his brothers. The debt having become time‑barred was not recoverable and the writing‑off of amount did not amount to abandonment or surrender of the debt under section 4(1)(c) of the Act.

13. On these facts it was held that the debt became barred by time even in January, 1957, when the assessee included it in his books of account and that the fact that S also included the debt in his books of account was not very material because he had admitted some other company to be the creditor and had not shown the assessee or his brothers as the creditors. The fact that the assessee and his brothers continued to maintain the entry in relation to the debt year after year till 1967 was only because no legal steps could be taken for recovery as the advances made became time‑barred. Only verbal requests were made to S from time to time for repayment but S, however, kept repayment in abeyance.. If he had any intention of making repayment he would have made the repayment long ago when he wanted to close down the chapter of secret wealth. Therefore, there was no other alternative for the assessee but to write off the debt and, even though the write off amounted to abandonment, it would not be a gift under section 4(1)(c) of the Act because the entire write‑off was bona fide. This case is distinguishable firstly, on the facts and secondly, it has clearly been held in this very case that in the writing‑off the debt was bona fide and for that reason alone it became exempted from payment of gift‑tax under section 4(1)(c) of the Gift Tax Act, 1963.

14. It would also be of advantage if we quote The Commissioner of Income‑tax (Investigation), Karachi v. Jan Muhammad and Brothers, Karachi P L D 1982 Kar. 911, wherein we dealt with the similar question and referred to the 'case of Binjraj Hukumchand v. C.I.T. 5 I T R 302, 312; 1931 I L R 58 Cal. 1446, wherein it was ruled by a Full bench of Calcutta High Court that it was not open to an assessee to ask the Court upon a reference under section 66 of the income‑tax Act, 1922, to examine his books of account and to come to findings of fact contrary to those arrived at in the case stated.

15. We therefore, even otherwise, answer the question in all the) references in affirmative leaving the parties to bear their own costs. M. Y. H. Question answered in affirmative.