JOGAT MOHAN KAPUR VS WEALTH TAX OFFICER
1995 P T D 1042
[211 I T R 721]
[Calcutta High Court (India)]
Before Ajoy Nath Ray, J
JOGAT MOHAN KAPUR
Versus
WEALTH TAX OFFICER and others
Matter No. 2113 of 1993, decided on 22/04/1994.
Wealth Tax-----
----Reassessment---Information that wealth has escaped assessment---Burden of proof is on the Revenue---Cost Inflation Index for capital gains cannot be applied in reverse manner for computing past land value---Reassessment on such basis ---Not valid---Indian Wealth Tax Act, 1957, S.17---Constitution of India, Art.226.
In a case of reopening the assessment, the burden is quite heavy on the Revenue to establish the factors that warrant the exercise of the power. The information that has to be the basis for action under section 17(1)(b) of the Wealth Tax Act, 1957, should be a legally admissible material and cannot be just a subjective inferential fact. The Cost Inflation Index is to be applied only to forward figures in time, that is the inflation is to be calculated by appropriately inflating the cost of acquisition of the capital in accordance with the declared index., There is no warrant for reversing the operation of the Cost Inflation Index,, and treating it in a reversed manner as a shrinkage, index for the purpose of computing past land value. This method would lead to unfairness and glaring financial fallacies. Application of the Cost Inflation Index in such a reversed manner for computation of land value is arbitrary, unreasonable and in violation of the mandates of Article 14 of the Constitution of India.
Held, that the reopening of wealth tax assessment for the years in question on the basis of a mechanical and irrational application in the reverse manner of the factor of Cost. Inflation Index was not sustainable.
CWT v. S. P. C. Murthy (1991) 191 ITR 189 (Kar.) ref.
J. P. Khaitan for Petitioner. Mr.
Mr. Halder for Respondents.
JUDGMENT
The writ petitioner challenges the reopening of the wealth tax assessments for the assessment years 1982-83 to 1991-92.
The wealth in question is a piece of immovable property situated at Greater Kailash, Part II, New Delhi.
In the assessment year 1993-94, the assessee applied for a 230-A clearance showing the intended sale price of the said property as Rs.57.25 lakhs.
In the affidavit in-opposition from the respondent, it has been alleged that by reason of such declaration of price of sale of the property, the concerned officer applied the Cost Inflation Index, and working back words, found that the value of the property would be much larger than what was assessed in the successive wealth tax assessment years of the assessee.
A chart in this respect as given in the affidavit-in-opposition is set out below:--
| Assessment Year | Cost inflation Index | Value as Per index | Assessed Value | |
???????????????????????????????????????????????????????????????????????????????????
| (Rs.) | (Rs.) |
| 1982-83 | 100 | 26,67,265 | 1,50,000 |
| 1983-84 | 109 | 27,98,318 | -do? |
| 1984-85 | 116 | 29,78,026 | -do? |
| 1985-86 | 125 | 32,09,080 | 1,00,000 |
| 1986-87 | 133 | 34,14,461 | 1,50,000 |
| 1987-88 | 140 | 35,94,170 | 8,50,000 |
| 1988-89 | 150 | 38,50,896 | 11,00,000 |
| 1989-90 | 161 | 41,33,295 | 13,50,000 |
| 1990-91 | 172 | 44,15,695 | 15,00,000 |
| 1991-92 | 182 | 46,72,421 | 15,00,000 |
| 1992-93 | 199 | 51,08,856 | Not yet assessed. |
| 1993-94 | 223 | 57,25,000 | Not yet assessed. |
| | | | | |
The writ petitioner has mentioned in the affidavit-in-reply that all the assessment years were concluded by due assessments upon furnishing of all due particulars by the assessee. In several years, there were appeals. So far as the assessment years 1982-83 to 1984-85 and 1987-88 are concerned, those were concluded under section 16(3) of the Wealth Tax Act, 1957, and four years have run from such assessment. The figures of assessed value at the first level as well as upon appeal are set out by the assessee in the following chart form in his affidavit-in-reply:
| Assessment notice year | Estimated value As per return | Value assessed By the Wealth | Value as per ?Tax appellate order Officer | |
????????????????? (Rs)
???????? (Rs)
????????????? (Rs)
1982-83
?? 55,000
??????? 1,50.000
?? 1,50,000
1983-84
??? 55,000
??????? 1,50,000
?? No appeal
1984-85
? 55,000
??????? 1,50,000
?? No appeal
1985-86
?1,00,000
??????? 1,00,000
?? No appeal
1986-87
?1,50,000
??????? 1,50,000
?? No appeal
1987-88
? 8,00,000
???????? 8,50,000
?? No appeal
1988-89
? 10,00,000
??????? 15,00,000
??? 11,00,000
1989-90
? 10,00,000
?? ?????15,00,000
??? 13,50,000
1990-91
? 10,00,000
??????? 15,00,000
??? 15,00,000
1991-92
? 15,00,000
??????? 15,00,000
???? No appeal
The point in issue in this matter is the result of the application of the Cost Inflation Index by the Wealth Tax Officer for the purpose of his coming to the conclusion that wealth has escaped assessment by reason of assessment being made at too low a rate. I need not enter into the special issue of four years having run in respect of four assessment years and the disclosures by the assessee-writ petitioner being in no manner incomplete or untrue. I need not enter into this issue of limitation in regard to four years because, in my opinion, the matter is to be disposed of on a more substantial and comprehensive basis.
The Cost inflation Index is designed for computation of gain in capital upon which capital gains tax is to be computed. Under section 48, Explanation (v) of the Income Tax Act, 1961, Cost Inflation Index is explained to be as follows:
"(v) `Cost Inflation Index' for any year means such index as the Central Government may, having regard to 75 per cent. of the average rise in the Consumer Price Index for urban non-manual employees for that year, by notification in the official Gazette, specify in this behalf."
On August 5, 1992, Notification No.S.0.595(E) (see (1992) 197 ITR (St.) 24), declared the following Cost Inflation Indices for the mentioned financial years:--
"Notification No.S.0.595(E), dated 5th August, 1992
In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income Tax Act, 1961 (43 of 1961), the Central Government, having regard to seventy-five per cent of the average rise in the Consumer Price Index for urban non-manual employees, hereby specifies the Cost Inflation Index as mentioned in column (3) of the Table below for the financial year mentioned in the corresponding entry in column (2) of the said Table--
TABLE
| Serial Number | Financial year | Cost Inflation Index | |
| 1. | 1981-82 | 100 |
| 2. | 1982-83 | 109 |
| 3 | 1983-84 | 116 |
| 4. | 1984-85 | 125 |
| 5. | 1985-86 | 133 |
| 6. | 1986-87 | 140 |
| 7. | 1987-88 | 150 |
| 8. | 1988-89 | 161 |
| 9. | 1989-90 | 172 |
| 10. | 1990-91 | 182 |
| 11. | 1991-92 | 199 |
| 12. | 1992-93 | 223 |
| | | | |
In my opinion, Cost Inflation Index, as the name, implies, is to be applied only to forward figures in time, that is, the inflation is to be calculated by appropriately inflating the cost of acquisition of the capital in accordance with the declared index. There is no warrant for reversing the operation of the Cost Inflation Index, and treating it in a reversed manner as a shrinkage index for the purpose of computing past land value. This method would lead to unfairness and glaring financial fallacies.
Land does not necessarily appreciate in the same manner as does the price index of urban non-manual employees. The two items are ordinarily quite separate. To apply the Consumer Price Index in a reversed manner for computing the value of the land of earlier years and to reopen wealth tax assessments on that basis is proceeding irrationally and on the basis of a totally extraneous factor. Application of the Cost Inflation Index in such a reversed manner for the computation of land value is arbitrary, unreasonable and in violation of the mandates of Article 14 of the Constitution of India.
On behalf of the petitioner, a decision of the Karnataka High Court in CWT v. S.P.C. Murthy (1991) 191 ITR 189 was relied upon. In that decision, the value of property was held to be subject to various factors for change in their value. Indeed, that is true for Bangalore (which was the city discussed in that case) and it is equally true for any other city. A host of factors might cause land value to drop or to rise. A mechanical application of the Cost Inflation Index as declared for capital gains tax in this context would be thoroughly unsustainable. Land valuation is not that simple a matter.
K. Shivashankar Bhat, J., speaking for the Division Bench, observed as follows in the above case (at page 194):--
"In the instant case, the reopening is done not just by applying the valuation of the property furnished by the valuer. The said valuation given by the valuer was with reference to a subsequent date. From this valuation, the Wealth Tax Officer deducted certain percentages to estimate the value as on the earlier valuation dates. There is absolutely no material that the value of the property fluctuated only by 10 per cent or 20 per cent as the case may be the percentage for deduction selected by the Wealth Tax Officer was on entirely his own estimate and inference. It was not based on any expert opinion. It cannot be said that the value of the property was just about 20 per cent less than the subsequent year. This again depends upon the development activity that took place in the locality and various other unidentifiable factors. In a developed city like Bangalore, the price of the immovable property may shoot up year to year not by a few percentage only.
Since it is a case of reopening the assessment, the burden is quite heavy on the Revenue to establish the factors that warrant the exercise of the power. The information that has to be the basis for action under section 17(1)(b) should be legally admissible material and cannot be just a subjective inferential fact. In the absence of any material to indicate the percentage of fluctuation in the prices of the immovable properties, it will be an entirely guesswork to deduct a few percentage from the subsequent year's valuation to arrive at the valuation for the previous years."
The ideas in the above passage are quite clear, and, in my respectful opinion, quite correct.
For the reason, I am of the opinion that the reopening of wealth tax assessments for the years in question has been vitiated by a mechanical and irrational application in the reverse manner of the factor of Cost Inflation Index in the instant case.
The writ application, accordingly, succeeds. There shall be rules absolute in terms of prayers (a), (b) and (c) and also a permanent injunction in terms of prayer (e) of the petition.
All parties and others concerned shall act on a Xerox signed copy of this dictated order upon the usual undertakings.
M.B.A./968/T.F. ???????? ??????????????????????????????????????????????????????????? Application accepted.