H. H. MAHARAJA MARTAND SINGH JU DEO VS WEALTH TAX OFFICER
2001 P T D 822
[242 I T R 229]
[Madhya Pradesh High Court (India)]
Before R. S. Garg, J
H.H. MAHARAJA MARTAND SINGH JU DEO
versus
WEALTH TAX OFFICER and another
Miscellaneous Petition No.2270 of 1985, decided on 18/12/1996.
Wealth tax-----
‑‑‑‑Reassessment‑‑‑Condition precedent‑‑‑Reason to believe that wealth had escaped assessment ‑‑‑WTO must have material for such belief‑‑‑Assessee submitting returns and giving details regarding foreign shares and stocks‑‑ Original assessment based on return‑‑‑Reassessment on the ground that foreign shares and stocks had been undervalued‑‑‑No new information regarding foreign shares and stocks‑‑‑Reassessment proceedings were not valid‑‑‑Indian Wealth Tax Act, 1957, S.17‑‑‑Constitution of India, Art.226.
In order to initiate proceedings for reassessment under section 17(1)(a) of the Wealth Tax Act, 1957, the Wealth Tax Officer must form an opinion that by reason of the omission or failure on the part of the person to make the return under section 14, or for non‑disclosure of full and true material facts necessary for assessment of his net wealth, the net wealth chargeable to tax has escaped assessment for that year. For attraction of clause (b) of section 17(1) if the Wealth Tax Officer has in consequence of any information in his possession reason to believe notwithstanding that there has been no such omission or failure as is referred to in clause (a) that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under assessment or assessment at too low a rate or otherwise, he may issue notice within four years of the end of that assessment year containing all or any of the requirements which may be included in a notice under subsection (2) of section 14 and may proceed to assess or reassess such net wealth. According to section 14 every person whose net wealth is of such an amount which renders him liable to wealth tax under the Act shall furnish to the Wealth Tax Officer a return in the prescribed form. Such details are required to be given by such assessee. The assessment order passed under section 16 is not an empty formality. It is a final order which advised the assessee that for the purposes of the Act, he has been assessed and no further action is required to be taken. Section 17 is an exception to the finality of the assessment order passed under section 16. What is required to become final cannot easily be unsettled or disturbed because of the whims or caprice of an officer. The belief which a Wealth Tax Officer must have, must be based on a solid and positive foundation. It cannot be whimsical, arbitrary or capricious:
Held, that in the instant case, there was no material on record to show or suggest that there was any material available with the Wealth Tax Officer to form an opinion or any reason to believe that the net wealth chargeable to tax had escaped assessment for the assessment years 1975‑76, 1976‑77, 1977‑78 and 1978‑79. From the documents on record, it was clear that the petitioner had submitted complete returns and the statement of foreign shares and stocks. If the officer had accepted those details and made the assessment order, then any other officer could not ordinarily unsettle the assessment orders unless the three requisite conditions of section 17 of the Act were satisfied. In the instant case, there was no material to show that the exercise of the powers under section 17 was in accordance with the provisions of law. The notices of reassessment were liable to be quashed.
ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) applied.
Abdul Majid v. ITO (1989) 178 ITR 616 (MP); CWT v. Malhar Rao Tatya Saheb Holkar (1996) 220 ITR 466 (MP); Devji Ravji Patel v. Balasubramaniam (1994) 210 ITR 925 (Bom.); Lokendra Singji (H.H. Maharaja Shri) v. CIT (1987) 166 ITR 407 (MP) Parashuram Pottery Works Co. Ltd, v. ITO (1997) 106 ITR 1 (SC) and Prabha Rajya Lakshmi (Smt.) v. WTO (1983) 144 ITR 180 (MP) ref.
H.S. Shrivastav for Petitioner.
JUDGMENT
By this petition under Article 226 of the Constitution of India, the petitioner challenges the validity and legality of the notices of assessment Annexures D, D‑1, D‑2 and D‑3 issued by the Wealth Tax Officer on May 29, 1985.
According to the petitioner, he is the Karta of his Hindu undivided family and is assessed to wealth tax for a number of years. According to him, he follows the financial year and for the purposes of wealth tax assessment, the valuation date is 3.lst March of every year. His assessment cases were with the Wealth Tax Officer, A‑Ward, Satna, which were later on transferred to the Wealth Tax Officer, Special Investigation Circle‑I, Jabalpur. According to the petitioner, for the assessment year 1975‑76 with the valuation date March 31, 1975, he had filed the return of his wealth on August 23, 1975, with the Wealth Tax Officer, Satna, declaring the total value of the wealth which amongst others included foreign shares and stocks, etc., of the value of $ 3,96,388 and its value in rupees were shown at Rs.75,31,372. Alongwith the return, a statement received from Grindlays Bank Ltd., London, was filed showing the face value of the shares and stocks, etc., and in the last column the market value of the shares was also shown. According to the petitioner, a true copy of the statement of foreign shares and stocks and the statements which were filed are Annexures A and B. The Wealth Tax Officer, after making due enquiries, assessed the total wealth of the petitioner at Rs.2,04,56,955 accepting the value of foreign shares and stocks at Rs.75,31,372 vide order, dated March 17, 1980. The assessment order is on record as Annexure:
The petitioner submits that for the assessment years 1976‑77, 1977‑78 and 1978‑79, he filed the returns of wealth before the Wealth Tax Officer, A‑Ward, Satna, on August 16, 1976. August 31, 1977 and July 3, 1978, declaring total wealth at Rs.1,20,74,198, Rs.1,63,75,703 and Rs.1,48,93,856. According to the petitioner, with the returns similar statements of foreign shares and stocks were enclosed. The copies of the statement of foreign shares and stocks and the statement of wealth are on record as Annexures A‑1, A‑2, A‑3 and B‑1, B‑2 and B‑3. According to the petitioner, the Wealth Tax Officer, Satna, after due verification and enquiries assessed the wealth of the petitioner for the assessment year 1976‑77 at Rs.1,79,51,866 by order, dated March 24, 1981. For the assessment years 1977‑78 and 1978‑79, the cases were taken up by the Wealth Tax Officer, Special Investigation, Circle‑I, Jabalpur, who after due verification and enquiries assessed the total wealth of the petitioner for the said assessment years at Rs.1,76,73,151 and Rs.1,68,13,363 vide order, dated March 26, 1982, and .March 19, 1983, respectively. The assessment orders are on record as Annexures C‑1, C‑2 and C‑3. The petitioner was served with four notices under section 17 of the Wealth Tax Act, 1957, issued by the Wealth Tax Officer, Special Investigation, Circle‑1, Jabalpur, for the above mentioned assessment years, asking the petitioner that his net chargeable to tax for the said assessment years had escaped assessment within the meaning of section 17 of the Wealth Tax Act, therefore, he proposes to reassess the said net wealth which had escaped assessment. The petitioner was asked to deliver in the form of a return the details of his net wealth chargeable to tax along with such other particulars as were required to complete to the form for the said assessment years.
According to the petitioner, he filed his return of wealth in response to the above notices. The, Wealth Tax Officer issued four notices Annexures E to E‑3, dated May 28, 1985, calling upon the petitioner to produce the documentary evidence so as to prove the correct and exact market value of foreign assets on different valuation dates that is on March 31, 1975, March 31, 1976, March 31, 1977 and March 31, 1978, in respect of the said four years. The petitioner thereafter made a request to the Wealth Tax Officer vide his application, dated June 10, 1985, to intimate the petitioner the reasons for reopening of the assessment. The application is Annexure G with the petition. According to the petitioner, the oral requests were made from time to time and on July 19, 1985, his counsel again requested the authority for supplying the reasons for reopening of the cases but he was told by the Wealth Tax Officer that copy of the reasons recorded cannot be communicated and that the appellate authorities could see the reasons from his record if they so wanted. According to the petitioner, he is not in a position to know exactly why the reassessment proceedings have been initiated, but on the basis of the notices under section 16(4) it appears that the reassessment proceedings have been taken so as to reassess the value of foreign shares and stocks.
The petitioner submits that he had filed the returns of wealth and the material particulars of wealth were duly disclosed, the original assessments made after due enquiry and verification. The reassessment proceedings have been initiated with the issue of notice, dated March 29, 1985, served on the petitioner on March 30, 1985, are without jurisdiction, barred by limitation, illegal and void in law. According to him, section 17 of the Wealth Tax Act authorised taking up of the reassessment to assess or reassess wealth which has escaped assessment or full assessment. According to him, the finality of the order cannot be disturbed unless the requirements of law are satisfied, unless the Wealth Tax Officer has reason to believe that the wealth chargeable to tax had escaped assessment for the relevant year either because the assessee did not file the return under section 14 or had failed to disclose fully and truly all material facts for his assessment or in consequence of information in his possession the Wealth Tax Officer has reason to believe that the wealth escaped assessment. The petition was admitted for hearding on July 29, 1985, by a Division Bench of this Court and notices were issued to the respondents. The respondents were served with the notices, but did not choose to file the return, therefore, except the material produced by the petitioner, we have nothing on the record.
Section 16 of the Wealth Tax Act, 1957, relates to the assessment and reads as under:
"(16)(1) If the Wealth Tail Officer is satisfied without requiring the presence of the assessee or production by him of any evidence that a return made under section 14 or section 15 is correct and complete, he shall assess the net wealth of the assessee and determine the amount of wealth tax payable by him or the amount refundable to him on the basis of such return.
(2) If the Wealth Tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return.
(3) The Wealth Tax Officer, after hearing such evidence as the person may produce and such other evidence as he may require on any specified points, and after taking into account all relevant material which the Wealth Tax Officer has gathered, shall, by order in writing, assess the net wealth of the assessee and determine the amount of wealth tax payable by him or the amount refundable to him on the basis of such assessment.
(4) For the purpose, of making an assessment under this Act, the Wealth Tax Officer may serve on any person who has made a return under subsection (1) of section 14 or upon whom a notice has been served under subsection (2) of that section, or who has made a return under section 15, a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Wealth Tax Officer may require.
(5) If any person fails to make a return in response to any notice under subsection (2) of section 14, or fails to comply with the terms of any notice issued under subsection (2) or subsection (4), the Wealth Tax Officer after taking into account all relevant material which he has gathered, shall estimate the net wealth to the best of his. judgment and determine the amount of wealth tax payable by the person or the amount refundable to him on the basis of such assessment."
According to section 16A for the purposes of making an assessment, under the Act, the Wealth Tax Officer may refer the valuation of any asset to a Valuation Officer. Section 17, which is relevant for the purpose of this petition provides as under:
"(17)(1) If the Wealth Tax Officer‑‑‑
(a) has reason to believe that by reason of the omission or failure on the part of any person to make a, return under section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or. to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under assessment or assessment at too law a rate or otherwise; or
(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or .failure as is referred to in clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under assessment or assessment at too low a rate or otherwise:
he may, in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that subsection."
The petitioner submits that in the returns filed by him he had disclosed all material facts as regards his wealth and had given the complete details. He further submits that the Wealth Tax Officer has not shown any reason as to why he wants to reassess the wealth and reopen the proceedings. Learned counsel for the petitioner relied upon Prabha Rajya Lakshmi (Smt.) v. WTO (1983) 144 ITR 180 (MP); H.H. Maharaja Shri Lokendra Singji v. CIT (1987) 166 ITR 407 (MP); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Abdul Majid v. ITO (1989) 178 ITR 616 (MP); Devji Ravji Patel v. Balasubramaniam (1994) 210 ITR 925 (Bom.). In the matter of Abdul Majid v. ITO (1989) 178 ITR 616 (MP), it has been held that once the assessee produces the evidence in relation to the cost of his property, the source of the income alongwith the valuation report, then it is for the assessing authority to take a decision based on the information so submitted and if such information is placed before the assessing authority, it will be deemed to be a disclosure of all the primary facts which an assessee is required to place before the authority truly and fully. If the assessing authority, without getting it verified by the Departmental Valuer at the time of the assessment, accepts the return, then a subsequent opinion of a Departmental Valuer, cannot form the, basis for reopening of the assessment. The duty of the assessee, while filing the return, is to place all the primary facts before the officer and it is thereafter for the officer to draw inferences from the primary facts. If the officer draws an inference, which subsequently appears to be erroneous then a mere change of opinion with regard to the inference would not justify initiation of action for reopening the assessment. The Court further observed that the assessee could in no way be held guilty of not disclosing the material facts fully and truly to 'the officer when it filed their respective returns. The officer accepted the valuation report filed along with the returns, therefore, the assessment made by the officer could not be reopened merely because another officer has some suspicion about the concealment of wealth and the report of the Departmental Valuer was different from that of the approved valuer. In the matter of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), consideration the questions relating to sections 147(a) and 148 of the Income Tax Act, 1961, the Supreme Court has observed that the reasons for the formation of the belief contemplated by section 147(a) of the Income‑tax Act, for the reopening of an assessment must have a rational connection or relevant hearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income‑tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.
The Supreme Court further observed that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion, but the Court has to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far‑fetched, which would warrant the formation of the belief relating to escapement of income of the assessee from assessment. The Supreme Court further observed that the reason for the formation of the belief must be held in good faith and should not be a mere pretence. While considering section 148 of the Act, the Supreme Court observed that two conditions have to be satisfied before the Income‑tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (i) the Income‑tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee, (a) to make a return under section 139 for the assessment year to the Income‑tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co‑exit to confer jurisdiction on the Income‑tax Officer. It is also imperative for the Income‑tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner of Income‑tax should be satisfied on the reasons recorded by the Income‑tax Officer that it .is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income‑tax Officer of the account books or other evidence from which material evidence could, with due diligence, have been discovered by the Income‑tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income‑tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the income‑tax Officer with regard to the inference which he should draw from the primary facts. If an Income‑tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. In the matter of CWT v. Malhar Rao Tatya Saheb Holkar (1996) 220 ITR 466 (MP), the question regarding interpretation of section 17(1) came up for consideration before this Court. In the said case the Assessing officer completed the assessee for the assessment years 1971‑72 to 1973‑74 under section 16 of the Wealth Tax Act. After completion of the assessment, the Assessing Officer referred the valuation of assets of the Valuation Officer to ascertain the value of agricultural land and house as on the valuation date. On the basis of the report, the Assessing Officer was of the opinion that net wealth chargeable to tax had escaped assessment and, therefore, he issued notice under section 17 of the Act. The assessee did not file any return, therefore, the officer made a best judgment assessment under section 16(5) of the Act. The Tribunal held that no reference could be made to the Valuation Officer under section 16A after completion of the assessment and, therefore, the reopening of the assessment, on the basis of the report or the valuation Officer was without jurisdiction.The Court held that section 17 of the Act stipulates that power can be exercised if the Assessing Officer has reason to believe that net wealth chargeable to wealth tax had escaped assessment. The material to form such a view must be available with the Assessing Officer. The Court observed that no such material was available with Assessing Officer and in fact he referred the matter to the Valuation Officer to collect the material and then initiate the proceedings. The procedure adopted by the Assessing Officer is not supported by the provisions under the Act. The proceedings initiated by the Wealth Tax Officer were manifestly vitiated on account of procedural impropriety.
In the matter of Parashuram Pottery Works Co. Ltd. v. ITO (1997) 106 ITR 1 (SC), it has been observed that at the same time; we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity.
Applying the said tests, if we see the documents Annexures D, D‑1, D‑2 and D‑3, it does not appear what reasons have persuaded the Wealth Tax Officer to form the opinion that the net wealth chargeable to tax has escaped assessment within the meaning of section 17 of the Wealth Tax Act. It does not appear from the notices that the mandatory requirements of section 17 have been considered at all. The Wealth Tax Officer must form an opinion on the legal foundation that by reason of the omission or failure on the part of the person to make the return under section 14 of his net wealth or of non disclosure of full and true material facts necessary for assessment of his net wealth, the net wealth chargeable to tax has escaped assessment for that year. In the instant case, there is no material on record to show or suggest that there was any material available with the Wealth Tax Officer to form an opinion or any reason to believe that the net wealth chargeable to tax has escaped assessment for that year. For attraction of clause (b) of section 17(1) if the Wealth Tax Officer has in consequence of any information in his possession reason to believe notwithstanding that there has been no such omission or failure as is referred to in clause (a) that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under assessment or assessment too low a rate or otherwise, he may issue notice within four years of the end of that assessment year containing all or any of the requirements which may be included in a notice under sub section (2) of section 14 and may proceed to assess or reassess such net wealth. According to section 14 every person whose net wealth is of such an amount which renders him liable to wealth tax under the Act shall furnish to the Wealth Tax Officer a return in the prescribed form. Such details are required to be given by such assessee. The assessment order passed under section 16 is not an empty formality. It is a final order which advises the assessee that for the purposes of the Act, he has been assessed and no further action is required to be taken. Section 17 is an exception to the finality of the assessment order passed under section 16. What is required to become final cannot easily be unsettled, or disturbed because of the whims or caprice of an officer. The belief which a Wealth Tax Officer must have, must be based on a solid and positive foundation. It cannot be whimsical, arbitrary or capricious. The notices issued under section 17 nowhere show what was the reason to believe: that the net wealth chargeable to tax has escaped assessment within the meaning of section 17 of the Wealth Tax Act. For clause (b) the Wealth Tax Officer was required to place reliance on the information which was in his possession and only after having positive information he could have a reason to believe that the net wealth chargeable to tax has escaped assessment. From the documents on record, it is clear that the petitioner had submitted the complete returns and the statement of foreign shares and stocks. The statements contained in Annexures A/1 to A/3 and B/1 to B/3 with their statements clearly show that the petitioner had given fullest details of the wealth. If the Officer had accepted those details and made the assessment order, then any other officer could not ordinarily unsettle the assessment orders unless the three requisite conditions of section 17 of the Act were satisfied. In the instant case, unfortunately, there is no material from the side of the Revenue to satisfy the judicial conscience of the Court that the exercise of the power under section 17 is in accordance with the provisions of law. The notices Annexures D, D‑1, D‑2 and D‑3 are quashed and consequently the proceedings drawn on the basis of these notices are also quashed.
In the result, the petition is allowed. There shall be no order as to costs. Security amount, if any, be refunded to the petitioner, after due verification.
M.B.A./418/FCPetition allowed.