CIT Vs Smt. Meenakshi Devi Avaru (Karnataka High Court)
Protective, precautionary or alternate assessment is an assessment which is made ex- abundanti cautela by the Assessing Authority and is therefore called protective or Precautionary Assessment or alternative assessment. When the Department has any doubt as to the person who is or will be deemed to be in receipt of the income, protective or alternative assessments are permitted. Thus, there is no double assessment if the first assessment is void.
It is no doubt true that the IncomeTax Act/Wealth-Tax Act nowhere provides that a protective or precautionary assessment can be raised in respect of one and the same income/wealth on two different persons. A departmental practice that has however gained judicial recognition is that, in certain circumstances, where it appears to the Income-Tax Authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant Income-Tax Authorities to determine the said question by taking appropriate proceedings both against A and B. This is done so that such income/wealth may not escape taxation altogether. This has been held to be quite sensible because the Revenue has to be protected against the bar of limitation. If the Income-Tax Authorities are precluded from making an alternative assessment, then by the time the disputes are over, the real assessment would be barred. But while protective assessment is permitted, protective recovery is not allowed. It is one thing to say that the Authorities are merely making an assessment and another thing to say that at one and the same time they could not only make assessment in respect of one set of dues but proceeds to realize both.
Thus, until there is a final assessment in existence the raising of alternative assessment by the Revenue cannot be prevented. Besides, the assessment to tax is one of the processes open in law to adjudicate the title of the parties or the shares of the parties or in the context of Wealth-Tax, whether the asset belongs to the Assessee on the Valuation Date. The powers of the Assessing Officer are also, so far as Revenue purposes are concerned, plenary in the sense he has to decide who is the owner and to whom does a particular income belong. He must, of course, decide the question in accordance with the other provisions of law. But it is for the Revenue authority to decide in accordance with law the rights of the parties and to decide to whom the income/assets in question belong.
On the issue of Protective Assessments, we have already noted above that the demands in question have been raised under the Protective Assessments only framed by the Assessing Authority and the recovery on the basis of the same is not enforceable as of now and therefore, the appellate Orders by the Appellate Tribunal and the Commissioner of Wealth-Tax (Appeals) even though decided the Questions on merits would remain in the character of the Protective Assessments only, but since the Tribunal has decided the question of law also, that is why it has given rise to the aforesaid Substantial Questions of law which we are called upon to decide.
EFFECT OF LITIGATION ON WEALTH-TAX EXIGIBILITY FOR A.Y.1999-2000 TO A.Y. 2004-05:
Upon the final decision of the Honble Apex Court, upholding the validity of The Bangalore Palace (Acquisition and Transfer) Act,1996, the title of the lands may be divested from the appointed date 21/11/1996 or a later date but the levy under the Wealth-Tax Act can still hold the ground on the basis of interpretation of the key words belonging to construed to be of wider import and the possession, dominion and control of the urban lands having remained with the Respondent Assessees on the respective Valuation dates relevant to A.Y.1999-2000 to A.Y. 2004-05 in question.
On the other hand, if the appeals of the Assessees are allowed by the Apex Court and the BPAT Act, 1996 is struck down, the clear title and ownership of the Assessees would emerge further fortifying their liability to pay Wealth-Tax on such urban lands as owners, even though during the period of their litigation, their Wealth-Tax liability is still enforceable upon substantive Assessments as the said urban land continues to belong to them, irrespective of litigation, on the respective Valuation Dates relevant to these Assessment Years.
Therefore on the basis of the aforesaid analysis of the facts and law, we proceed to answer the aforesaid Substantial Questions of law in favour of the Revenue and against the Respondent Assessees in the following manner:-
ANSWERS TO THE SUBSTANTIAL QUESTIONS OF LAW:
Question No.1 is answered in favour of the Revenue and against the Respondent Assessees and we hold that the Income Tax Appellate Tribunal (ITAT) was not justified in law in holding that 28 Acres of land located within the Corporation limits of the Bangalore City does not fall within the definition of Assets in Section 2 (ea)(b) of the Wealth-Tax Act, 1957 and no Wealth Tax on these lands is chargeable. We hold that the Wealth Tax would be chargeable for these Assessment Years in question in the hands of the Respondent Assessees as the urban lands in question belonged to the Assessees on the respective Valuation Dates relevant to A.Y. 1999-2000 to A.Y. 2004-05 in question.
We answer the Substantial Question of law No.2 also in favour of the Revenue and against the Assessees and hold that there was no total prohibition against raising of any sort of construction of a Building on the lands in question either under the interim Orders of the Honble Supreme Court or by virtue of Karnataka Parks, Play Fields and Open Places (Preservation and Regulation) Act, 1985 and in view of the fact that temporary or semi-permanent constructions were raised from time to time on these lands in question, the urban lands in question belonging to the Assessees could not fall in the Exclusion Clause (b) of Explanation to Section 2 (ea) of the Wealth-Tax Act, defining the term Assets.
We also answer Substantial Question of law No.3 in favour of the Revenue and against the Assessees and hold that the Income Tax Appellate Tribunal (ITAT) was not justified in setting aside the Protective Assessments made by the Assessing Authority for the Assessment Years A.Y. 1999-2000 to A.Y. 2004-05 in question. The Assessing Authority would be free to now proceed to make substantive assessments in the hands of the Respondent Assessees.
Accordingly, all these Appeals filed by the Revenue are allowed in the aforesaid manner. No order as to costs.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:
1. Wealth Tax in India is levied under the provisions of the Wealth Tax Act, 1957 with effect from 01/04/1957 and the main object of this Legislation was to reduce the financial inequalities and to bridge the gap between the poor and the rich by imposing taxes on richer and wealthier people on their wealth exceeding a particular monetary limit on the net market value of the Assets held by them on the valuation date, i.e. the last date preceding the commencement of the Assessment Year. The levy of Wealth-Tax has been discontinued from the Assessment Year 2016-17, as amended by Finance Bill of 2015. The A.Y.1999- 2000 to A.Y. 2004-05 involved in the present appeals are prior to its discontinuation.
2. The definition of Assets underwent a drastic amendment with effect from 01/04/1993 and the word Assets defined in Section 2 (ea) of the Act since 1st April 1993 comprises of six categories of Assets. This amendment was brought to encourage the Assets to be put to productive use and to levy tax under the said Act for the aforesaid avowed object of the enactment.
INTRODUCTION OF CASE:
3. The present batch of Appeals filed by the Department raise the following Substantial Question of law which is required to be answered in the present set of appeals for the various assessment years, viz. A.Y.1999-2000 to A.Y.2004-05 is as follows:-
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the 28 Acres of urban land comes under the ambit of the exemption clause of Section 2(ea) of the Wealth Tax Act, 1957?
4. The case pertains to urban land of the Respondent – Assessees who are sisters of Sri. Srikantadutta Narasimharaja Wodeyar, Son of the Ex- Ruler of Mysuru, and the said entire property in question known as Bangalore Palace and its lands appurtenant including these lands in question came to be acquired by the State Government by enacting the legislation known as Bangalore Palace (Acquisition and Transfer) Act, 1996 (BPAT Act).
5. Prior to the said enactment, the family members had partitioned the entire property in question known as Bangalore Palace and the lands appurtenant thereto measuring about 472 Acres in the heart of the City of Bengaluru in the year 1984 and the Respondent Assessees, the five sisters, viz. Smt. Gayathri Devi, Smt. Meenakshi Devi, Smt. Kamakshi Devi, Smt. Indrakshi Devi and Smt. Vishalakshi Devi got approximately 28 Acres of land in the hands of each one of them and the present Appeals pertain to the exigibility of Wealth Tax in respect of these parcels of urban lands in the hands of the Respondent Assessee sisters and the said Wealth Tax liability, needless to add, is vehemently opposed by the Assessees.
6. The litigative history of this property is long and chequered but the brief of which in so far as it relates to the controversy in hand can be stated to be as under.
7. The Bangalore Palace was initially owned by the Maharaja of Mysuru and on a Partition in the year 1984, the children of late His Highness Jayachamarajendra Wodeyar, the six children, viz. one brother – Srikantadatta Narasimharaja Wodeyar and five sisters, Smt. M.S. Gayathri Devi, Smt. M.S. Meenakshi Devi, Smt. M.S. Kamakshi Devi, Smt.M.S.Indrakshi Devi and Smt. M.S. Vishalakshi Devi got their respective shares in such partition in the year 1984 and each of the sisters got approximately 28 Acres of land appurtenant to Bangalore Palace, while the remaining land and the Building of the Palace itself fell in the share of the brother, Shri. Shrikantadatta Narasimharaja Wodeyar. There is no dispute inter-se between them in regard to this partition of 1984.
8. About 45 Acres of the remaining land came to be transferred to one M/s. Chamundi Hotels Private Limited, a closely held Limited Company of the same family. While prior to enactment of Bangalore Palace (Acquisition and Transfer) Act, 1996, the litigation under the Urban Land Ceiling law of 1976 was going on in respect of the said property, on 15/11/1996, with the Presidential assent, the aforesaid Bangalore Palace (Acquisition and Transfer) Act, 1996 was enacted by the State Government and the appointed date under the said Act was notified to be 21/11/1996.
9. The constitutional validity and the vires of the said enactment came to be challenged by all the Assessees, the brother and the sisters, before this Court by Writ Petition No.32175/1996 and connected writ petitions, in which the interim Orders were passed by the learned Single Judge of this Court on 10/12/1996 in the first instance. However, these writ petitions came to be dismissed by the Division Bench of this Court by a detailed judgment on 31/03/1997 (M/s. Chamundi Hotel (P) Ltd., the Brother, Sri. Srikanta Datta Narasimharaja Wadiyar and the Assessee sisters herein Vs. The State of Karnataka and others) (reported in ILR 1997 Kar.1573) against which the appeals were preferred before the Honble Supreme Court of India where also, the interim Orders were passed in favour of the Assessees and to which a little more detailed reference will be made hereinafter and the Appeals are said to be now pending adjudication before the Nine Judges Bench of the Honble Supreme Court of India, viz. Civil Appeal No.3305/1997 [SLP (Civil) No.8650/1997 & connected appeals].
10. The Assessing Authority under the Wealth Tax Act, 1957 passed the ‘protective Assessments’ in the hands of the Respondent Assessee sisters, imposing Wealth Tax on the Urban Land falling in their share measuring about 28 Acres determining its market value, however, the demand raised under the protective Assessments, as is well known, is not enforceable and recoverable from the Assessees, still, the Assessees preferred Appeals under the provisions of the said Act before the first Appellate Authority, who decided the Appeals in favour of the Assessees and the Revenues Appeals before the Income Tax Appellate Tribunal also came to be dismissed by the ITAT and against which the Revenue has preferred these Appeals before this Court raising the aforesaid Substantial Question of law and therefore, at the level of the Appellate Authorities under the Act, the determination of liability to pay the Wealth Tax stood decided in favour of the Assessees that the lands in question are not taxable as urban lands in their hands, but, the Revenue has challenged the said findings and the decision of the Appellate Authorities below before this Court by raising the aforementioned Substantial Question of law, but we have re-framed the following Substantial Questions of law and lengthy arguments were heard on both sides on these questions involved in these Appeals filed by the Revenue.
SUBSTANTIAL QUESTIONS OF LAW:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the 28 acres of land located within the corporation limit of Bengaluru City clearly falls within the exemption clause of Section 2(ea)(b) in the years of valuation and hence, no Wealth Tax on this land is chargeable?
