Case Law Details
Brief:- A common question of law arises in these three appeals which were heard analogously. The question that arises for determination in these appeals is whether the initiation of a proceeding under Section 17 of the Wealth Tax Act, 1957 describing M/s. Abhudey Properties Pvt. Ltd. as the assessee who had no existence on the date of initiation of such proceedings, having already been merged with the appellant, was valid and whether the conditions for invocation of Section 17(1A)(b)(ii) are required to be reflected in the notice under Section 17 of the Wealth Tax Act for the purpose of initiation of a proceeding under Section 17 of the Act.
IN THE HIGH COURT AT CALCUTTA
AWT No. 1 of 2003
I. K. Agencies Pvt. Ltd. Versus Commissioner of Wealth Tax, Kol-III
AWT No. 2 of 2003
I. K. Agencies Pvt. Ltd. Versus Commissioner of Wealth Tax, Kol-III
AWT No. 3 of 2003
I. K. Agencies Pvt. Ltd. Versus Commissioner of Wealth Tax, Kol-III
Heard on: 20.01.11
Judgment on: 11th March, 2011.
Bhaskar Bhattacharya, J.:
1. A common question of law arises in these three appeals which were heard analogously. The question that arises for determination in these appeals is whether the initiation of a proceeding under Section 17 of the Wealth Tax Act, 1957 describing M/s. Abhudey Properties Pvt. Ltd. as the assessee who had no existence on the date of initiation of such proceedings, having already been merged with the appellant, was valid and whether the conditions for invocation of Section 17(1A)(b)(ii) are required to be reflected in the notice under Section 17 of the Wealth Tax Act for the purpose of initiation of a proceeding under Section 17 of the Act.
The following facts are not in dispute:
a) M/s. Abhudey Properties Pvt. Ltd. had been wound up by virtue of the order of the Company Court and was amalgamated with the appellant, namely, M/s. I.K. Agencies Pvt. Ltd., with effect from 1st April, 1995. As a result the appellant took all the assets and liability of the wound up company. On the relevant date for the valuation for the assessment year, the wound up company was the owner of certain assets but no Wealth Tax return was filed by it. The Assessing Officer issued a notice under Section 17 of the Wealth Tax Act, on January 20, 1997 on M/s. Abhudey Properties Pvt. Ltd. directing it to file its Wealth Tax return for the relevant period when the said company was no more in existence.
b) As no Wealth Tax return was filed by the wound up company, the Assessing Officer, thereafter, issued a notice dated 10th September, 1997 under Section 16(4) of the Act upon the appellant. Consequently, a return showing nil net wealth for the above mentioned assessment year was filed by the appellant on 19th March, 1998 along with statement showing the computation of net wealth and forwarding a letter dated 6th March, 1998. In the said letter, it was inter alia stated that the said notice dated 20th January, 1997 under Section 17 of the Act was invalid, bad in law and without jurisdiction as the said notice had been addressed to the wound up company which was no more in existence as on the date of issue of such notice and the fact of its amalgamation with the appellant was intimated to the Assessing Officer before the said date.
c) However, the Assessing Officer completed the assessment of the appellant under Section 16(3)/17 of the said Act and a net taxable wealth was assessed.
Being dissatisfied, the appellant preferred an appeal before the Commissioner of Wealth Tax (Appeals) objecting inter alia to the validity of reopening of the Wealth Tax assessment under Section 17 of the Act not only on merit but also on the aforesaid ground of illegality.
The Commissioner of Wealth Tax (Appeals), however, directed the Assessing Officer to allow a relief as per Rule 4(1) of Schedule III of Wealth Tax Act and further gave relief to the extent that arrear of Municipal Tax should be allowed as deduction from the value of the property in terms of the provision contained in Section 2(m) of the Act.
Against the said order of Commissioner of Wealth Tax (Appeals), the Department preferred an appeal before the Income Tax Appellate Tribunal challenging the relief granted to the appellant in respect of those two items and the appellant filed a cross-objection before the Income Tax Appellate Tribunal against the order of the Commissioner of Income Tax (Appeals) thereby objecting to the initiation of reassessment proceeding on the ground of illegality of initiation as indicated earlier.
By the order impugned in these appeals, the Income Tax Appellate Tribunal allowed the appeal of the Department and dismissed the cross-objection of the appellant.
Being dissatisfied, the appellant has come up with these three appeals under Section 27A of the Wealth Tax Act.
Mr. Bagchi, the learned Advocate appearing on behalf of the appellant, has, before entering into the merit of the order impugned, restricted his submission on the question of initiation of assessment proceeding on the ground that in the notice under Section 17 of the Act, the appellant not having been named, the initiation of proceeding was illegal, even though, the subsequent notice under Section 16 was issued in the name of the appellant. Mr. Bagchi further contends the conditions mentioned in Section 17(1A) (b) (ii) should be reflected in the notice of initiation of proceedings and in the absence of such satisfaction recorded in the notice, the initiation of reopening of assessment was without jurisdiction. In support of such contention, Mr. Bagchi relies upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Gujarat II vs. Kurban Hussain Ibrahimji Mithiborwala, reported in 82 ITR 821 (SC) and that of a Division Bench of this Court in the case of Commissioner of Income Tax vs. Bibhuti Bhusan Mallick reported in, 165 ITR 107 (Cal).
Mr. Dutta, the learned Advocate appearing on behalf of the Revenue, on the other hand, has opposed the aforesaid contention and has submitted that the recording of wrong name is a mistake in the notice and Section 42(c) of the Wealth Tax Act cures such defect. He further relies upon the decision of Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer & Ors., reported in 259 ITR 19, in support of his contention that the initiation of proceeding was legal. Mr. Dutta, therefore, prays for dismissal of the appeal.
Therefore, the preliminary point that arises for determination in these three appeals is whether the initiation of proceeding under Section 17 of the Act was illegal and without jurisdiction as the name of the appellant was not mentioned in the said notice and at the same time, the satisfaction of the Assessing Officer that the escaped revenue would exceed to Rs.2.5 lac as mentioned in Section 17(1 A) (b) (ii) of the Act was not reflected in the notice. The further question we are required to answer is whether Section 42(C) of the Act cures such defect.
In order to appreciate those questions, it will be profitable to refer to the provisions of Sections 17 and 42C of the Act which are quoted below:
“17. WEALTH ESCAPING ASSESSMENT. – (1) If the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of under-assessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and section 1 7A, serve on such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under section 14 :
Provided that where an assessment under sub-section (3) of section 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 14 or section 15 or in response to a notice issued under sub-section (4) of section 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment year :
Provided further that th e Assessing Officer shall, before issuing any notice under this sub-section, record his reasons for doing so.
Explanation : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
(1A) No notice under sub-section (1) shall be issued for the relevant assessment year, – (a) in a case where an assessment under sub-section (3) of section 16 or sub-section (1) of this section has been made for such assessment year, – (i) if four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (ii) or sub-clause (iii);
(ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year, unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees five lakhs or more for that year;
(iii) if seven years, but not more than ten years, have elapsed from the end of the relevant assessment year, unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees ten lakhs or more for that year;
(b) in any other case, – (i) if four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (ii) or sub-clause (iii);
(ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year, unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees two lakhs and fifty thousand or more for that year;
(iii) if seven years, but not more than ten years, have elapsed from the end of the relevant assessment year, unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees five lakhs or more for that year.
Explanation : For the purposes of sub-section (1) and sub-section (1A) the following shall also be deemed to be cases where net wealth chargeable to tax has escaped assessment, namely :- (a) where no return of net wealth has been furnished by the assessee although his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax;
(b) where a return of net wealth has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the net wealth or has claimed excessive exemption or deduction in the return.
(1B)(a) In a case where an assessment under sub-section (3) of section 16 or sub-section (1) of this section has been made for the relevant assessment year, no notice shall be issued under sub-section (1) by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice :
Provided that after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.
(b) In a case other than a case falling under clause (a), no notice shall be issued under sub-section (1) by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
(2) Nothing contained in this section limiting the time within which any proceeding for assessment or reassessment may be commenced, shall apply to an assessment or reassessment to be made on such person in consequence of or to give effect to any finding or direction, contained in an order under section 23, 24, 25, 27, or 29 or by a Court in any proceedings under any other law :
Provided that the provisions of this sub-section shall not apply in any case where any such assessment or reassessment relates to an assessment year in respect of which an assessment or reassessment could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any provision limiting the time within which any action for assessment or reassessment may be taken.
42C. RETURN OF WEALTH, ETC., NOT TO BE INVALID ON CERTAIN GROUNDS. – No return of wealth, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of wealth, assessment, notice, summons or other proceeding if such return of wealth, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”
It appears that the aforesaid Section 17 of the Wealth Tax Act is similar to the provisions contained in Section 148 of the Income Tax Act, 1961 and Section 34 of the Income Tax Act, 1922. As pointed out by the Supreme Court in the case of Commissioner of Wealth Tax, West Bengal, Calcutta vs. Imperial Tobacco. Co. of India Ltd., reported in AIR 1967 SC 230, Section 17 of the Wealth Tax Act being in pari materia with the language of Section 34 of the Income-tax Act, 1922, the decisions under the latter Act were relevant in construing the scope and effect of Section 17 of the Wealth Tax Act. In the context of those provisions of the Income-tax Act, the law is now well settled that the jurisdiction to reopen a proceeding depends upon issue of a valid notice under the provision which gives power to the Assessing Officer to reopen a proceeding.
As pointed out by the Supreme Court in the case of Commissioner of Income-tax, Andhra Pradesh vs. K. Adinarayana Murty, reported in AIR 1967 SC 1545, where under the scheme of the Income-tax Act, 1922 a notice under Section 34 of the Act was wrongly issued to the assessee in the status of an ‘Individual’ and not in the correct status of ‘Hindu Undivided Family’ the notice was held to be illegal and all proceedings taken under that notice were declared as ultra vires and without jurisdiction. The fact that the assessee has filed the return, in response to the notice, in the status of ‘Hindu Undivided Family’, the Supreme Court proceeded, would not make any difference to the character of the proceeding in pursuance of the said notice.
In the subsequent case of the Supreme Court in the case of Commissioner of Income Tax vs. Kurban Hussain Ibrahimji Mithborwala, reported in (1971) 82 ITR 821 (SC), the same view was adopted where in the notice a wrong assessment year was given.
A Division Bench of this Court in the case of Commissioner of Income Tax vs. Bibhuti Bhusan Mallick, reported in (1987) 165 ITR 197 (CAL) took into consideration various decisions including the above two and came to the conclusion that in a case where the assessee, Bibhuti Bhusan Mallick is assessed as a Hindu Undivided Family, a notice issued by the Income Tax Officer with the intention to reopen the assessment issued in the name of Panchanan Mallick and Bibhuti Bhusan Mallick was found to be without jurisdiction notwithstanding the fact that the real assessee submitted return pursuant to such notice.
Mr. Dutta, the learned counsel appearing on behalf of the Revenue for the purpose of overcoming the aforesaid decisions, strongly relied upon the provision contained in Section 42C of the Act in support of his contention that the said provision saves those defective notices.
In our opinion, the following last provision of Section 42C to the effect “if such return of wealth, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act” really clinches the issue. If the law of the land is that the initiation of the proceedings for reopening of assessment depends upon the service of a valid notice in terms of Section 17 of the Act upon the assessee, a notice issued to a person who is not in existence at the time of issuing such notice cannot make it valid and the law permits the Assessing Officer to issue a fresh notice in conformity with the law. Thus, the fact that the real assessee subsequently filed its return with objection that such notice is invalid cannot cure the defects which go to the root of the jurisdiction to reopen the proceedings.
In our opinion, the said provision cannot cure a defect of the nature involved in the case before us, where no notice at all has been issued upon the real assessee responsible for payment of the dues. By taking aid of the said provision, a case of issue of notice upon a wrong person altogether cannot be held to be binding upon the real assessee.
In the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer & Others (supra), strongly relied upon by Mr. Dutta, by the order under challenge before the Supreme Court, a Division Bench of the High Court at Delhi dismissed the writ-petition filed by the appellant challenging the validity of notices issued under Sections 148 and 143(2) of the Income Tax Act, 1961. The High Court took the view that the appellant could have taken all the objections in its reply to the notices and that, at that stage, the writ-petition was a premature one.
Accordingly, the writ-petition was dismissed. Aggrieved by that order, writ-petitioner approached the Supreme Court.
The Supreme Court disposed of the Appeal by giving a short judgement which is reproduced below:
“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.
“Insofar as the appeals filed against the order of assessment before the Commissioner (Appeals), we direct the Appellate Authority to dispose of the same, expeditiously.
With the above observations, the civil appeals are dismissed.”
In our view, the aforesaid decision does not answer the question before us as to whether a notice of reopening of the assessment is valid when the notice has not been given to the real assessee or an assessee who was not in existence at the time of issue and the decisions referred to by us answers the question.
We, however, find no substance in the contention of Mr. Bagchi, the learned advocate for the appellant that the reason for initiation of reopening proceedings must be made known to the assessee by reflecting the same in the notice. The said point is concluded by the decision of the Supreme Court in the case of S. Narayanappa and others vs. The Commissioner of Income-tax, Bangalore, reported in AIR 1967 SC 523 where the Apex Court in the context of Section 34 of the Income Tax Act, 1922 which is pari materia with Section 17 of the Wealth Tax Act, made the following observations:
“It was also contended for the appellant that the Income-tax Officer should have communicated to him the reasons which led him to initiate the proceedings under S. 34 of the Act. It was stated that a request to this effect was made by the appellant to the Income-tax Officer, but the Income-tax Officer declined to disclose the reasons. In our opinion, the argument of the appellant on this point is misconceived. The proceedings for assessment or re-assessment under S. 34 (l) (a) of the Income-tax Act start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or re-assessed, becomes a party to those proceedings. The earlier stage of the proceeding for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi judicial. The scheme of S. 34 of the Act is that, if the conditions of the main Section are satisfied a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under S. 34 and obtain the sanction of the Commissioner who must be satisfied that the action under S. 34 was justified. There is no requirement in any of the provisions of the Act or any Section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under S. 34 must also be communicated to the assessee.”
We, therefore, find that in the cases before us, the authorities below totally overlooked the fact that initiation of the proceedings for reassessment was vitiated for not giving notice under Section 17 of the Wealth Tax Act to the Appellant and the notice issued upon M/s. Abhudey Properties Pvt. Ltd. which was not in existence at that time was insufficient to initiate proceedings against the Appellant who had taken over the liability of M/s. Abhudey Properties Pvt. earlier to the issue of such notice and such fact was also made known to the Revenue.
We, thus, set aside the reassessment proceedings on that ground alone. In view of our aforesaid finding, there is no necessity of going into the other grounds of appeal on merit.
Appeals are thus allowed on the aforesaid ground alone and the reassessment proceedings are quashed.
In the facts and circumstances, there will be however no order as to costs.
(Bhaskar Bhattacharya, J.)
I agree.
(Sambuddha Chakrabarti, J.)
