Case Law Details

Case Name : CIT, Chennai Vs M/s Simpson & Co. (Madras High Court)
Appeal Number : Appeal No. 550 of 2004
Date of Judgement/Order : 06/07/2011
Related Assessment Year :
Courts : All High Courts (3656) Madras High Court (269)

CIT, Chennai Vs M/s Simpson & Co. (Madras High Court)- There must be a nexus between the material at the hands of the Officer and formation of belief that there was escapement of wealth from assessment on account of the failure of the assessee to disclose fully and truly, all material facts.  In the absence of any nexus or any one of the requirements, the reassessment proceedings could not be upheld as one falling under Section 17 of the Wealth Tax Act.

The mere fact that the Officer rejects the valuation of the assessee based on the Valuer’s Report, obtained under Section 16A in respect of a reference made during the pendency of the assessment, by itself, would not justify the requirements under Section 17(1)(a) to reopen the assessment under Section 17(1)(a) of the Act.

CIT, Chennai Vs M/s Simpson & Co.,

Decided By- Madras High Court

Decided on – 06.07.2011

Appeal No. 550 of 2004

Tax Case (Appeal) filed under Section 27-A of the Wealth Tax Act against the order of the Income Tax Appellate Tribunal, Madras “D” Bench, Chennai, dated 11.2.2004, in W.T.A.No.107/Mds/97.

J U D G M E N T

(Judgement of the Court was delivered by CHITRA VENKATARAMAN, J.)

This Tax Case Appeal is at the instance of the Revenue, challenging the order of the Income Tax Appellate Tribunal, Madras “D” Bench, Chennai, raising the following questions of law:-

“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the reassessments made for the assessment year 1985-86 were valid under Section 17 of the Wealth Tax Act?

2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in not considering Section 17(1)(b) which clearly mentions that any information in possession of the wealth tax officer for initiating reassessment proceedings and the valuation officer’s report would constitute an information for validly reopening the assessment?

3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in not considering the judgements of the Full Bench of the Kerala High Court in the case of CWT Vs. V.Cleetus, 213 ITR 14?”

2. The assessment year in question is 1985-1986. In respect of the said assessment year, the assessment was originally completed under Section 16(3) of the Wealth Tax Act on 13.3.1990. It is an admitted fact that even before the completion of the assessment, the Wealth Tax Officer made a reference to the Valuation Officer under Section 16A of the Wealth Tax Act. However, in view of the limitation on the assessment, the same was completed as early as on 13.3.1990. However, on the basis of the Valuation Officer’s report, received subsequent to the assessment,  the assessment was reopened under Section 17 of the Wealth Tax Act and a notice was issued on 16.3.1993. In response to the same, the assessee filed his return, admitting the value of net wealth at Rs. 26,49,900/-. Rejecting the claim of the assessee, the assessment in respect of the lands at Madhavaram and Sembium were assessed at the value based on the valuation report.

3. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Wealth Tax (Appeals). Agreeing with the assessee, the Commissioner of Wealth Tax (Appeals) pointed out that in the original assessment of the assessee, in respect of the properties, the Wealth Tax Officer made 10% addition to the value adopted for the assessment year 1984-1985. In respect of the said valuation, the  appeal filed by the assessee before the Tribunal for valuing the property in accordance with the compensation payable under the Tamil Nadu Urban Land (Ceiling and Regulation) Act, was allowed. Hence, the Officer should have taken steps to reopen the assessment promptly after 12.3.1991 after the receipt of the report.  However, the report was only an opinion and hence, cannot constitute the reason to believe the escapement of wealth tax for re-assessment under Section 17 of the Wealth Tax Act.  The said assessment came on further appeal before this Court in COMMISSIONER OF WEALTH-TAX Vs. SHARDLOW INDIA LTD., reported in (2006) 285 ITR 426 (Mad), wherein, this Court held that the compensation payable under the Tamil Nadu Urban Land (Ceiling and Regulation) Act should be the basis for valuing the property and not the market rate. In the circumstances, the Commissioner of Wealth Tax (Appeals) held that even though the valuation report of the Valuation Officer was received after the assessment, yet, the reopening could not be sustained under the Act.

4. The Revenue went on further appeal before the Income Tax Appellate Tribunal, where the Tribunal agreed with the assessee that on the mere change of opinion, the assessment could not be revised. Citing the decision of the Supreme Court in the case of CIT & ANOTHER Vs. FORAMER FRANCE reported in 264 ITR 566, the Revenue’s appeal was dismissed by the Income Tax Appellate Tribunal Chennai Bench ‘D’. Hence, the present appeal.

5.  Learned standing counsel appearing on behalf of the Revenue placed reliance on the decision of the Bombay High Court in the case of COMMISSIONER OF WEALTH TAX Vs. SONA PROPERTIES P. LTD., reported in (2010) 327 ITR 592 (BOM), to contend that when the reference to the Valuation Officer under Section 16A was well before the completion of the assessment and that the original assessment had to be completed within the period of limitation, on receipt of the valuation report, rightly the assessment was reopened. Going by Section 17(1)(b) of the Wealth Tax Act, as it then stood, reopening was based on materials.  Thus even though there was no omission or failure on the part of the assessee in disclosing the details of net value, taking the valuation report as a good information in possession of the Wealth Tax Officer, the reassessment done, was in order.

6. Per contra, learned counsel appearing on behalf of the assessee pointed out that admittedly, in this case, notice was issued only on 16.3.1993, which means, as per Section 17(1)(b) as it then stood, in the event of the absence of any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment, the reopening ought to have been done within a period of four years of the end of that assessment year to which the tax relates to.  It is an admitted fact herein that the assessment year related to 1985-1986 and the reopening was done long after four years. Thus the assessee’s case could not be fitted in to fall under Section 17(1)(b) of the Wealth Tax Act.  Hence, the case has to fall necessarily under Section 17(1)(a) of the Wealth Tax Act. Even if the period of limitation of eight years is available, yet, there was nothing to suggest that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.

7. He further submitted that leaving aside the question as to whether the receipt of the Valuation Officer’s report after the assessment could be a valid piece of information for the purpose of reopening, going by the fact that there was nothing to suggest that the assessee had not disclosed fully and truly all material facts necessary for assessment, on a mere possession of the valuation report, the assessment cannot be reopened. Secondly, even in the original assessment, the Officer had made 10% addition to the value declared. Thus taking note of the fact that the reopening itself was without jurisdiction in this case, the Tribunal rightly accepted the assessee’s case.

 8. Heard learned counsel appearing for both sides and perused the material on record.

9. Learned counsel appearing on behalf of the assessee admitted that the Valuation Officer’s report received subsequent to the assessment in this case, no doubt, constitutes a valid piece of information.  However, as rightly contended by the assessee, that, by itself, does not save the Revenue’s case. A reading of the order of reassessment shows that the assessment under Section 16(3) was completed on 13.3.1990 by increasing the returned value by 10% over and above the value adopted for the assessment year 1984-85.  The reference to the Valuation Officer under Section 16-A was made even before the completion of the assessment. However, without waiting for the Valuation Report, the Officer had to complete the assessment on account of the limitation.  Hence, only after passing the assessment on 13.3.1990, the valuation report dated 12.3.1991 was received.  Thereafter, a notice under Section 17 was issued on 16.3.1993.

10. The provision of law relating to assessment on the wealth escaping assessment, as it then stood during the material assessment year 1985-86, reads as follows:

                “17.  Wealth escaping assessment  (i) 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 asses-sable 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 low 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 sub-section (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 sub-section.”

11.  The reading of the order of assessment says nothing about the sub-section under which the assessment was reopened.  If the case of the Revenue has to fall under sub-section (a), then it must satisfy the following conditions, namely, the Assessing Officer must have reason to believe that there was omission or failure on the part of an assessee to make a return of his net wealth under Section 14 for any assessment year or there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that year; that by reason of the same, the net wealth chargeable to tax has escaped assessment for that year either by reason of under-assessment or assessment at too low a rate or otherwise.  If the case has to fall under Section 17(1)(b), the Officer must have in his possession, information upon which the Officer has reason to believe that even though there was no omission or failure on the part of the assessee to disclose fully and truly all material facts as given under sub-section (a), yet, the net wealth chargeable to tax has escaped assessment either by reason of under-assessment or assessment at too low a rate or otherwise.  The Section further provides the time limit that in cases falling under clause (a), the Officer has to serve a notice containing the requirements which may be included in a notice under sub-section (2) of Section 14 within a period of eight years of the end of that assessment year; in cases falling under Section 17(1)(b), the notice has to be served on the assessee within a period of four years of the end of that assessment year.   Thus going by sub-clause (a) of sub-section (1) to Section 17 of the Wealth Tax Act, the failure to disclose the material particulars fully and truly had led the Officer to believe that there was an escapement of tax either by reason of under-assessment or assessment at too low a rate.  As far as sub-clause (b) is concerned, notwithstanding that there was no omission or failure on the part of the assessee, the Officer must have information in his possession to result in a reopening of the assessment.

12.  It is an admitted fact that the assessee had returned its income and the materials were also placed before the Wealth Tax Officer at the time of the original assessment; thereby there is nothing to suggest that the assessee had withheld the material facts or that the facts placed before the Officer are not truly and fully disclosed, necessary for assessment. Hence, we do not find any ground for this Court to accept the case of the Revenue that the Officer had exercised his jurisdiction under Section 17(1)(a) of the Wealth Tax Act to reopen the assessment. The second proviso to Section 17(1), which was introduced with effect from 1.4.1989, is not available during the relevant assessment year.

13.  In the decision reported in 264 ITR 566 (Commissioner of Income-Tax and another V. Foramer France), arising under Income Tax Act relating to Sections 147 and 148 of the Income Tax Act, the Supreme Court pointed out that when there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment, the assessment could not be reopened on the basis of change of opinion.

14.  In the decision reported in 237 ITR 505 (Karni Singh Ji of Bikaner (Dr.) v. The Dy. Commissioner of Income-tax & Anr.), referred to by the learned counsel appearing for the Revenue, the Delhi High Court held that the Valuer’s report received subsequent to the date of assessment would be a sufficient ground to reopen the assessment and notice of assessment under Section 17 of the Wealth Tax Act was valid.  In so holding, the Delhi High Court followed the Full Bench decision of the Kerala High Court reported in 213 ITR 14 (CWT v. V.CLEETUS).

15.  In the decision reported in 238 ITR 440 (Commissioner of Wealth-tax v. K.L. Varadaraju), this Court considered the correctness of the proceedings under Section 17 in a case of reassessment where, at the time of original assessment, the assessee had given full details as regards the plan of the house, full details regarding the site and the valuation of the shares.  Proceedings were initiated under Section 17(1)(a) of the Wealth Tax Act.  On appeal by the Revenue before this Court, confirming the findings of the Tribunal that the assessee had produced all relevant particulars for the purpose of proper assessment at the time of original assessment, this Court held that the assessee could not be stated to be guilty of producing inadequate particulars or untrue particulars at the time of assessment and that the assessee had not omitted to produce full and true particulars at the time of the original assessment. In the circumstances, this Court held that the Wealth Tax Officer had no jurisdiction to make reassessment under Section 17(1)(a) of the Act.  As far as the claim based on Section 17(1)(b) of the Act is concerned, this Court further pointed out that the case would not fall under the above-said sub-section, since the proceedings under Section 17(1)(b) had become time barred at the time of initiation of proceedings.  Hence, only on the basis of Section 17(1)(a) of the Wealth Tax Act, the question of the validity of reassessment could be determined.  This Court further pointed out that it was unnecessary to express any opinion as regards the jurisdiction of the Wealth Tax Officer to obtain the valuation report under Section 16-A of the Act.  In the light of the findings under Section 17(1)(a), this Court rejected the plea of the Revenue.

16. The reassessment proceedings were initiated in respect of the assessment year 1985-86 by issuing a notice on 16.3.1993.  When the case is to fall under Section 17(1)(b), then the proceedings should have been taken to serve the notice within four years of the end of that assessment year.  Going by the above dates, the proceedings taken under Section 17 of the Act, would not fall under 17(1)(b) of the Act. Hence, necessarily, the same has to be considered with reference to the provisions under Section 17(1)(b) of the Wealth Tax Act.  Even here, to sustain the proceedings, the twin conditions, namely, that the Officer had reason to believe that by reason of omission or failure to disclose fully and truly all material facts necessary for assessment had resulted in an escapement of tax and that there was under-assessment in the assessee’s case, must be present to justify a reopening under Section 17(1)(a) of the Wealth Tax Act. Thus, there must be a nexus between the material at the hands of the Officer and formation of belief that there was escapement of wealth from assessment on account of the failure of the assessee to disclose fully and truly, all material facts.  In the absence of any nexus or any one of the requirements, the reassessment proceedings could not be upheld as one falling under Section 17 of the Wealth Tax Act. The mere fact that the Officer rejects the valuation of the assessee based on the Valuer’s Report, obtained under Section 16A in respect of a reference made during the pendency of the assessment, by itself, would not justify the requirements under Section 17(1)(a) to reopen the assessment under Section 17(1)(a) of the Act. 

17.  Thus, when the requirements under Section 17(1)(a) are not satisfied, we have no hesitation in rejecting the case of the Revenue, thereby, affirming the view of the Tribunal. Even assuming that the case of the Revenue is to be accepted, going by the decision of this Court in the same assessee’s case in COMMISSIONER OF WEALTH-TAX Vs. SHARDLOW INDIA LTD., reported in (2006) 285 ITR 426 (Mad) as regards the valuation of the property to be adopted based on the compensation payable under the Tamil Nadu Urban Land (Regulation and Ceiling) Act, the revenue difference would be so minimal, that the case does not call for any interference on the Tribunal’s order. Hence, we have no hesitation in accepting the case of the assessee. Accordingly, the tax case appeal stands dismissed. No costs.

More Under Income Tax

Posted Under

Category : Income Tax (25021)
Type : Judiciary (9882)
Tags : high court judgments (3963) Wealth Tax (92)

Leave a Reply

Your email address will not be published. Required fields are marked *