Income Tax Appellate Tribunal - Hyderabad
Assistant Commissioner Of Wealth-Tax vs Smt. M. Annapurna on 25 January, 1990
Equivalent citations: [1990]34ITD144(HYD)
ORDER
G. Santhanam, Accountant Member
1. These appeals, three by the revenue and the others by different assesses, involve one issue namely the re-assessments made against the assessee in respect of valuation of unquoted equity shares held by them in S.R.M.T. Ltd., a deemed public limited company. For the sake of convenience, all these appeals are disposed of in this consolidated order.
2. The assessee in their returns mentioned the number of shares held by them, their face value and the value at which the shares are admitted and also the name of the company to which they pertained, for the assessment years 1980-81 and 1981-82. The bone of contention in respect of these years is whether the balance-sheet of the company was also filed. For the assessment years 1982-83 and 1983-84, in addition to similar information, the balance-sheet was also filed. The value admitted by the assesses in respect of the unquoted equity shares as against the face value of Rs. 50 per share, and the value as originally assessed are as follows:-
Value admitted by Value determined in
Asst. year the assessees original assets
-------------- ----------------
per share Rs. per share Rs.
1980-81 90.62 90.62
1981-82 105.61 105.61
1982-83 126.75 134.28
1983-84 142.84 150.54
From the assessment orders, it is seen that the audit party raised an objection that the gross liability towards taxes was allowed in computing the value of the shares held by the assessees in M/s S.R.M.T. Ltd., under rule 1D of the Wealth-tax Rules and in this connection the audit party had brought to the notice of the Wealth-tax Officer the decision of the Honourable Supreme Court in CWT v. Sardar Ajaib Singh [1971J82ITR842. On the basis of the audit objection, proceedings under Section 35 of the wealth-tax were initiated which came in appeal before the Tribunal and the Tribunal set aside the orders of rectification on the ground that the issue was not free from doubt but was a debatable one and hence recourse to Section 35 could not be had.
3. Subsequent to these developments, the Wealth-tax Officer proposed to initiate action under Section 17(1)(a) of the Wealth-tax Act on the ground that there was nondisclosure of primary facts material for the computation of the wealth. The assesses' objections that they had disclosed all the material facts, that rule 1D is not mandatory but only directory and that in the case of a going concern, the proper method would be the yield basis instead of the break-up value method as provided for in rule ID, were rejected by the Wealth-tax Officer. He held that the assessees had only declared the number of shares held by them on the valuation dates and the value thereof and as a result there was no true and full disclosure of the primary facts which are material for the computation of the value of the shares and thus justified the proceedings under Section 17(1)(a) of the Wealth-tax Act. Alternatively, he contended that re-assessment under Section 17(1)(b)would also be valid because there was a decision of the Supreme Court about the valuation of unquoted equity shares which constituted information in his possession. Thus, he made the reassessment by revising the value of the shares by the amount of advance tax paid by the company.
4. The assesses carried the matter in appeal. In the case of Smt. M. Annapoorna, for the assessment years 1980-81, 1981-82 and 1983-84, the Deputy Commissioner of Income-tax (Appeals) held' that the assessee had disclosed all primary facts necessary for the computation of the net wealth and hence action under Section 17(1)(a)was uncalled for and in this view of the matter, he did not go into the question of valuation of the shares - whether it should be under rule 1D or on the basis of yield. In all other cases, the Commissioner of Income-tax (Appeals) held that there was no true and full disclosure of primary facts and hence re-assessment under Section 17(1 )(a) was justified. As for the mode of valuation, he drew support from the decision of the Honourable Andhra Pradesh High Court in CIT v. M. Lakshmaiah [1988] 38 Taxman 220. In this view of the matter, he dismissed the appeals of the assesses. The assesses are on appeal against the orders of the Commissioner of Income-tax (Appeals) and the department is on appeal against the orders of the Deputy Commissioner of Income-tax (Appeals) holding that re-assessment under Section 17(1)(a) was uncalled for.
5. Sri Ashok Aneja, learned Senior Departmental Representative, submitted that the learned Deputy Commissioner (Appeals) erred in holding that there was full and true disclosure of all the facts material for the computation of the valuation of shares. The assesses only stated the number of shares held, their face value and the value admitted. This would not be enough. The balance-sheets for the relevant years ought to have been enclosed along with the returns, bat the same do not appear to have been enclosed with the returns. Thus, there was no-disclosure of primary facts. Hence, re-assessment under Section 17(1)(a) was justified. Even assuming that Section 17(1)(a) is not applicable, he submitted, action under Section 17(1)(b) was warranted and it was within the time. The Supreme Court in Sardar Ajaib Singh's case (supra), has held that the liability to tax had to be reduced by the amount of advance tax, which was not done in computing the value of the shares and thus there was information in the possession of the Wealth-tax Officer. There was also other decisions of High Courts, viz., CWT v. Arvindbhai Chinubhai [1982] 133 ITR 800 (Guj.); T.V. Srinivasan v. CWT [1985] 152 ITR 599/22 Taxman 545 (Mad.); CWT v. N. Krishnan [1986] 162 ITR 309/24 Taxman 269 (Kar.) and Ashok Kumar Oswal (Minor) v. CWT[ 1984] 148 ITR 620/18 Taxman 214 (Punj. & Har.) holding the view that the advance tax should be deducted from the gross tax liabilities. Therefore, the Wealth-tax Officer was justified in taking action even under Section 16(1)(b) of the Wealth-tax Act which was within the time limit prescribed under the law. The view taken by the Wealth-tax Officer that the advance tax has to be deducted from the gross liabilities as shown in the balance sheet is also supported by the decision of the Honourable Andhra Pradesh High Court in M. Lakshmaiah's case (supra). As for the plea of the assessee that the shares should be valued on yield basis, he submitted that as the assesses themselves have valued the shares on break-up basis, such a plea should not be countenanced in re-assessment proceedings. The decision of the Andhra Pradesh High Court in Dr. D. Renuka v. CWT [1989] 175 ITR 615, does not cater the picture as the assesses themselves had adopted a particular mode of valuation, viz., under rule ID. The re-assessments have taken place after the completion of the assessments and on the basis of the information about the state of law and, therefore, he argued that even under Section 17(1)(b) the re-assessments could be held to be valid. On merits, he submitted that inasmuch as the assesses have adopted a particular mode of valuation and that mode having become final in the original assessments, it is not for them to agitate for a different mode of valuation in the reassessment proceedings. He relied on the following decisions:-
CWT v. Ballarpur Industries Ltd. [1979] 118 ITR 711 (Bom.), and CWT v. Ravindran [1977] 107 ITR 547 (Ker.).
He further submitted that his submissions in relation to the departmental appeals will be equally valid for the appeals filed by the assesses and he also relied on the orders of the Commissioner of Income-tax (Appeals) in holding that the reassessment proceedings were valid in the facts and circumstances of the cases. He further relied on the decision of the Honourable Andhra Pradesh High Court in State Bank of Hyderabad v. CIT [1988] 171 ITR 232.
6. Sri V.V. Sundaram, learned Chartered Accountant for the assesses, submitted that there was no default on the part of the assesses in placing all the relevant materials necessary for the computation of the value of the shares. He submitted that while the Wealth-tax Officer accepted the value as admitted by the assesses for the assessment years 1980-81 and 1981-82, he adopted a different value for the subsequent two years and that would not be possible unless the balance-sheets necessary for the valuation of the shares were available before him at the time of original assessments. There is a history behind these cases. They were subject to audit objections and the main plank of audit objection was that the advance tax was not deducted from tax liabilities and such a conclusion would not be possible unless the balance-sheets of the company were available on record. Moreover, the Wealth-tax Officer who was assessing the shareholders was also the assessing officer of the company in which the shares are held. So, it cannot be said that the Wealth-tax Officer did not apply his mind to the mode of computation of the value of the shares under rule 1D. The proceedings taken under Section 35 were all quashed by the Tribunal. The same issue is agitated by the revenue by resorting to the provisions of Section 17. He also submitted that in the re-assessments, the assesses are at liberty to agitate the determination of the value of the shares on the correct principles as laid down by the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621, and the Andhra Pradesh High Court in its recent decision in Dr. D. Renuka's case (supra). Until the decision of the Andhra Pradesh High Court in M. Lakshmaiah's case (supra), it was the Tribunal's decision that was holding the field and that was in favour of the assessee and, therefore, there was no scope for reassessment either under Section 17(1)(a) or under Section 17(1)(b) or even on merits.
7. We have heard the rival submissions and perused the records. The Wealth-tax Officer in his orders has stated that the assesses had disclosed only the number of shares, their face value and the value of the shares as admitted by them. From the statements accompanying the returns, we find that the assesses have also mentioned the name of the company in which the shares have been held. It is also seen that the same officer is in charge of the assessment of the company in which the shares are held. From the value as admitted by the assesses in their returns and the value as assessed in the original assessments, we find that the Wealth-tax Officer had disturbed the value returned by the assesses and had adopted different values for the assessment years 1982-83 and 1983-84 as per the details given in para 2 above. This would not have been possible unless the relevant balance-sheets were available before the Wealth-tax Officer for those assessment years. Therefore, we hold that for the assessment years 1982-83 and 1983-84, the relevant balance-sheets were also available with the Wealth-tax Officer and thus all the materials relevant to the computation of the value of the shares, viz., the number of shares, the face value, the name of the company in which the shares were held and also the concerned balance-sheets, had been placed by the assessee for the assessment years 1982-83 and 1983-84 and thus there was no question of non-disclosure of primary facts. Hence, the re-assessments under Section 17(1)(a) are not valid.
8. For the assessment years 1980-81 and 1981-82, it is not very clear whether the balance-sheets were also enclosed along with the returns. But, keeping in view the fact that the same assessing officer was in charge of the assessment of the company in which the shares are held, and also the fact that the audit party was able to raise an objection on the non-deductibility of advance tax from the gross tax liabi ities as a result of which proceedings under Section 35 were initiated though without success, it could be inferred that the material balance-sheets necessary for the computation of the value of the shares on break-up value basis was available in the records. This is only an inference based on the developments. It is also seen that in the case of the assesses, as for example, Sri K.V.R. Chowdary (Indl.) and Sri K.V.R. Chowdary (HUF), the assessments for all the assessment years were completed only in February 1984 almost at the same time. In the case of Smr. M. Annapoorna, the assessments were completed in February 1984 for the assessment years 1981-82 to 1983-84. Therefore, it could be safely inferred that the balance-sheets, so necessary for the valuation of the shares for all these years, were available to the Wealth-tax Officer. Pursuant to the proceedings under Section 35 of the Wealth-tax Act initiated in the case of the assesses, they had also indicated the method of valuation by their letter dated 14-2-1985 and the proceedings under Section 35 have been held to be only an extention of the original assessment proceedings. Section 35 speaks of mistake apparent from records and unless a mistake is there very apparent from the records, such proceedings cannot be initiated. The very fact that the proceedings had been initiated would show that all the facts relevant for the computation of the value of the shares must have been available with the Wealth-tax Officer but for which he could not have resorted to proceedings under Section 35. It is a different story that the proceedings were quashed by the Tribunal on the ground that the issues involved were debatable questions of law. So, we conclude that there was no failure on the part of the assesses to disclose primary facts material for the computation of the value of the shares held in M/s. S.R.M.T. Ltd. and, therefore, the proceedings under Section 17(1)(a) are declared to be invalid for 1980-81 and 1981-82 also.
9. As for the validity of the proceedings under Section 17(1)(b) of the Wealth-tax Act, we find that the decision of the Honourable Andhra Pradesh High Court in the case of M. Lakshmaiah (supra) was rendered on 10th March, 1988; till then the Tribunal's decision in the case of other shareholders of the company and also in similar cases regarding the valuation of unquoted equity shares, which was in support of the computation of the value of the shares as admitted by the assesses, was holding the field. The reassessment proceedings were initiated on 10-3-1987 whereas the decision of the Andhra Pradesh High Court was rendered only on 10-3-1988. Therefore, the clutching of jurisdiction as on 10-3-1987 was not available to the Wealth-tax Officer when he issued notices on 10-3-1987.
10. This apart, on merits, we hold that there is no information warranting reopenment under Section 17(1)(b) of the Wealth-tax Act. Before us, there are two decisions of the jurisdictional High Court one holding that in the case of computation of value of shares as per rule ID, it is only the net tax liability that should be deducted/from the assets as stated in the balance sheet M. Lakshmaiah's case (supra) and another holding that in the case of the unquoted equity shares of a company which is a going concern, it is only the yield basis which is the proper method and rule ID is only directory but not mandatory [Dr. D. Renuka's case (supra)]. Dr. D. Renuka's case (supra) is a later decision and it can be said that their Lordships of the Andhra Pradesh High Court were aware of their own decision in the case of M. Lakshmaiah (supra) when they delivered the judgment in the case of Dr. D. Renuka (supra). The decision of the Honourable High Court in the case of Dr. D. Renuka (supra) is in consonance with the decision of the Honourable Supreme Court in the case of CGT v. Smt. Kusumben D. Mahadevia [1980] 122ITR 38 and Mahadeo Jalan (supra) which were pressed into service by the assesses in the re-assessment proceedings but were rejected by the Wealth-tax Officer in his orders of re-assessment. In view of the later decision of the Andhra Pradesh High Court, we hold that there was no escapement of wealth arising from information in the possession of the Wealth-tax Officer.
11. Sri Ashok Aneja vehemently contended that the question whether the shares should be valued on yield basis cannot be agitated in the reassessment proceedings and in this connection he relied on certain High Court decisions including the decision of the Andhra Pradesh High Court cited in para 5. We are not persuaded by his argument. In State Bank of Hyderabad's case (supra), the scope of reassessment was considered in depth by their Lordships of the Andhra Pradesh High Court. They held as follows as per head notes :-
Once an assessment is reopened under Section 148 of the Income-tax Act, 1961, the entire assessment proceedings are at large. It is open to the tax authorities to reconsider in such reassessment all items of escapement of income without limitation; at the same time it is open to the assessee to put forward a claim for deduction of any expenditure which was inadvertently omitted in the original assessment proceedings. Likewise, the assesses can also put forward claim for non-taxability of items of receipt which were not put forward in the original assessment.
... Even if the assessee's fresh claims during the course of reassessment enquiry are accepted, still the allowance of the claims should be limited to the extent to which they reduce the income to that originally assessed under Section 143(3).
If a claim for deduction or a claim for non-taxability of a receipt was put forward in the original assessment proceedings and was considered and rejected by the tax authorities and that finding had become final, it is not open to an assessee to put forward those claims once again during the course of reassessment proceedings.
Thus, their Lordships have admirably set out the scope of re-assessment and its limitations. In the case of the assesses before us, there was never a claim in the original assessments for valuation of shares on yield basis and, therefore, there was no occasion for the Wealth-tax Officer to entertain that claim or to reject that claim. The claim for valuation of shares on yield basis was put forward for the first time in the assessment proceedings under Section 17. Therefore, the claim is not hit by the decision of the jurisdictional High Court. Hence, there is no substance in the contention of the revenue that the assesses are precluded from staking their claim on a different mode of valuation of shares raised for the first time in the reassessment proceedings. However, as we have held that the re-assessments are not valid under Section 17(1 )(a) or (b), we do not propose to issue any directions.
12. In the result, the assessees' appeals are allowed and the departmental appeals are dismissed.