Rajasthan High Court - Jaipur
Commissioner Of Wealth Tax, Udaipur vs Sewalal Gafarlal Banswara on 22 May, 2001
Equivalent citations: 2001(3)WLC692, 2002(1)WLN27
Author: H.R. Panwar
Bench: H.R. Panwar
JUDGMENT Balia, J.
1. At the Instance of Commissioner of Wealth Tax, these three appeals filed against the common order passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur dt. 19th June, 2001 holding that the initiation of proceedings under Section 17 of the Wealth Tax Act after the expiry of four years from the end of relevant assessment years in question namely 1981-82, 1982-83 and 1983-84 were barred by time and also that the proceedings were bad because notices have not been issued to all the members of the erstwhile HUF which has since been partitioned. As all the appeals raise common issue on same set of facts, we have heard the same together and propose to decide by this common order.
2. For the convenience we notice the facts realising to assessment year 1982-83. The facts of the case are that HUF viz. M/s. Sewalal Gafarlal was disrupted by a total partition on 16.11.82 and order under Section 20 of me Wealth Tax Act, to that effect was recorded on 3rd October, 1986. The properties were distributed in the hands of the members of the erstwhile HUF. Out of seven members Shri Bhupatilal is being assessed to wealth tax at Kota. Smt. Durga Devi expired after 16.11.82 and she transferred her interest to her daughter through a Will. The other five co-parceners are being assessed to Wealth Tax at Banswara from 1984-85 in the status of their respective HUFs. Assessment of Wealth Tax for the assessment year 1982-83 of the then existing HUF was completed on 7.2.86, by valuing the net wealth of HUF as on valuation date relevant to assessment year 1982-83 at Rs. 14,92,000/- as against net wealth of Rs. 4,75,495/- returned by the HUF.
3. In the case of assessment of (i) Shri Indra Kumar Sewalal, (ii) Durlabhlal Sewalal, (iii) Shri Govind Lal Sewalal, (iv) Shri Bharatilal Sewalal and (v) Shri Surendra Kumar Gewalal during the assessment proceedings for 1989-90, long after partition of M/s. Sewalal Gordhanlal (the erstwhile bigger HUF) had been recorded and its assessment for the assessment year 1982-83, the last year of its existence under the Wealth Tax, reference for valuing the properties in the hands of the aforesaid five assessees were made under Section 16A to Departmental Valuation Officer. By a strange reasoning that had the properties not partitioned and remained with bigger HUF, its combined valuation as on the valuation date relevant to assessment year 1989-90 would have been three times the value declared by the new assessees for assessment year 1989-90. Assessment of M/s. Sewalal Govindlal for assessment year 1982-83 was sought to be reopened under Section 17 of the Health Tax Act, 1957 which notices were issued on 9.9.92 under Section 16(2) of the Act. Ultimately reassessment was made by valuing the property on the basis of valuation report obtained for the assessment year 1989-90, in the cases of properties held by the erstwhile members of the family in their hands respectively. The Commissioner Wealth Tax (Appeals) by a common order for the assessment years 1982-83 and 1983-84 in the name of HUF Sewalal Gafarlal, through Karta Shri Govindlal Yagnik allowed the same and set aside the assessment orders by holding that notices issued to one member of disrupted HUF only which now no more exists, by describing him as Karla without notice to other members of the family was nullity and assessment was liable to be quashed.
4. On further appeal before the Tribunal, the Tribunal noticed that notices in respect of initiation of proceedings under Section 17 were beyond the expiry of period of four years provided under Section 17(1)(b) and barred by time.
5. According to the Tribunal in the aforesaid cases, the Assessing Officer, initiated proceedings under Section 17 of the basis of valuation report obtained for the assessment year 1989- 90, treating it to be an information furnishing basis for holding reasons to believe regarding escapement of assessment due to under-assessment or assessment at too law a rate, obviously the cases fall within Section 17(1)(b). In that view of. The matter the initiation of proceedings under Section 17 were found to be time barred in all the above three assessment years under appeal.
6. It is in the aforesaid circumstances, the revenue has filed these three appeals suggesting following substantial questions of law said to be arising for consideration in these appeals:
"(i) Whether on the facts and in the circumstances of the case the ITAT was justified in law in holding that initiation of proceedings under Section 17 of the W.T. Act was barred by Limitation, which finding was arrived at by ignoring the amended provisions of law.
(ii) Whether on the facts and in the circumstances of the case the ITAT was justified in law in holding that after the partition of HUF, notices need to be served on all the erstwhile members of the HUF, when service of notice upon Karta of the erstwhile HUF was sufficient compliance to the requirements of law."
7. It has been contended by the learned counsel for the appellant that the Tribunal has seriously erred in considering the unamended provisions of Section 17 enabling the Assessing Officer to reopen the completed assessment in the circumstances mentioned therein and there has been considerable change in the scheme of powers enabling the Wealth Tax Officer 10 reopen the complete assessment under the amended provisions which were brought into effect by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.89, the provisions which existed at the time when notices were issued reads as under:
Section 17(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 for any assessment year (whether by reason of under assessment or assessment at too law a rate or otherwise), he may, subject to the other provisions of this section and section 17A, serve on such person a notice requiring him to furnish within such period, 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 aiso 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 (hereinafter 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 secfion 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 years.
Provided further that the Assessing Officer shall, before issuing any notice under this sub-section, record his reason for doing so.
8. For the purpose of clarity we may also reproduce here Section 17(1) as it existed prior to substituted of aforesaid provision:
17. Wealth escaping assessment.- (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 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 lime 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 re-assess 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.
9. The perusal of the aforesaid provision makes it abundantly clear that in the time frame prescribes for initiating the proceedings for re-assessment, where 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, two district categories of case are envisaged and treated differently on that basis. Where there is no 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 Section 17 or to disclose fully and truly all material facts necessary for his assessment for that assessment years on the one hand. On the other hand the cases where the escapement of assessment has not taken place for any failure on the part of the assessee for reasons those mentioned in proviso to Sub-section (1) of Section 17. Sub-section 1A lays down different period of limitation within which re-assessment proceedings can be initiated depending on the quantum of tax chargeable on the net wealth chargeable to tax which has escaped assessment or is likely to have escaped assessment. However, in a case falling under proviso an embargo has been placed against resorting to Section 17 after expiry of four years from the end of relevant assessment year.
10. In other words where there is no failure on the part of the assessee as envisaged under proviso to Section 17(1), the limitation for initiating proceedings under Section 17 is 4 years only from the end of relevant previous year. A comparative-reading of Section 17(1) as now exist and as it existed before, reveals that in so far as case falling under Clause (b) of Section 17(1) and proviso to new Section 17(1) is concerned there is no substantial difference. Under the previous provision cases where escapement of assessment was believed to be as a result of any failure on the part of the assessee in filing returns, or responding to notice or in disclosing truly and correctly all material facts necessary for assessment fell under Clause (a) and for initiating proceedings Under Section 17 was larger than case falling under Clause (b), which governed cases other than those where escapement was believed, to be for failures on the part of the assessee. Like in the amended Section 17 proviso to Section 17(1), period for initiating proceedings Under Section 17(1)(b) was also 4 years from the end of relevant assessment year. Thus, inspite of the fact that the Tribunal has wrongly mentioned Section 17(1)(b) in its orders, it remains a case of mere wrong mention of provision without making any difference in conclusion.
11. Another important provision safeguarding against arbitrary exercise of powers Under Section 17 is that the Assessing Officer shall, before issuing any notice under that sub-section, records his reasons for doing so. Before he takes action Under Section 17, he is required to record his reasons which have some nexus for holding opinion about the escapement of assessment for any assessment year.
12. It is true that adequacy of the material on the basis of which such belief can be held by the Assessing Officer is not within the domain of judicial review so long there exists some rational nexus between the existing material to the belief required to be held by the Assessing Officer.
13. However, the principal is well settled that requirement of law for holding belief may be howsoever subjective, such satisfaction must be held on the basis of existing material having some nexus with the belief held by the Assessing Officer. Reference in this connection may be made to Barium Chemicals Ltd. v. Company Law Board (1).
"Since the existence of circumstances is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie, it is not sufficient to assert that the circumstances exist and give no clue to what they are because the circumstances must be such as to lead to conclusions of certain definiteness."
14. Belief as to escapement of wealth from assessment is a condition precedent for invoking Section 17. That such failure is because of such failure on the part of the assessee as envisaged under proviso is another condition to be satisfied to avail benefit of larger period of limitation prescribed under Sub-section 1-A and exclude the applicability of proviso to invoke jurisdiction validly, after 4 years from the end of relevant previous year. No doubt the formation of belief is subjective but the existence of circumstance relevant to formation of such belief, about escapement having taken place because of failure on the part of the assessee to disclose truely and fully all material facts is sine qua non for initiating proceedings beyond 4 years from the end of relevant assessment year. Such reasons are also required to be recorded in writing which led to formation of such belief. To wit in the words of Hidayatuilah, J. no doubt formation of opinion about escapement of wealth from assessment is subjective, but existence of circumstances relevant to inference as the sine qua non for action must be demonstrable. If the action is questioned on that ground that no circumstance leading to an inference of kind contemplated exists, the action might be exposed to inference, unless the existence of circumstances is made out.
15. Since Under Section 17 the reason for holding belief has to be recorded in writing, such existence of circumstance must demonstrably appear from reasons so recorded.
16. From the facts narrated above, it is apparent that the Assessing Officer who had held believed that the net wealth chargeable to tax in respect of respondent-assessee has escaped assessment for the assessment years in question is not founded on the fact that the net wealth chargeable to tax has escaped assessment for such assessment year by reason of any 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 years. It is solely on the basis of material which has come into existence in 1991, only after the original assessments were completed in 1986 or prior thereto. The Assessing Officer has drawn inference that net wealth has escaped assessment only because of valuation report by Departmental Valuation Officer for the assessment year 1989-90, submitted in 1991. A report which did not exist when the return was filed and assessed, obviously could not be a material fact which could have been disclosed by the assessee. The present case in any view cannot travel beyond proviso to Section 17(1).
17. In fact it was for the Assessing Officer to have referred the matter of valuing any property to D.V.O. if he wished to verify the correctness of estimated market value disclosed by the assessee. There is no suggestion in the reasons that particulars of any asset had not been disclosed or were not truly disclosed.
18. That apart that valuation report for 1989-90 of any property in the hands of different assessees is wholly irrelevant for the purpose of entertaining any belief as to what the value of the undivided property in the hands of erstwhile HUF could have been on the valuation date relevant to assessment years 1981-82, 1982-83 or 1983-84. Valuation report of properties in the hands of erstwhile co-parcener after almost seven years can have no relevant nexus to hold any belief even about estimate of value of such properly on the relevant valuation dates for the assessment years 1981-82, 82-83 or 83-84. Thus, the belief about net wealth escaping assessment is not founded on existing material.
19. Thus, it was firstly a case falling within proviso to Section 17(1) where under no proceedings Under Section 17 could have been initiated after the expiry of four years from the end of relevant assessment year that is to say 31.3.86, 31.3.87 and 31.3.88 respectively in the case of assessment years 1981-82,82-83 and 83-84. Apart from the notices being barred by time the reason recorded by the Assessing Officer reveals that condition precedent in the case of holding belief about escapement did not exist. The belief said to have been held as per reasons recorded was a mere pretence and not founded on any relevant existing material having nexus to belief formed.
20. Section 17(1)(b), of course was not in force when notices were issued. However, it does not make any difference as discussed above so far as period of limitation prescribed in respect of cases covered under Section 17(1)(b) as it was existing prior to amendment and a case falling in proviso to Section 17(1) as per newly substituted provision. Both operate on the same field, as will appear from comparable reading of two provisions.
21. The conclusion of the Tribunal viz. there is no satisfaction about alleged escapement of net wealth from assessment because of any failure on the part of the assessment to file return, or furnish material facts truly and correctly, as are necessary for the assessment is a finding of fact and does not give rise to a question of law.
22. As the re-assessment proceeding stands vitiated for want of necessary jurisdiction the second question becomes "of academic importance and does not require further consideration. Suffice it to say that after disruption of HUF Sewalal Gaferlal in 1983, it did not exist as such. Hence, there could not be any Karta of HUF Sewarlal Gafarlal. Therefore, service of notice on only one of the members of erstwhile HUF, alone would not be sufficient to proceed against all the members of erstwhile HUF so as to bind them and affect property held by them. In such case only question that could, prima facie, call for consideration is whether assessment be nullified by quashing the same or required to be set aside only and proceedings may be directed to complete by issuing notices to other members, which will also be subject to limitation. However, in view of our conclusion that Assessing Officer has initiated proceedings after expiry of period of four years, and the case, if at all, was governed by proviso to Section 17(1), it cannot fructify in any valid assessment order. We need not pursue this any further.
23. Accordingly, all the appeals fail and are hereby dismissed.