Karnataka High Court
Cwt vs B. Abdulla Kunhi on 7 February, 2002
Equivalent citations: [2002]124TAXMAN157(KAR)
ORDER Sreedhar Rao, J.
The respondent-assessee is a partner of a partnership firm-Rehaman Saw Mills having one-third share in the partnership. The partnership was dissolved by an agreement dated 30-9-1976. Total assets of the firm were valued at Rs. 40 lakhs. The respondent-assessee for the assessment year 1977-78 declared only one-third of the value of the estate to the extent of his share in the partnership firm. The appellate authority exercising the powers under section 35 of the Wealth Tax Act, revised the assessment orders and assessed the net value of the estate of the firm to an extent of 40 lakhs as liable for assessment.
2. It was a disputed contention whether the assessee had become full owner of the assets of the firm when dissolution took place on the last date of the valuation date, i.e., 30-9-1976. It was the contention of the assessee that he has become full owner of the assets of the partnership firm only after the expiry of the valuation date, i.e., 30-9-1976. The appellate authority in appeal held that by the deed the dissolution was effective from 30-9-1976 and the assessee had not become the full owner of the estate throughout the valuation date. Hence, found that it was a debatable point and as such, exercise of powers under section 35 of the Wealth Tax Act, 1957 (hereinafter referred to as 'the Act') is not proper.
3. The Tribunal also confirmed the order of the Commissioner (Appeals). Therefore, the Commissioner of Wealth Tax has sought this reference under section 27 of the Act.
4. In the context of facts, the following points of law would arise for consideration :
(1) Whether the assessee had become the full owner of the assets of the firm to an extent of Rs. 40,00,000 on or before 30-9-1976 ?
(2) Whether the appellate authority had jurisdiction to revise the assessment under section 35 of the Wealth Tax Act in respect the entire estate of the firm to an extent of Rs. 40,00,000 ?
5. The decision of the Allahabad High Court in Banarsi Dass v. CWT (1970) 76 ITR 104 (All) is cited at the bar which has a direct bearing on the question involved in this case. It is held thus :
The material words of section 3 are : "net wealth on the corresponding valuation date". Upon a literal interpretation of the phrase, it may be possible to say that the sum of Rs. 1,07,892 formed part of the net wealth of the assessee on the corresponding valuation date. But, in order to avoid the anomaly of double taxation, it is necessary to give a modified meaning to the expression 'on the corresponding valuation date'. A reasonable interpretation of the phrase 'on the corresponding valuation date' would be 'throughout the day corresponding to the valuation date.' Such an interpretation would avoid double taxation. The learned Advocate-General pointed out that upon this interpretation, the item would escape assessment to wealth-tax in the hands of the transferor as well as the transferee. That may be so. But, as pointed out by Deasi C.J., any ambiguity in a taxing statute must be resolved in favour of the taxpayer, and no tax liability should be attached unless the law is clear. There is no indication in the Act, that Parliament intended to permit double taxation. Under the circumstances, the expression, 'on the corresponding valuation date', appearing in section 3 of the Act, may be interpreted in the sense 'throughout the day corresponding to the valuation date'.
6. The decision of the Supreme Court in T.S. Balaram, ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) while interpreting the scope and concept of revision of assessment orders by rectification of mistake apparent on record has been explained in the context of the provisions of section 154 of the Income Tax Act, 1961 which is analogous to section 35 of the Act and it is held thus :
"...... A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably, be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though, in our opinion, the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale (1960) 1 SCR 890, this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-See Sidramappa Andanappa Manvi v. CIT (1952) 21 ITR 333 (Bom). The power of the officers mentioned in section 154 of the Income Tax Act, 1961 to correct 'any mistake apparent from the record' is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an 'error apparent on the face of the record'...."
7. In fact, the decision of the Allahabad High Court cited above has been referred to by the appellate authority and as well by the Tribunal. In the instant case, the dissolution was effective from 30-9-1976. The respondent assessee became full owner of the property under the deed of dissolution, but, whether the assessee had become the full owner of the assets of the partnership firm throughout the last day of valuation date is a debatable point. We are in full agreement with the view taken by the Allahabad High Court that in order to attract the liability, the assessee should be the full owner of the property throughout the last day of the valuation date, in other words, he should be full owner of the property in question throughout the date corresponding to the valuation date. In the present case, under the deed, the dissolution is effective by the end of 309-1976 or subsequent thereto investing with full ownership rights, therefore, it cannot be held that he was full owner of the property throughout the last day of valuation date in question, i.e., 30-9-1976. As the question being debatable point, under the pretext rectification of mistake exercise of power under section 35 was not warranted. Accordingly, we answer the questions formulated in the negative, confirming the orders of the Commissioner (Appeals) and the Tribunal.