Commissioner of Wealth Tax vs Amichand C. Shah (HUF)

For the assessment year 1974-75 commencing on 1-4-1974, the assessee, an HUF, submitted a return of wealth which included a property styled as Belah Mill Compound comprising of land, old buildings, new buildings, etc., all situated at Surat. Valuation date for the assessment year 1974-75 was 31-12-1973. The WTO on the basis of the return filed by the assessee accepted the value of the property and completed the assessment on 12-4-1978. Subsequent to said assessment, in the course of the assessment proceedings for ensuing assessment year 1975-76 the assessee filed a revised return of its net wealth on 29-8-1979 showing the increased value of the said property as on the valuation date relevant for the assessment year 1975-76. In support of the said valuation, the assessee also filed valuation report dated 15-9-1976 by an approved valuer. The valuation date for the purpose of assessment year 1975-76 was 31-12-1974. On the basis of the said revised return for the assessment year 1975-76 disclosing the valuation of the property as on 31-12-1974 and on the basis of valuation report dated 15-9-1976, the Commissioner assumed the jurisdiction u/s 25(2) of the Wealth-tax Act, 1957 (''the Act'' for brevity) and issued notice to the assessee to show cause as to why the assessment in respect of assessment year 1974-75 be not revised as in his opinion the order of assessment was erroneous and prejudicial to the interest of the revenue. The assessee contended that the valuation report as well as the revised return in respect of the assessment year 1975-76 could not be considered to be part of the record which the Commissioner could take into consideration for the purpose of invoking jurisdiction u/s 25(2). His action according to the assessee could be confined on the basis of record as was available on the date of the order sought to be revised and not on the date of passing of the order by the Commissioner. The Commissioner rejected the contention of the assessee and set aside the order passed by the WTO on 12-4-1978 and directed the WTO to reframe the assessment after referring to the Departmental Valuation Officer the properties belonging to the assessee-HUF for determination of correct valuation thereof as on 31-12-1973.

On appeal, the Tribunal set aside the order of the Commissioner by holding that the Commissioner could not look into the record which was not in existence on the date when the order sought to be revised was made. According to the Tribunal, the word ''record'' occurring in section 25, refer to record as it stood at the time when the order was made by the WTO and not as it stood at the time of examination made by the Commissioner. Another question which had arisen in the context was that in respect of assessment year 1974-75, the assessee has filed a return for the property in question on the basis of valuation report on 3-8-1972 and related to assessment year 1973-74. In terms of circular dated 28-9-1957 in respect of immovable property like the one in question the WTO was not to disturb the valuation for assessment year 1973-74 for two succeeding assessment years unless there were special overriding reasons justifying the deviation. The circular being binding on the WTO and he, having passed the order in pursuance thereof, the same could not be said to be erroneous and prejudicial to the interest of the revenue.

In view of the Tribunal''s finding on the first point, it set aside the order of the Commission passed u/s 25(2).

In the aforesaid circumstances, on an application made by the Commissioner u/s 27 of the Act, the following three questions have been referred to us for our opinion:

" 1. Whether, on the facts and circumstances of the case, the Appellate Tribunal has been right in law in setting aside the order made by the Commissioner of Wealth-tax u/s 25(2) of the Wealth-tax Act, 1957?

Whether, on the facts and in the circumstances of the case, ''record occurring in section 25(2) of the Wealth-tax Act, 1957'' means only the record as it stood at the time of examination of the case by the Commissioner or it meant the record as it stood at the time the order was made by the Wealth-tax Officer?.

Whether, on the facts and in the circumstances of the case, the decision of the Appellate Tribunal in setting aside the order of the Commissioner u/s 25(2) of the Wealth-tax Act, 1957 is based on correct principles of law?"

We have heard the learned counsel for the parties. In our opinion though three separate questions have been referred, in fact, all the three questions reflect the same controversy. In this connection, it would be appropriate to refer to the provisions of sub-section (2) of section 25:

"(2) Without prejudice to the provisions contained in sub-section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by an Assessing Officer is erroneous insofar as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment.

Explanation. -For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

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( b )''record'' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;"

The contention of the learned counsel for the revenue is that ''the record u/s 25 of the Act'' means that entire record of the assessee related to the assessment under the Act as is available when the Commissioner is examining the record; and the reach of the Commissioner cannot be confined to the record as it existed on the date of passing of the order. He buttresses his argument with reference to the Explanation inserted by the Finance Act with retrospective effect from 1-6-1988 stating that for the removal of doubt it is hereby declared that for the purposes of sub-section (2) of section 25, the record (shall include and shall be deemed always to have been included) all the records relating to the proceedings under this Act available at the time of examination by the Commissioner.

The learned counsel for the assessee on the other hand, contends that explanation having been given limited retrospectivity when inserted by the Finance Act, 1989 cannot be read into the provision for any assessment prior to 1-6-1988. Without reading Explanation ''record'' on the basis of which the proceedings can be initiated, under sub-section (2) of section 25 must, on the plain reading of the section be confined to the record as it existed on the date of the order sought to be revised.

Having carefully considered the rival contentions we are of the opinion that the contentions raised by the revenue cannot be sustained.

A reading of sub-section (2) of section 25 makes it abundantly clear that what is the bedrock of the jurisdiction is not the examination of ''records'' simpliciter or the examination of the record of the assessee; the requirement is to examine "the record of any proceedings" under this Act in relation to any order passed therein. Therefore, the first limitation envisaged under sub-section (2) of section 25 is that the Commissioner cannot travel beyond the record of the proceedings in which the order has been made. For exercising the jurisdiction under sub-section (2) of section 25 for revising assessment of a particular assessment year, the excursion of the Commissioner must confine to the record of the year concerned for which the assessment has been framed which is sought to be revised. Any material which does not concern the assessment of that year cannot, in our opinion, be considered as part of record of that proceeding in which the order has been made. It need hardly be elaborated that each assessment year is a unit by itself and the proceedings of one assessment year do not dovetail into the proceedings of another year. On the undisputed facts, the Commissioner was seeking to revise the assessment order for assessment year 1974-75. The material on the basis of which the Commissioner assumed jurisdiction was the revised return for assessment year 1975-76 coupled with the valuation report by the approved valuer as on the valuation date related to assessment year 1975-76, that is to say, 31-12-1974. Both the materials were not part of the record of the proceedings for assessment year 1974-75 the order pa33cd wherein was sought to be revised. It was, therefore, not competent for the Commissioner to travel beyond the record related to assessment year 1974-75 and on that basis form an opinion about the assessment order related to assessment year 1974-75 being erroneous and it being prejudicial to the interests of the revenue. In our opinion, therefore, it was not part of the record of the proceedings which could have been examined by the Commissioner irrespective of the fact that whether it existed on the date of order which was sought to be revised or came on record subsequent to the date of passing of order under sub-section (2) of section 25.

Viewed from another angle it is to be borne in mind that the erroneous nature of the order can be in two respects. It may be erroneous with regard to its conclusion about the question of facts. It may be erroneous about the application of law to the conclusion of facts. Obviously, the question of applicability of law cannot be a matter of record. It is a matter of interpreting the law which existed at the relevant time and is applicable to the facts of the case. However, the questions of fact are dependent on the material on record and when we say the material on record, it necessarily means the material relevant for the purpose of passing the order which is sought to be revised. Where the Commissioner is satisfied about the erroneous nature of the order vis-�-vis the conclusion of the WTO about interpretation of law or applicability of law, the inquiry to which the Commissioner directs himself is whether on the facts found in the proceedings in question by the WTO, law has correctly been applied. In that event the consideration is what is the correct law, which depend not on the conclusions reached by the WTO, but the law as interpreted by the Court which has binding force on the authorities. In order to reach conclusion the Commissioner is entitled to look into the latest position of the pronouncements of the various Courts and form his opinion whether law as was existing and applicable for the relevant period has correctly been applied to conclusions found on record of proceedings or not. This is so because the Courts declare the law as it exists and they do not legislate. However, when it comes to the question whether the WTO had correctly reached the conclusion of facts the inquiry by the Commissioner would be to find out as to whether on the material available on record of proceedings the conclusion reached by the Assessing Officer could be sustained or not. The satisfaction may also be as to whether the assessing authority has held relevant inquiry to find correct facts necessary for making the proper levy. It is only on reaching the conclusion that order by Assessing Officer is erroneous the next question arises as to whether the error committed by the Assessing Officer is prejudicial to the interests of the revenue. The primary condition of reaching the conclusion about erroneous nature of the order qua the conclusions reached or inadequacy of inquiry undoubtedly would be that the inquiry must be confined to the material which is relevant. From this angle also the valuation report and the declaration of the valuation by the assessee for the subsequent year was not a relevant material for examining the correctness of the conclusions of the WTO about the valuation of the assets in question.

Where the assessee in his return for a particular assessment year disclosed the property as his asset and offered its estimated value for wealth-tax and the Assessing Officer has, after examination of the return, assessed the property at a valuation by accepting the valuation offered by the assessee or modifying it, the enhanced value of the property as declared by the assessee for subsequent assessment year, neither forms part of the record of the earlier assessment year nor is relevant for the purpose of examining the correctness of the finding recorded by the Assessing Officer for the earlier year, because the valuation for the subsequent year has no bearing on the assessment of the earlier year.

In Shekhawati General Traders Ltd. etc. Vs. Income Tax Officer, Company Circle-1, Jaipur, , the Supreme Court held while dealing with the provisions of reassessment that the information which has no bearing on the assessment of a particular year can possibly furnish no reason to the Assessing Officer to form the belief that net wealth chargeable to tax escaped assessment for the year in question.

The scope of reassessment is much wider than revision u/s 263 of the income tax Act, 1961. The language of the section itself is clear. It speaks about the record of any proceedings. ''The order passed therein'' means order passed in proceedings which the Commissioner can call for perusal to find whether the order is erroneous and prejudicial to the interests of the revenue. The phrase ''the order passed therein'' relates to the record of the proceedings which the Commissioner may call for and examine. As the assessment proceedings before the WTO for any assessment year culminates on passing of the assessment order there cannot be any other material subsequent thereto form part of the record of that assessment proceedings to be examined by the Commissioner inasmuch as any material in those proceedings can only come on record if such proceedings are revised. That may be when the assessment is reopened under any provisions of the law or the order of the WTO is set aside and the proceedings are brought back to life for passing consequential orders. But in no case anything which has not come on record during the period when the order has been passed before the proceedings have been concluded cannot form part of the record which could be examined by the Commissioner.

In this connection learned counsel relied on the decisions rendered by the Kerala High Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, and of Madras High Court in Commissioner of Income Tax Vs. Lakshmi Narayanan, .

Having carefully gone through the reports we are of the opinion that in both the cases the question which we are called upon to decide was not before the Courts. In both the above cases, the Courts were concerned whether the Commissioner could revise the order of the assessing authority by holding it to be erroneous in law on the basis of subsequent decision of the High Court or the Supreme Court. As we have already discussed the question whether there is an error in application of legal principles or the law has been erroneously interpreted by the Assessing Officer, it is not the question answer to which is to be found on record. But in such cases examination of record is required for the purpose of determining whether to the facts found on record law has been correctly applied. In considering this aspect the decision of Court, whether rendered before or after the affected order can always be considered. This is so because while interpreting the law the Courts only declare the law and that state of law is deemed to exist at all times including the period for which order appealed has been passed. In that sense existing law always remain part of consideration on which appealed order has come on record. Therefore, in such cases the question of looking something extraneous to record never arise.

Another contention that the learned counsel raised that the Explanation defining ''record'' which was inserted by amendment with effect from 1-6-1988 was only declaratory in character and must be deemed to apply to the assessment year in question as well, inasmuch as the relevant part of the Explanation reads:

" Explanation. -For the removal of doubts it is hereby declared that, for the purposes of this sub-section,-

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( b )''record'' (shall include and shall be deemed always to have included) all records relating to any proceeding under this Act available at the time of examination by the Commissioner."

As we have come to the conclusion that revised return for 1975-76 filed on 12-7-1979 and the valuation report for the property, the questions estimating its value as on 31-12-1974 were not at all part of record of proceedings for assessment year 1974-75 wherein assessment order sought to be revised had been passed by the WTO. Further question of applicability of Explanation giving extended meaning to word ''record'' to include the record existing on the date of passing of order by the Commissioner, does not remain relevant. As a result of the aforesaid discussion, we answer the question referred to us in affirmative, that is to say, in favour of the assessee and against the revenue. There shall be no order as to costs.