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

The Court

For the asst. yr. 1974-75 commencing on 1st April, 1974, the assessee, an HUF, submitted a return of wealth which included a property styled

as Helah Mill Compound comprising of land, old buildings, new buildings, etc., all situated at Surat. Valuation date for the asst. yr. 1974-75 was

31st Dec., 1973. The WTO on the basis of the return filed by the assessee accepted the value of the property and completed the assessment on

12th April, 1978. Subsequent to said assessment, in the course of the assessment proceedings for ensuing asst. yr. 1975-76 the assessee filed a

revised return of its net wealth on 29th Aug., 1979 showing the increased value of the said property as on the valuation date relevant for the asst.

yr. 1975-76. In support of the said valuation, the assessee also filed valuation report dt. 15th Sept., 1976 by an approved valuer. The valuation

date for the purpose of asst. yr. 1975-76 was 31st Dec., 1974. On the basis of the said revised return for the asst. yr. 1975-76 disclosing the

valuation of the property as on 31st Dec., 1974 and on the basis of valuation report dt. 15th Sept., 1976, the CWT assumed the jurisdiction under

s. 25(2) of the WT Act, 1957 (""the Act"" for brevity) and issued notice to the assessee to show cause as to why the assessment in respect of asst.

yr. 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 asst. yr. 1975-76 could not be considered to be part of the

record which the CWT would take into consideration for the purpose of invoking jurisdiction under s. 25(2) of the Act. His action according to the

assessee could be confined on the basis of record as well available on the date of the order sought to be revised and not on the date of passing of

the order by the CWT.

The CWT rejected the contention of the assessee and set aside the order passed by the WTO on 12th April, 1978 and directed the WTO to

reframe the assessment after referring to the Departmental Valuation Officer (DVO) the properties belonging to the assessee-HUF for

determination of correct valuation thereof as on 31st Dec., 1973. 3. On appeal, the Tribunal set aside the order of the CWT by holding that the

CWT 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 s. 25 of the Act, 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 CWT. Another question which had arisen in the context was that in respect of asst. yr. 1974-75, the

assessee has filed a return for the property in question on the basis of valuation report on 3rd Aug., 1972 and related to asst. yr. 1973-74. In

terms of circular dt. 28th Sept., 1957 in respect of immovable property like the one in question the WTO was not to disturb the valuation for asst.

yr. 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 CWT passed under s. 25(2) of the Act.

In the aforesaid circumstances, on an application made by the CWT under 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 Tribunal has been right in law in setting aside the order made by

the CWT under s. 25(2) of the WT Act, 1957 ?

Whether, on the facts and in the circumstances of the case, ""record"" occurring in s. 25(2) of the WT Act, 1957 means only the record as it

stood at the time of examination of the case by the CWT or it meant the record as it stood at the time the order was made by the WTO ?

Whether, on the facts and in the circumstances of the case, the decision of the Tribunal in setting aside the order of the CWT under s. 25(2) of

the WT 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-s. (2) of s. 25 of the Act.

Section 25(2). Without prejudice to the provisions contained in sub-s. (1), the CWT may call for and examine the record of any proceeding under

this Act, and if he considers that any order passed therein by an AO 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, -......... (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

CWT..........

The contention of the learned counsel for the Revenue is that ""the record under s. 25 of the Act"" means the entire record of the assessee related

to the assessment under the Act as is available when the CWT is examining the record; and the reach of the CWT 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

(1989) with retrospective effect from 1st June, 1988 stating that for the removal of doubts it is hereby declared that for the purposes of sub-s. (2)

of s. 25 of the Act, 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 CWT.

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 1st June, 1988. Without reading Explanation ''record'' on the

basis of which the proceedings can be initiated, under sub-s. (2) of s. 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-s. (2) of s. 25 of the Act 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-s. (2) of s. 25 of the Act is that the CWT cannot travel

beyond the record of the proceedings in which the order has been made. For exercising the jurisdiction under sub-s. (2) of s. 25 of the Act for

revising assessment of a particular assessment year, the excursion of the CWT 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 CWT was seeking to revise the assessment order for asst. yr. 1974-75. The material on the basis of which the CWT assumed jurisdiction was

the revised return for asst. yr. 1975-76 coupled with the valuation report by the approved valuer as on the valuation date related to asst. yr. 1975-

76, that is to say, 31st Dec., 1974. Both the materials were not part of the record of the proceedings for asst. yr. 1974-75, the order passed

wherein was sought to be revised. It was, therefore, not competent for the CWT to travel beyond the record related to asst. yr. 1974-75 and on

that basis form an opinion about the assessment order related to asst. yr. 1974-75 being erroneous and it being prejudicial to the interest of the

Revenue. In our opinion, therefore, it was not part of the record of the proceedings which could have been examined by the CWT 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-s. (2) of s. 25 of the Act.

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 CWT is satisfied

about the erroneous nature of the order vis-a-vis the conclusion of the WTO about interpretation of law or applicability of law, the inquiry to which

the CWT 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 CWT 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 CWT would be to find out as to whether

on the material available on record of proceedings the conclusion reached by the AO 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 AO is erroneous the next question arises as to whether the error committed by the AO is prejudicial to the interest 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 AO 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 records of

the earlier assessment year nor is relevant for the purpose of examining the correctness of the finding recorded by the AO 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. vs. ITO (1972) 82 ITR 788 , 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 AO 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 under s. 263. 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 CWT 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

CWT may call for and examine. As the assessment proceedings before the WTO for any assessment year culminates on passing of the assessment

order there can be any other material subsequent thereto form part of the record of that assessment proceedings to be examined by the CWT

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 has been concluded cannot form part of the record which could be examined by the CWT.

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 CWT 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 AO, 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 w.e.f. 1st June,

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 he hereby declared that, for the purpose of this sub-section ""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 CWT.

As we have come to the conclusion that revised return for 1975-76 filed on 12th July, 1979 and the valuation report for the property,

estimating its value as on 31st Dec., 1974 were not at all part of record of proceedings for asst. yr. 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 CWT, 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.