COMMISSIONER OF WEALTH TAX vs C. SESHACHALAM CHETTY

Thangavel, J.

As per the order of this court in T.C.P. Nos. 466 to 469 of 1984 dated 19-3-1984, the following common questions of law were referred to this

Court by the Sales Tax Appellate Tribunal, Madras Bench ''A'', for our opinion u/s 27(2) of the Wealth Tax Act, 1957 (hereinafter referred to as

''the Act''):

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no material or information for the

Wealth-tax Officer for reopening the assessment u/s 17 of the Wealth Tax Act, 1957 and in cancelling the assessment as not valid in law ?

Whether, on the facts and in the circumstances of the case the Tribunal was justified in holding and had valid materials to hold that the lands

belonging to the assessee and situated at Taylors Road, Kilpauk, Madras, were only agricultural lands on the relevant dates ?

The assessments relating to the late C. Seshachalam Chetty by executor V.R. Bakthavatsalem, 97, Wallajah Road, Madras-2 for the

assessment years 1965-66 to 1968-69 were reopened to include the value of 89 grounds owned by the assessee at Taylors Road, Kilpauk,

Madras u/s 7 of the Act on the basis of the alleged information furnished by the Internal Audit Party. The abovesaid property was mentioned in the

wealth-tax returns of the assessee for the earlier assessment years as agricultural land which was acquired for the construction of staff quarters for

Telephone department on 29-12-1969. Compensation of Rs. 11,22,273 was given to the assessee. The assessee who had executed a will on 23-

8-1969, has referred the abovesaid land as vacant site in the said will and filed a petition claiming Rs. 27,000 as value per ground. Notification u/s

9 of the Madras Urban Land Tax Act was published in the Gazette dated 30-9-1964 with regard to Egmore village, in which the land in dispute

bearing S.No. 156 was described as residential area and subjected to assessment of urban land tax from 1963. Though the assessee had shown

the income from the abovesaid land at Rs. 300 or Rs. 400 per annum, treating it as agricultural land, a certificate u/s 230A of the Income Tax Act,

1961,has been filed on 14-3-1969, showing the value of the said land at Rs. 22,50,000. As there was no proof of *agricultural operation in the

abovesaid land, the same was treated as non-agricultural land and included for wealth-tax. On the basis of the compensation of Rs. 13,500

received per ground, the value of the land was fixed at Rs. 14,000 per ground for the wealth-tax assessment, including the value ''of the abovesaid

land worked out at Rs. 12,46,000 and with the net wealth of Rs. 7,65,165 originally assessed, the net taxable wealth was determined as

Rs.20,11,165 for the assessment year 1965-66, Rs. 20,04,700, for the assessment year 1966-67, Rs. 20,69,100, for the assessment year 1967-

68 and Rs. 28,38,600, for the assessment year 1968-69. Accordingly wealth-tax of Rs. 51,048, Rs. 43,588, Rs. 84,044 and Rs. 12,070 was

demanded from the assessee for the assessment years 1965-66 to 1968-69, respectively, u/s 16(3) read with section 17 of the Act.

Aggrieved by the order of the assessing officer in assessing the net wealth of the assessee at Rs. 7,94,165, Rs. 7,53,684, Rs. 8,23,125 and Rs.

15,92,566 for the assessment years 1965-66 to 1968-69, respectively, the assessee had preferred appeals to the Commissioner (Appeals) Ill,

Madras. 4. The appellate authority, after considering the rival submissions made by the assessee and the department, found that the assessment for

the abovesaid assessment years for the assessee was reopened only on the information furnished by the Internal Audit Party and not on the ground

of failure on the part of the assessee to furnish the return or on the ground of failure to disclose fully or truly the material facts relevant to the

assessment years in the returns of the wealth filed by the assessee. Therefore, the appellate authority was of the view that the reopening of the

assessment was one u/s 17(1)(b) and not u/s 17(1)(a). The appellate authority had also found that notice for reopening the assessment has to be

served within four years of the end of the particular assessment year u/s 17(1)(b), that four years would expire on 31-3-1970 in respect of the

assessment year 1965-66, on 31-3-1971 in respect of the assessment year 1966-67 and on 31-3-1972 in respect of the assessment year 1967-

68, that notice was issued by the Wealth Tax Officer to the assessee only on 16-3-1975 and served on the executor on 21-3-1975 and therefore,

initiation of proceedings u/s 17(1)(b) with regard to the abovesaid assessment years by the assessing officer was without jurisdiction. In respect of

the assessment year 1968-69, the appellate authority was of the view that the proceeding initiated by the Wealth Tax Officer was within time. The

appellate authority was of the further view that the Wealth Tax Officer has not independently applied his mind to find out as to whether the

information that the land was not agricultural land was correct on the facts of the case or otherwise and, therefore, the assessing officer had no

reason to believe, in view of the abovesaid information in his possession, that the wealth had escaped assessment. The appellate authority was of

the further view that view expressed by the Internal Audit Party that the lands are non-agricultural is the opinion of the audit party and does not

amount to the drawing of the attention of the Wealth Tax Officer to the law. Taking into consideration the settled legal position by the Apex Court

in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, the appellate authority held that the

reopening of the assessment for the abovesaid assessment years to comply with the instructions of the Internal Audit Party was invalid in law. The

appellate authority had not only considered the submissions made by the assessee up to the assessment year 1964-65, treating the demised

property as agricultural land, which was accepted by the Wealth Tax Officer, but also had taken into consideration the submissions made by the

assessee with regard to the income derived from the abovesaid property at Rs. 300 to Rs. 400 per annum, treating the same as agricultural land, to

the Income Tax authorities and the wealth tax return submitted to the Wealth Tax Officer for the assessment years 1965-66 to 1968-69, in coming

to the conclusion that the demised land is only agricultural land for which there was no need to include in the wealth-tax return during the abovesaid

assessment years. The appellate authority had also taken into consideration the report of the Special Deputy Tehsildar as well as the Special

Deputy Collector for Land Acquisition, wherein it was specifically mentioned that the demised property is a ''full field'', wherein garden cultivation

and also standing crops like paddy, vegetable plants, garden produce, coconut, palmyrah and other trees like Date, Tamarind, Murungai, Mango,

Arinelli, Kichili, Sathukudi, Papaya, etc. were raised, apart from the existence of a well with 13 feet diameter for the irrigation of the land. In view

of the reasons mentioned above, the appellate authority had come to the conclusion that the assessment made for wealth-tax u/s 17 by the

assessing officer on the basis of the Internal Audit Report, cannot be sustained and accordingly, set aside the order of the assessment.

Aggrieved by the abovesaid order of the appellate authority, the department preferred appeals before the Tribunal, Madras. The Tribunal after

considering the reasons assigned by the appellate authority for setting aside the order of assessment, held that there was no fault on the part of the

assessee in disclosing his assets during the relevant assessment years, that the assessing officer cannot rely on section 17(1)(a), that if section 17(1)

(b) is applied, the assessments for the first three years are barred by time, that the Wealth Tax Officer will have no information to reopen the

assessment for the assessment year 1968-69 as the internal audit report cannot be termed to be information within the meaning of section 17(1)(b)

in the light of Indian & Eastern Newspaper Society''s case (supra) and, accordingly, confirmed the order of the appellate authority, thereby

dismissing the appeals preferred by the department. It is only under the abovesaid circumstances that these tax case references have been made for

the opinion of this Court.

The rival submissions made by the department as well as the assessee were considered in depth in the light of the material evidence available on

record. The fact remains that late C. Seshachalam Chetty was owning 89 grounds in S.No. 156 of Egmore Village at Taylors Road, Madras, apart

from the other properties owned by him. Admittedly, the assessee was submitting wealth-tax returns upto 1963-64 on the ground that the

abovesaid 89 grounds were agricultural lands, used for agricultural purposes and the said returns were accepted by the Wealth Tax Officer.

Admittedly, the assessee has not stated anything with regard to the abovesaid land in the wealth-tax returns submitted for the subsequent years, but

had submitted Income Tax returns stating that the assessee was getting income to an extent of Rs. 300 to Rs. 400 per annum during each of the

abovesaid assessment years, commencing from 1965-66 to 1968-69. Admittedly, the abovesaid Income Tax returns were accepted by the

Income Tax Officer.

The assessee created a charitable trust with a nucleus of Rs. 2,500 by a registered deed of trust dated 29-2-1968 and the said trust was

recognised by the Commissioner of Income Tax for the purpose of sections 11 and 80G of the Income Tax Act, in the proceedings, in C.No.

212(80) 68 dated 21-2-1969. The assessee, under the abovesaid trust deed, transferred the entire 89 grounds of land in dispute in favour of the

trust in February, 1969 and informed the Collector of Revenue department, Madras on 27-2-1969 about the dedication of the abovesaid land for

charitable purposes by the assessee. The assessee had also written a letter to the Secretary to the Revenue department on 1-3-1969, requesting

exemption from stamp duty, stating the dedication of the abovesaid land for charitable purposes. A circular letter to the public about the dedication

of the abovesaid land for charitable purpose was also made in March, 1969.

Acquisition proceeding was initiated for acquiring the abovesaid 89 grounds of land by issuing Notification on 11 -5-1967 for construction of

quarters for the staff of Telephone department. Therefore, the Collector of Revenue department made an order u/s 12(2) of the Land Acquisition

Act, 1894, on 29-12-1969, granting compensation of Rs. 11,22,273 and recognised the trust as the owner of the abovesaid land. Accordingly,

the compensation amount was received by the trust on 24-12-1970 from the Revenue department. It is relevant to point out that late Seshachalam

Chetty died on 22-11-1969 after creation of the abovesaid trust. Therefore, it is evident that the charitable trust created by him became entitled to

the demised land and in fact had received the compensation amount from the revenue authorities.

A perusal of the records would disclose that the internal audit report was communicated to the Wealth Tax Officer, stating that late Seshachalam

Chetty had claimed the abovesaid 89 grounds of land as agricultural land in the wealth-tax returns submitted upto 1964-65, that there is no

mention about the abovesaid property in the wealth-tax returns submitted thereafter, that the assessee had claimed the income from the abovesaid

lands as Rs. 400, Rs. 400, Rs. 350 and Rs. 600 for the assessment years ending with 31-3-1968,31-3-1967,31-3-1966 and 31-3-1965,

respectively, with a view to avoid wealth-tax liability, that the assessee himself has described the abovesaid land as vacant site in the abovesaid

trust deed and that, therefore, the wealth-tax assessment of the assessee should be reopened for five years from 1964-65 to 1968-69 and the

abovesaid land has to be assessed to wealth-tax at appropriate value in the light of the award in the land acquisition proceedings and also in the

light of the higher claim made by the assessee before the City Civil Court, Madras.

Based on the abovesaid communication, the assessing officer ordered issue of notice u/s 17 for the assessment years 1964-65 to 1968-69 on

9-3-1973 and the said notice was served on the executor nominated in the will on 21-3-1973. After considering the reply submitted by the

assessee for the abovesaid notice on 18-5-1973, the assessing officer finalised the assessments for the abovesaid assessment years on 31-3-1979

by fixing the value of the said 89 grounds for wealth-tax assessment at Rs. 12,46,000 in each of the said assessment years.

It is evident from the perusal of the order of the appellate authority that the assessing officer had reopened the assessment only on the Internal

Audit Report and ordered issue of notice u/s 17. This will disclose that the assessment was reopened only on the basis of the information furnished

by the Internal Audit Report and not on any other information including the ground of not disclosing fully and truly all material and relevant facts

during the abovesaid assessment years or on the ground of concealment of particulars of the wealth of the assessee. It is not in dispute that an

assessee has to disclose the total value of immovable property located in India other than agricultural lands and buildings in the immediate vicinity of

such lands, used for agricultural purposes. As already stated, the assessee, who had disclosed the demised land as agricultural land up to the

assessment year 1964-65 in the wealthtax returns, had not disclosed so during the subsequent assessment years which are subject-matter of

consideration in these references. It has to be taken into consideration that the returns submitted by the assessee treating the demised land as

agricultural land up to 1964-65 have been accepted by the assessing officer. It is also relevant to point out that the assessee had submitted Income

Tax returns disclosing the income from the abovesaid land at Rs. 300 to Rs. 400 per annum during the assessment years in question and the

abovesaid returns were also accepted by the Income Tax Officer. The assessing officer, who had failed to get the abovesaid particularsfrom the

Income Tax Officer, during the abovesaid assessment years, to consider the wealth-tax returns submitted by the assessee, wherein the assessee

had not made mention about the land in dispute on the ground that there was no need to disclose anything with regard to the agricultural lands and

buildings in the immediate vicinity of such lands used for agricultural purposes, cannot turn round and say that the assessee had not fully and truly

disclosed the demised property during the abovesaid assessment years or concealed particulars of his wealth in respect of the abovesaid property.

Therefore, the Tribunal was justified in coming to the conclusion that the assessing officer has no right to reopen the assessment u/s 17(1)(a).

The Tribunal had considered as to whether such reopening of assessment can be made u/s 17(1)(b). It is not in dispute that the assessment can

be reopened by issue of notice u/s 17(1)(b) only within a period of four years from the end of the particular assessment year and not beyond that

period. The fact remains that four-year period ended on 31-3-1970 in respect of the assessment year 1965-66, on 31-3-1971 in respect of the

assessment year 1966-67 and on 31-3-1972 in respect of the assessment year 1967-68. Admittedly, notice was issued by the assessing officer on

6-3-1975 regarding the reopening of the abovesaid assessment and the same was served on the executor of the will on 21-3-1975. Therefore, the

Tribunal was correct in coming to the conclusion that the assessing officer had acted without jurisdiction in reopening the assessment for the

assessment years in question u/s 17(1)(b).

The Tribunal had also considered the question as to whether the assessing officer was justified in reopening the assessment for the assessment

year 1968-69. The fact remains that the assessee was treating the demised land as agricultural land and submitting wealth-tax returns on that basis

up to the assessment year 1964-65. The assessee had also shown the income from the abovesaid property, treating the same as agricultural land

only at Rs. 300 to Rs. 400 per annum during the relevant assessment years and the same was accepted by the Income Tax Officer. Though the

assessee had described the demised land as vacant site in the trust deed referred to above and obtained certificate u/s 230A on 14-3-1968, the

abovesaid land was acquired for construction of staff quarters of Telephone department by issuing notification under the Land Acquisition Act on

29-12-1969. In the report of the, Special Deputy Tehsildar for Land Acquisition and also in the report of the Special Deputy Collector for Land

Acquisition, the land in question was described as ,vacant ground and garden cultivation, apart from describing the same as ''full field''. It is also

evident from the report of the abovesaid officers that there was a big well of 13 feet diameter and standing crops like paddy, vegetable plants,

coconut, palmyrah and other trees like Date, Tamarind, Murungai, Mango, Arinelli, Kichili, Sathukudi, Papaya, etc. If the abovesaid reports are

also taken into consideration in the light of the returns submitted earlier to the assessing officer and also the Income Tax returns submitted to the

1TO during the relevant assessment years, it is evident that the Tribunal had rightly concluded that the appellate authority had come to the correct

conclusion that the demised land was agricultural land at the time of acquisition and the same was acquired for construction of staff quarters, as

stated supra.

The appellate authority had rightly decided that the assessing officer had reopened the assessment during the years in dispute, based only on

the internal audit report without application of mind, while doing so. While sustaining such conclusion, the Tribunal has rightly held that the internal

audit report referred to above was a note on a question of law or on interpretation of law and, therefore, the same cannot be an information within

the meaning of section 17(1)(b) in view of the decision of the Apex Court in Indian & Eastern Newspaper Society''s case (supra). Therefore, the

Tribunal was also right in coming to the conclusion that the assessing officer was not justified in reopening the assessment for the abovesaid

assessment years since the internal audit report will not amount to information even for the assessment year 1968-69.

The learned counsel for the revenue brought to the notice of this Court the decision of the Apex Court in Smt. Sarifabibi Mohmed Ibrahim and

others Vs. Commissioner of Income Tax, Gujarat, wherein it was held as follows:

Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this court and the

High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and

circumstances of that case. There may be factors both for and against a particular point of view. The court has to answer the question on a

consideration of all of them - a process of evaluation. The inference has to be drawn on a cumulative consideration of all the relevant facts.'' (p.

637)

In Commissioner of Income Tax, Madras Vs. M/s. Gemini Pictures Circuit Private Limited, the Apex Court was pleased to hold that the question

whether a particular land is agricultural land has to be decided on a totality of the relevant facts and circumstances, that there may be circumstances

for and against, that they have to be weighed together and a reasonable decision arrived at, that one has to take a realistic view and see how the

persons selling and purchasing it understood it, that the tests evolved by the Courts are in the nature of guidelines and that no hard and fast rules

can be laid down in the matter for the reason that it is essentially a question of fact.

Considering the facts and circumstances of the cases cited supra, the Apex Court was pleased to decide that the lands involved in the

abovesaid cases were not agricultural lands. But, if the facts stated supra in this case are taken into consideration in the light of the principles laid

down by the Apex Court in the decision cited above, it is quite clear that the assessing officer was not justified in reopening the assessment for the

abovesaid assessment year, based on the internal audit report, which we consider to he an interpretation of law and not an information to reopen

the assessment for the abovesaid assessment years, treating the land in question as non-agricultural land.

Accordingly, the common questions of law referred to us are answered in the affirmative and against the revenue. In the circumstances of the

case, there will be no order as to costs.