Commissioner of Wealth Tax vs Late C. Seshachalam Chetty. (by Executor)

Ramanujam, J.—In reference petitions, TCP Nos. 466 to 468 of 1983, the Revenue seeks a direction from this court to the Income Tax

Appellate Tribunal to refer the following three questions with reference to the assessment years 1965-66, 1966-67 and 1967-68 :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the provisions of section 17(1)(b)

of the Wealth-tax Act, 1957, alone are applicable for the assessment years 1965-66, 1966-67 and 1967-68 and subsequent completion of the

assessment by the Wealth-tax Officer is barred by limitation of time ?

2 Whether, on the facts and in the circumstances of the case, the Appellate 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 and in cancelling the assessment as not valid in

law ?

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

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

Similarly, the Revenue has sought a direction to the Tribunal to refer the following two questions with reference to the assessment year 1968-69

in TCP No. 469 of 1983 :

Whether, on the facts and in the circumstances of the case, the Appellate 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 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 in Taylors Road, Kilpauk, Madras, were only agricultural lands on the relevant valuation dates ?

However, on the facts and in the circumstances of all these cases and after hearing the learned counsel on both sides, we think that no reference

need be directed in relation to the assessment years 1965-66, 1966-67 and 1967-68 and a reference should be directed in relation to the

assessment year 1968-69.

The late C. Seshachalam Chetty was the proprietor of Messrs. Curzon and Company, leading manufacturers of wooden furniture, cabinets, etc.

He also owned a number of house properties as well as lands situate in and around the City of Madras. For the assessment years 1962-63, 1963-

64 and 1964-65, wealth-tax returns were filed by the assessee showing extensive lands of 89 acres in Taylors Road, Kilpauk, Madras, but

claiming them as agricultural lands. This claim that the lands were agricultural was accepted by the wealth-tax authorities in all the three years. The

assessee has also been showing the income from these lands as agricultural income in his Income Tax returns and claiming exemption in relation

thereto. Since his claim that the lands in Taylors Road are agricultural lands had been accepted by the Wealth-tax Officer in the assessment years

1962-63 to 1964-65, the assessee did not disclose these lands in the returns filed under the Wealth-tax Act for the assessment years 1965-66 to

1968-69. Original assessments were made for all the said assessment years 1965-66 to 1968-69 under the Wealth-tax Act without reference to

the lands in Taylors Road. Subsequently, there was an audit report stating that the lands in Taylors Road had been subjected to urban land tax, that

in the land acquisition proceedings, a sum of Rs. 27,00,000 had been claimed by the assessee as compensation and that these indicated that the

lands could not be agricultural lands during the said assessment years. Based on the audit report, the Wealth-tax Officer reopened the assessments

u/s 17 and brought the value of the lands in Taylors Road to charge under the Wealth Act for the assessment year 1965-66 to 1968-69.

In respect of all the four years, there were appeals to the Commissioner of Wealth-tax (Appeals) who held that since there had been no non-

disclosure of any of the assets by the assessee, the reassessments for the years 1965-66, 1966-67 and 1967-68 could be taken as reassessments

only u/s 17(1)(b) in which case the reassessment will be barred for the reason that the four year period contemplated by section 17(1)(b) had

already expired Therefore, he set aside the reassessments made for the assessment years 1965-66, 1966-67 and 1967-68. As regards the

reassessment for 1968-69, which was, however, made within the period of four years, the Commissioner of Wealth-tax (Appeals) held that there

was no material or information before the Wealth-tax Officer for reopening the assessment u/s 17 and for cancelling the original assessment. He

also held on merits that the lands in Taylors Road continued to be agricultural lands during the assessment year 1968-69 and, therefore, the

reassessment for the said year could not be sustained on merits. The said view of the Commissioner of Wealth-tax (Appeals) has been accepted in

toto by the Income Tax Appellate Tribunal.

Before us Mr. J. Jayaraman, the learned counsel for the Revenue, contends that an asset may be an agricultural land in one year but it may be

converted into or it may become a non-agricultural land in another year. In the present case, the fact that the claim of the assessee that the lands

are agricultural lands had been accepted during the assessment years 1962-63 to 1964-65 cannot lead to the inference that those lands continued

to be agricultural lands even during the assessment years 1965-66, 1966-67 and 1967-68. Under the Wealth-tax Act, each assessment year is an

independent unit and, therefore, the assessee is bound to show the asset in his returns for those years as well and claim it as agricultural land if

possible. The fact that the assessee had not disclosed the lands in Taylors Road in his returns for the assessment years 1965-66, 1966-67 and

1967-68 may amount to non-disclosure of an asset on the part of the assessee during those years, in which case section 17(1)(a) can properly be

invoked and the reassessments for those years can be taken as reassessments made u/s 17(1)(a). Thus, the main contention of the Revenue is that

the assessee is under an obligation to disclose the lands in Taylors Road and the fact that he has not disclosed the same can be taken advantage of

by the Revenue for invoking section 17(1)(a). This submission of the learned counsel for the Revenue appears to overlook the definition of ""assets

occurring in section 2(e) of the Wealth-tax Act, as it stood during the relevant assessment years. The said section 2(e) defines ""assets"" as including

property of every description, movable or immovable, but does not include agricultural lands and growing crops or standing trees on such lands.

Part IV of the form of return is said to be optional and it is open to an assessee to set out in that part any assets which are not included in Parts I, II

and III but which the assessee claims to be not taxable for any reason. Thus, the inclusion in the return of exempted items such as agricultural lands,

was only optional. It is open to the assessee to include the agricultural lands in the return and claim that they are exempted under the provisions of

the Wealth-tax Act. Once an option is given to the assessee either to show the agricultural lands in the return and claim exemption or not to do so,

it cannot be said that he is under an obligation to show the agricultural lands as an asset in the return filed under the Wealth-tax Act. When the

assessee is not under an obligation to disclose the asset in his wealth-tax return, we do not see how the assessee could be guilty of non-disclosure

of an asset. Section 17 will come into play only when the assessee has omitted or failed to make a return u/s 14 of his net wealth or to disclose fully

and truly all material facts necessary for the assessment of his net wealth. In this case, the assessee has admittedly filed a return u/s 14. Therefore,

the reopening of the assessment u/s 17(1)(a) can be made only if the assessee has failed to disclose fully and truly all material facts necessary for

the assessment of his net wealth. We are of the view that the assessee in this case was not under an obligation to disclose the agricultural lands in

his return as they constituted an exempted item and, therefore, reopening of the assessment could not be made u/s 17(1)(a) though such

reassessment could be made u/s 17(1)(b), if the conditions set out in that clause are satisfied. We are, therefore, inclined to agree with the view of

the Tribunal that the reassessment for the years 1965-66 to 1968-69 could only be treated as one made u/s 17(1)(b).

It is not in dispute that if the assessments are taken as those having been made u/s 17(1)(b), the reassessments for 1965-66 to 1967-68 are

admittedly time-barred. If those reassessments are time-barred, it is unnecessary to go into the other questions as to whether there is sufficient

material or information before the Wealth-tax Officer for reopening the assessment u/s 17 or whether the agricultural lands became non-agricultural

lands during those years. In this view of the matter, we do not see any justification for directing a reference in relation to the assessment years

1965-66 to 1967-68.

However, since the reopening of the assessment for the year 1968-69 is not time-barred even treating the reassessment as one having been

made u/s 17(1)(b), the questions as to whether there was any material or information before the Wealth-tax Officer for reopening the assessment

and whether the lands which were originally held to be agricultural by the Wealth-tax Officer in the earlier years became non-agricultural lands in

the assessment year 1968-69, do arise. The learned counsel for the assessee, however, contends that the materials furnished by the audit report

have automatically been applied by the Wealth-tax Officer without verification or investigation and, therefore, such reopening of assessment by the

Wealth-tax Officer without any relevant basic material cannot legally be sustained. But all these matters cannot be gone into at this stage. We are,

therefore, inclined to direct a reference on the question as to whether there was enough material or information before the Wealth-tax Officer to

initiate action u/s 17 and whether the lands were agricultural lands during the relevant assessment year 1968-69. In this view of the matter, we

direct the Tribunal to state a case and refer questions Nos. 1 and 2 in relation to the assessment year 1968-69 set out already.

In the result, TCP No. 469 of 1983 is ordered as indicated above and TCP Nos. 466 to 468 of 1983 are dismissed. There will be no order as

to costs.