Commissioner of Wealth Tax vs R. Chidambaranatha Mudaliar

Rangarajan, J.—The facts leading to this reference are as follows :

The assessee is an individual. On the valuation date relevant to the assessment year 1972-73, the assessee had fixed deposits in Nationalised Banks amounting to more than Rs. 3 lakhs and also National Defence Certificates, amounting to Rs. 25,000. In the return filed for wealth-tax purposes, the assessee had claimed exemption for an amount of Rs. 1,50,000 in respect of fixed deposits in the banks and an additional exemption of Rs. 25,000 under the proviso to section 5(1A) of the Wealth-tax Act, 1957 (''the Act''). This was allowed by the WTO. Subsequently, the WTO rectified the assessment u/s 35 of the Act on the ground that under the proviso to section 5(1A), the exemption was available in excess of the ceiling prescribed only if the total value of the National Defence Certificates held by the assessee exceeded the limit of Rs. 1,50,000. The assessee appealed and the AAC agreed with the assessee that it is not necessary to hold Defence Bonds of the value of more than Rs. 1,50,000 for availing of the additional exemption under the proviso to section 5(1A). The revenue appealed to the Tribunal. The Tribunal held that there was no mistake apparent on the face of the record and, accordingly, upheld the cancellation of the rectification order made by the AAC.

On these facts, at the instance of the revenue, the following question has been referred to the decision of this Court:

"Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that there was no mistake on the face of the records amendable to the ''rectificatory jurisdiction'' of the Wealth-tax Officer u/s 35 of the Wealth-tax Act and that the rectification order passed by the Wealth-tax Officer withdrawing the exemption u/s 5(1A) in respect of the National Defence Certificates was proper and in accordance with law ?"

Before us, it was argued by the learned counsel for the revenue that several High Courts have consistently held that on a plain reading of proviso to section 5(1A) only an amount in excess of a ceiling of Rs. 1,50,000 held in the form of National Defence Certificates would be eligible for the additional exemption. The cases cited for this proposition are:

Saroja Ravindran Vs. Commissioner of Wealth-tax, , Commissioner of Wealth Tax Vs. H.H. Sethu Parvathi Bayi and H.H. Lekshmi Bayi, ) K.S. Ayodhyanath Vs. Commissioner of Wealth Tax, Karnataka, K.S. Digvijaysinhji Vs. Commissioner of Wealth-tax, Rajkot,

It was submitted that in view of this settled position, it could not be said that there was no mistake apparent on the record. It was also pointed out that it was mentioned in the case of Saroja Ravindran (supra) that "this is the only construction which is possible of the words of the section", and hence, the matter could not be regarded as a debatable issue. Reliance was placed on the decisions in the cases of Commissioner of Income Tax, Tamil Nadu-IV, Madras Vs. Sundaram Textiles Limited, and T. Manickavasagam Chettiar Vs. Commissioner of Income Tax, Tamil Nadu, to contend that where a provision which is clearly applicable has been misapplied, it should be taken as a mistake apparent on the face of the record and capable of rectification.

On the other hand, the learned counsel for the assessee pointed out that when the Defence Bonds were issued, the Finance Minister had stated:

"The 10-year Treasury Deposit Certificates and the 12 years National Plans Savings Certificates which are exempt from wealth-tax have been replaced by 10-year Defence Deposit Certificates and 12 year National Defence Certificates. It is, therefore, proposed to include the new certificates also in the category of exempted assets under the Wealth-tax Act - M. Chockalingam and Another Vs. Commissioner of Income Tax, Madras and Another, )."

It was submitted that the intention of the Legislature was to totally exempt the Defence Bonds and, hence, the proviso properly understood, as was done by the AAC, was to exempt the value of the Defence Bonds held continuously by the assessee, whether it was below the limit of Rs. 1,50,000 or more. It was also submitted that since this view has been accepted by one authority, that itself indicates that it was a debatable issue as held in the cases of Commissioner of Income Tax Vs. S. Surjan Singh, and Sagar Co-operative Central Bank Ltd. Vs. Commissioner of Income Tax,

We have considered the submissions of both sides. We find that the decisions interpreting the proviso to section 5(1A) of the Act were not available to the WTO when he made the original assessment or at the time when he made the rectification. The AAC had accepted the interpretation placed by the assessee. Moreover, when the Finance Minister had declared that it was the intention of the Legislature to totally exempt the Defence Bonds, the construction of the proviso literally to grant an exemption only if the holding exceeded Rs. 1,50,000 leads to the unintended withdrawal of the exemption in respect of the other assets. This is perhaps the reason why the Act has also since been amended to ensure that the specified assets in the proviso are eligible for total exemption. Further, the expression ''such limit shall be raised by the said amount'' which occurs in the proviso would well mean that the specified assets would be exempted without any limit. From that point of view, it cannot be said that the claim of the assessee that it is not necessary to hold that Defence Bonds of the value beyond the ceiling prescribed for obtaining the exemption is not far-fetched. In the circumstances, we are satisfied that there was a debatable issue at the time the rectification was made even though the issue might have been resolved by a subsequent decision. The Tribunal was, therefore, right in finding that there was no mistake apparent on the face of the record and, thus, upholding the order of the AAC cancelling the rectification. Accordingly, we answer the question in the affirmative and against the revenue. No costs.