Commissioner of Wealth-tax vs Smt. G. Chellammal

N.V. Balasubramanian, J.—There are three questions of law referred at the instance of the Revenue relating to the assessee''s assessment

year 1975-76 for our consideration. They are :

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in setting aside the order passed by the Commissioner of

Wealth-tax u/s 25(2) of the Wealth-tax Act and restoring that of the Wealth-tax Officer ?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that exemption u/s 5(1)(iv) of the Wealth-tax Act

should be allowed in the individual assessment of the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Commissioner of Wealth-tax cannot use his

powers vested u/s 25(2) of the Wealth-tax Act for directing the Wealth tax Officer to consider and adopting of a higher value of the assessee''s

share in respect of the property known as Kannammai Building ?

The assessee is a partner in a firm called Palaniappa Brothers and she had 7 1/2 per cent. interest in the property known as ""Kannammai

Building"". The assessee for the assessment year 1975-76 filed her return under the Wealth-tax Act and valued her interest in the firm at Rs.

2,65,383, and claimed a sum of Rs. 1,00,000 as exempt u/s 5(1)(iv) of the Wealth-tax Act, 1957 (hereinafter referred to as ""the Act""). The

Wealth-tax Officer, in completing the assessment granted the exemption as prayed for and completed the assessment.

The Commissioner of Wealth-tax on a perusal of the record came to the conclusion that a partner is not entitled to the exemption provided u/s

5(1)(iv) of the Act of the sum of Rs. 1,00,000 in respect of the partner''s interest in the firm. The above view of the Commissioner of Wealth-tax

was based on a decision of this court in Purushothamdas Gocooldas and Others Vs. Commissioner of Wealth-tax, . He also found that for the

subsequent assessment year the assessee had valued her interest in the property in the Kannammai building and the entire building was valued at

Rs. 49,93,500 and reckoned the value of her share at Rs. 3,67,012. The Commissioner, therefore, came to the conclusion that there was a

substantial appreciation in the value of the property as compared to the value shown by the assessee as on March 51, 1975, and, therefore, he

issued a notice u/s 25 of the Act to the assessee proposing to revise the assessment made by the Wealth tax Officer. It was contended on behalf of

the assessee before the Commissioner that the assessee was only a co-owner of the property and the property did not belong to the firm. The

Commissioner, however, rejected the contention urged by the assessee and passed the following order u/s 25(2) of the Wealth tax Act.

The following issues that arise out of the assessment and the repre sentations made to me call for clarification :

(1) Whether the assessee is a co-owner of the property or whether the property belongs to the firm of Palaniappa Brothers of which the asses see

is a partner ?

(2) Whether the value of her share of this property as on March 31, 1975, was''only Rs. 2,65,383 or whether a higher value should be adopted ?

In this view he set aside the assessment on the ground that it was pre-judicial to the interests of the Revenue and directed the Wealth-tax Officer

to make fresh assessment in accordance with law.

The assessee preferred an appeal challenging the order of the Commissioner of Wealth-tax before the Income Tax Appellate Tribunal. The

Tribunal found that the property, Kannammai Building, was not a property owned by the firm and, therefore, the assessee cannot be regarded as a

partner. The Tribunal came to the conclusion that the assessee was only a co-owner and on the basis of his earlier order in the case of L.

Gulabchand Jhabakh v. WTO (W. T. A. No. 372/Mds of 1979 and W. T. A. No. 373/Mds/79 dated January 31, 1981), it held that the assessee

was entitled to the exemption of Rs. 1 lakh. Hence, the Tribunal, came to the conclusion that the grant of exemption by the Wealth-tax Officer was

not prejudicial to the interests of the Revenue. In so far as the valuation of the building known as ""Kannammai Building"" is concerned, the Tribunal

held that the powers of the Commissioner u/s 25 of the Act cannot be used for making an enquiry or to conduct an investigation to complete the

assessment. The Tribunal held that there was no material to show that the assessment was erroneous and in the absence of material, the

Commissioner lacked jurisdiction to revise the assessment. The Tribunal allowed the appeal preferred by the assessee.

The Revenue has challenged the order of the Appellate Tribunal and sought for a reference and the questions of law earlier set out have been

referred to us for our consideration.

In so far as the question regarding the grant of exemption u/s 5(1)(iv) of the Wealth tax Act to a partner is concerned, this court in the case of R.

Venkatavaradha Reddiar Vs. Commissioner of Income Tax, has held that the partner alone should have the benefit u/s 5(1)(iv) of the Act to the

extent of the respective share in the net wealth of the partnership firm. This court in another case, namely, Commissioner of Wealth Tax Vs. M.V.

Annaporni Achi, has taken the view that the exemption u/s 5(1)(iv) of the Act is available to a co-owner. Therefore, whether the assessee is

regarded as a partner or a co-owner, in either event, on the basis of the above two decisions of this court, the assessee would he entitled to

exemption u/s 5(1) of the Wealth-tax Act and the grant of exemption in the individual assessment of the assessee by the Wealth-tax Officer cannot

be said to be in any way erroneous and the Commissioner cannot form any reasonable belief that the order of assessment made by the Wealth-tax

Officer was erroneous.

In so far as the second issue is concerned it is no doubt that the Commissioner relied upon the return filed by the assessee for a subsequent year

valuing the entire Kannammai Building at Rs. 49,93,500 and the assessee''s 7 1/2 per cent. share was returned at a sum of Rs. 3,67,012. The

assessee had returned the value of the property for the assessment year in question at Rs. 2,67,383, and the Commissioner was of the opinion that

a clarification is needed whether the higher value returned for the subsequent year can be adopted instead of the value of her share as returned by

the assessee at Rs. 2,67,383. It is clear that the powers of the Commissioner cannot be invoked to seek clarification whether the higher value

returned by the assessee can be adopted. He must form a reasonable belief on the basis of material that the value determined by the Wealth-tax

Officer was erroneous. His belief should be formed on strong ground and the powers of revision cannot be exercised for ""clarification"" as the

Commissioner himself called it so. The above order of the Commissioner makes it clear that the Commissioner had no other material except the

return filed by the assessee. No doubt, as contended by learned counsel for the Revenue, the return filed by the assessee for the subsequent year is

a relevant material. But that material alone, without anything more, would not be sufficient to enable the Commissioner to form a reasonable belief

that the order of the Wealth-tax Officer was erroneous. There must be some other materials like that there was no change in the nature of the

property or the market value remained static which would enable the Commissioner to form the belief that the order was erroneous. In our opinion,

there is not even a slender connection between the existing materials and the belief of the Commissioner in the instant case and that is why the

Commissioner felt that there should be a clarification on the question of valuation. We hold that there must be some material to link the belief of the

Commissioner of Wealth-tax that the value returned and accepted by the Assessing Officer was, erroneous and we are of the opinion that linking

material is absent on the facts of the case. The Tribunal has also recorded the finding that there was no material to show that the assessment was

erroneous and in the absence of material we hold that the Commissioner of Wealth-tax exceeded his jurisdiction in selling aside the order of

assessment. We are of the opinion that the Tribunal has come to the correct conclusion in its view that the Commissioner of Wealth-tax lacked the

necessary jurisdiction in directing the Wealth tax Officer to make a fresh assessment in accordance with law and there is no infirmity in the order of

the Tribunal in setting aside the order of the Commissioner of Wealth-lax. Accordingly, we answer all the questions of law referred to us in the

affirmative and against the Revenue. No order as to costs.