Raghupati Singhania vs Wealth Tax Officer and Others

Aloke Chakrabarti, J.—This appeal was heard along with MAT No. 2847 of 2003, MAT No. 2848 of 2003 and MAT No. 2849 of 2003.

The judgment impugned in the present appeal was passed in CR No. 2681 (W) of 1989, dt. 26th Aug., 2003. For the reasons given in the said judgment, the other three writ petitions being CR No. 2680 (W) of 1984, CR No. 2679 (W) of 1984 and CR No. 2682 (W) of 1984 were also decided. Being aggrieved, these four appeals were preferred by the assessee.

The appellant as Karta of an HUF known as "Sri Raghupati Singhania (HUF)" was a partner in the firm M/s Juggilal Kamlapat Banker as also of M/s Singhania and Sons (hereinafter referred to as the said firms). In respect of the net wealth of the said family, return was filed on 3rd Oct., 1977, in respect of asst. yr. 1977-78 under the WT Act, before WTO, Special Circle, ''C'' Ward, Kanpur. In the said return, the family duly disclosed the value of the interest in the said partnership firms.

By an order of assessment dt. 27th March, 2002, u/s 16(3) of the WT Act, the assessment was made and in the said assessment, the value of the said family''s interest in the said firms was enhanced taking the credit balances in the capital and current account of the family with the said firms, respectively.

Being aggrieved the appeal was preferred which was partly allowed by the CWT(A) concerned by his order dt. 22nd Nov., 1982. The petitioner preferred a further appeal before the Tribunal.

Petitioner was served with a notice dt. 14th/15th March, 1984, issued by the CIT (C-III) u/s 25(2) of the said Act alleging that it had come to his notice that the order of assessment dt. 27th March, 1982 u/s 16(3) of the Act for the said asst. yr. 1977-78 assessing the net wealth at Rs. 19,36,100 was prejudicial to the interest of the Revenue and that on a scrutiny of the assessment records, it was found that the net wealth (was) assessed including therein the value of interest in the said partnership firm M/s Juggilal Kamlapat Banker, Kanpur, at Rs. 5,37,054 on the basis of the final account of the said firms without reference to the actual market value of the assets held by the firms. The allegations were further made that the firms owned considerable immovable properties as well as movable assets like shares, etc. and their market value was more on the relevant valuation date than its book value.

Challenging the said notice, a writ petition was filed giving rise to CR No. 2681 (W) of 1984, which was decided by the impugned judgment.

Heard Dr. Debi Prasad Pal, learned Counsel for the appellant, and Mr. Mihirlal Bhattacharjee, assisted by Mr. Md. Nizamuddin, learned Counsel for the Revenue.

Apart from advancing argument on merit contending that the partnership firm itself being not an assessee, valuation of its interest in the partnership firms is to be made on the book value and not on the market value, argument was further advanced that the power of the CWT to revise the order of subordinate authorities u/s 25 of the Act, could not be exercised in the facts and circumstances of the present case as requirements of exercise of power under the said section were not specified. Learned Counsel for the appellant argued on the scope of Section 25(2) of the Act and the requirements prescribed thereunder for exercise of power of the CWT to revise judgments have been also referred to as decided in the case of MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, .

On behalf of the respondent, it is strongly contended that not only the CWT had the power to issue the impugned notice in the facts and circumstances of the present case but subsequent to the dismissal of the writ petition, the assessment order has already been passed completing the proceeding initiated by the impugned notice and, therefore, the assessee is having the remedy of appeal against the said assessment order finally passed by the statutory authority and he not having availed of the remedy provided in such appeals, his present appeal cannot be considered as the proceeding itself was against the notice only.

For consideration of the said contentions, we are first taking up the argument as regards jurisdiction of the CWT in issuing the notice and initiation of a proceeding u/s 25(2) of the Act before considering the main contention on merit.

In our consideration, the language of the statute appears to be relevant and the provisions contained in Section 25 are set out hereunder:

"25. Power of CWT to revise order of subordinate authorities.--

(1) The CWT may, either of his own motion or on application made by an assessee in this behalf, call for the record of any proceeding under this Act in which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such enquiry to be made and subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the CWT thinks fit :

Provided that the CWT shall not revise any order under this Sub-section in any case--

(a) where an appeal against the order lies to the AAC or to the CWT(A) or to the Tribunal, the time within which such appeal can be made has not expired or in the case of an appeal to the CWT(A) or to the Tribunal the assessee has not waived his right of appeal;

(b) where the order is the subject of an appeal before the AAC or the CWT(A) or to the Tribunal;

(c) where the application is made by the assessee for such revision, unless-

(i) the application is accompanied by a fee of twenty-five rupees; and

(ii) the application is made within one year from the date of the order sought to be revised or within such further period as the CWT may think fit to allow on being satisfied that the assessee was prevented by sufficient cause from making the application within that period; and

(d) where the order is sought to be-revised by the CWT of his own motion, if such order is made more than one year previously.

Explanation--For the purpose of this Sub-section,--

(a) the AAC shall be deemed to be an authority subordinate to the CWT; and

(b) an order by the CWT declining to interfere shall be deemed not to be an order prejudicial to the assessee.

(2) Without prejudice to the provisions contained in Sub-section (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 a WTO is erroneous in so far 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.

(3) No order shall be made under Sub-section (2) after the expiry of two years from the date of the order sought to be revised.

(4) Notwithstanding anything contained in Sub-section (3), an order in revision under Sub-section (2) may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Tribunal, the High Court or the Supreme Court.

Explanation--In computing the period of limitation for the purposes of Sub-section (3), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 39 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded."

Therefore, the language of Sub-section (2) of Section 25 shows that the revisional power can be exercised by the CWT, if he considers that any order passed by the WTO "is erroneous insofar as it is prejudicial to the interests of the Revenue". The requirement of the said section is that in case such opinion is formed the assessee will be entitled to an opportunity of being heard and the authority will make necessary enquiry whereafter an order can be passed under the said provisions of law. It appears that Section 263 of the IT Act is also in the same language whereunder power of revision has been provided. Requirements for exercise of power of revision u/s 263 have been considered by the apex Court in the case of Malabar Industrial Co. Ltd. (supra). The relevant portion of the said judgment is as follows :

"The phrase ''prejudicial to the interests of the Revenue'' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law."

As the requirements for exercise of revisional power under both the statutes are same, applying the law as decided in the case of Malabar Industrial Co. Ltd. (supra), the matter can be considered on the available facts of the present case. Apparently question of valuation in respect of assets of a partnership firm in respect of a partner who is the assessee, is to be made. In so doing, it appears that in the case of Seth Satish Kumar Modi Vs. Wealth-tax Officer, , the Division Bench of Allahabad High Court held as follows :

"In Advanced Accountancy by Batliboi, it has been stated on p. 574 that fixed assets are to be valued at cost. There is nothing on the record in the case, that the firm, while preparing its balance sheet, did not value the shares held by it in M/s Indofil Chemicals Ltd. on this basis. Thus, the firm had valued its shares in accordance with the settled principles of accountancy, as prevailing in commercial circles. Rule 1D is a special rule for calculating the market value of unquoted shares of a company. However, inasmuch as Rule 2 does not require the net wealth of a firm to be calculated as laid down in the Act or the Rules, the market value of the shares could not have been calculated in accordance with Rule 1D. The shares had to be valued at their cost price in accordance with settled commercial principles. This being so, the firm could value the shares in M/s Indofil Chemicals Ltd. at their cost price. The assessee has shown the value of his interest in the firm on the basis of the valuation adopted by the firm, which was based on the commercial method of accountancy. The only ground given by the WTO for forming the belief that net wealth had escaped assessment is that the valuation of the shares of M/s Indofil Chemicals Ltd. held by the firm, of which the assessee was a partner, had not been calculated in accordance with Rule. 1D, with the result that they have been undervalued. But on the view expressed earlier that the net wealth of the firm has to be calculated not in accordance with the Act or Rules, but on the principles of commercial accountancy, the belief which the WTO entertained that the net wealth has escaped assessment was based on no relevant material and was arbitrary, as the shares had been correctly valued and the earlier order determining the valuation of the assessee''s interest in the firm was correct. The notice as such has to be quashed."

The Division Bench of this Court while considering the similar question in the case of Commissioner of Wealth Tax Vs. Surendra Paul, held as follows :

"Admittedly, in the instant case, the assessee is not carrying on the business of the firm by himself nor it is the case of the Revenue that the assessee is maintaining the accounts of such business regularly. In our view, the Revenue is not entitled to invoke the special provisions of Section 7(2) of the Act Rule with Rules. 2A to 2G in the facts of this case where only the net wealth of the firm and the interest of the assessee therein are being determined.

Section 4(1)(b) specifically lays down that the value of share in a firm is to be determined in the prescribed manner and Rule 2 of the Rules prescribes such manner. Section 7(2) of the Act and Rules 2A to 2G of the Rules, in our view, cannot be extended to cover cases, specially governed by Section 4(1)(b) of the Act and Rule 2.

The Allahabad High Court has taken the view that in computation of the net wealth of a firm, commercial principles should be applied. u/s 7(1) of the Act and Rule 2 which are special provisions of the WT Act and the rules which do not apply for valuation of the net wealth of a firm cannot be attracted in determination of the net wealth of a firm which is not an assessee. We do not see any reason to take a different view and we agree with the same with respect."

Therefore, it appears that the Division Benches of two High Courts including Calcutta High Court have already held that the value of net wealth of a partnership firm while assessing the wealth-tax of a partnership, who is not the assessee, is to be made according to the principles of advanced accounting and on the book value and not according to market value of such assets and, provisions of rules of the WT Rules do not apply in such case.

In above view of the matter when the Division Benches of two High Courts including the Calcutta High Court have taken such a view, the same has to be accepted as a possible view and when the WTO assessed initially following the said view, the revisional power u/s 25(2) could not be exercised as the other view cannot be held to be totally erroneous nor the order could be treated as erroneous order prejudicial to the interests of the Revenue.

In above view of the matter, we are of the opinion that the power of revision u/s 25(2) of the WT Act could not be exercised in the facts and circumstances of the case and accordingly the notice and the proceeding following it cannot stand.

As we have taken the above view in respect of the notice itself, we feel the contentions on merit need not be decided by this Court.

With regard to the contentions of the respondent that the proceeding which was initiated on the basis of the impugned notice, having been already completed, the present appeal should not be heard as the assessee is having his redress in the forum of appeal against the assessment order, we find that the impugned notice was issued long back in the year 1984 and the notice was dt. 14th/15th March, 1984, fixing 20th March, 1984, as the date for showing cause. The assessee obtained an interim order staying the proceeding on 19th March, 1984, by moving the present writ petition. Ultimately, the writ petition was dismissed on 26th Aug., 2003, upon hearing the parties. In such circumstances, in fairness the authorities ought to have given a fresh notice fixing another date of hearing as the requirement of Section 25(2) includes an opportunity of hearing to the assessee before the final order is passed. When the proceeding itself was heard almost after 20 years, after the writ petition was dismissed, fresh notice ought to have been issued fixing a date of hearing and intimating such date of hearing to the assessee concerned to make it an effective opportunity of hearing as required by the statute.

Though a contention was further advanced on behalf of the assessee that the proceeding has been decided by passing an assessment order on 1st Oct., 2003, after service of notice of appeal upon the respondent on 29th Sept., 2003, in view of our above findings, we are not inclined to enter into the above factual question.

We find that in the impugned judgment, the aspect as regards power u/s 25(2) was not taken into consideration and therefore, in view of the above findings, the impugned order is set aside and the appeal is allowed. The writ petition is allowed and the notice u/s 25(2) impugned in the writ petition is hereby quashed. Accordingly, the final assessment order passed in the proceeding initiated by the impugned notice also cannot stand and is hereby quashed.

S.K. Gupta, J.

I agree.

Aloke Chakrabarti, J.

The prayer for stay as made is considered and rejected

S.K. Gupta, J.

I agree.