Sharmisthabai Holkar vs Commissioner of Wealth-tax

G.G. Sohani, J.—By this reference u/s 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessments for the assessment years 1971-72, 1972-73 and 1973-74 were rightly reopened by the Wealth-tax Officer u/s 17(1)(b) of the Wealth-tax Act, 1957 ?"

The material facts giving rise to this reference briefly are as follows :

The assessments of the assessee under the Act for the assessment years 1971-72, 1972-73 and 1973-74 were completed by the Wealth-tax Officer. The assessments were, however, reopened u/s 17(1)(b) of the Act by the Wealth-tax Officer on March 26, 1975. The reasons for reopening the assessments as recorded by the Wealth-tax Officer are as follows :

"The assessee in his wealth-tax statements has shown the value of Shiv Niwas Kothi at Tukoganj, Indore, as exempt being below Rs. 1 lakh. However, it is found that the value of this Kothi was being taken at Rs. 67,500 in the order, 57-58 WT. Now, videD.P. para. 205 for 1970-71, the Board has accepted that this Kothi is not exempt. Hence, the value of this Kothi is to be included in the net wealth of the assessee. Therefore, to bring to tax the escaped value of the above property, action u/s 17(1)(b) is necessary."

Thereafter, the Wealth-tax Officer proceeded to assess the assessee afresh for the assessment years in question. Aggrieved by the orders passed by the Wealth-tax Officer, the assessee preferred appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the Wealth-tax Officer had initiated reassessment proceedings on account of change of opinion as a result of reappraisal of the material already considered by the Wealth-tax Officer at the time of the original assessment. The Appellate Assistant Commissioner, therefore, allowed the appeals. Aggrieved by the order passed by the Appellate Assistant Commissioner, the Revenue preferred appeals before the Tribunal. The Tribunal allowed those appeals. Hence, at the instance of the assessee, the aforesaid question of law has been referred to this court for its opinion.

Having heard learned counsel for the parties, we have come to the conclusion that the reference has to be answered in the negative and in favour of the assessee. The only reason recorded by the Wealth-tax Officer for reopening the assessment was that the Central Board of Direct Taxes was of the view that the value of Shriniwas Kothi was not exempt from wealth-tax. It is now well settled as a result of the decision of the Supreme Court in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , that when Section 147(b) of the Income Tax Act, analogous to Section 17(1)(b) of the Act, is read as referring to "information" as to law, what is contemplated is information as to the law created by a formal source. It seems that as a result of the objection of the audit party which was approved by the Central Board of Direct Taxes, the Wealth-tax Officer changed his opinion on the question as to whether the value of Shriniwas Kothi was chargeable to tax under the Act or not. In this connection, it would be useful to refer to the following observations of the Appellate Assistant Commissioner :

"It may be appreciated that while making the original assessment, the Wealth-tax Officer had examined the applicability of Section 5(1)(iv) to the facts of the case. He had exempted this property on the ground that it was exclusively used for residential purposes and was not put to any other use. It is quite obvious that while taking this decision, he considered the fact of the assessee actually living in Lal Bagh Palace as irrelevant. That palace did not belong to him. He was allowed to reside there merely as a result of an administrative arrangement arrived at by the Government with the real owner of the palace. Later on, the ITO changed his opinion as regards the applicability of Section 5(1)(iv) as a result of the audit objection. His action in reopening the assessments is directly in contravention of the law laid down by the Supreme Court in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, ."

The Tribunal, however, held the action of the Wealth-tax Officer justified on the ground that the valuation report submitted before the Wealth-tax Officer could afford sufficient reasons for reopening the assessments. It was, however, not disputed before us that the valuation report is dated October 4, 1975, while reasons for reopening the assessments were recorded by the Wealth-tax Officer on March 26, 1975. The Tribunal was not justified in supplanting the reasons recorded by the Wealth-tax Officer and, moreover, the reason so supplied by the Tribunal could not have been in existence on the date when the assessments were reopened. The Tribunal, therefore, was not justified in holding that the Wealth-tax Officer was right in reopening the assessments in question.

For all these reasons, our answer to the question referred to this court is in the negative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.