Smt. Sharmishthabai Holkar vs Commissioner of Wealth Tax

G.G. Sohani, J.—By this reference u/s 27(1) of the Wealth-tax Act, 1957 (''the Act''), the 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 assessment for the assessment year 1970-71 was 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:

For the assessment year 1970-71, the assessee was assessed to tax under the Act by the WTO. The assessment was, however, reopened by the WTO on 25-3-1975, recording his reasons as follows:

On perusal of records, it is found that the assessee had (1) life interest in the Lal Bagh Palace owned by Prince Usha Trust, Indore. The assessee has a right to reside in the Lal Bagh Palace during lifetime. This life interest was not brought to tax, and (2) The assessee owns the undermentioned properties:

(1) Tijori Gali

(2) Shiv Niwas Kothi

In the WT assessment, value of these properties was assessed at Rs. 7,800, and Rs. 67,500. The home at Tijori Gali was sold in 1972 for Rs. 24,000. In the circumstances, the value declared at Rs. 7,800 in 1970-71 was understated. The sale of house at Tijori Gali indicates that the value of properties is increasing. The value of the Shiv Niwas Kothi is being taken at Rs. 67,800 for the last so many years.

In view of the information now available, the assessment is reopened u/s 17(1)(b). Issue notice to the assessee.

The assessee was then assessed afresh. Aggrieved by the order passed by the WTO, the assessee preferred an appeal before the AAC. The AAC allowed that appeal. Hence, the revenue preferred an appeal before the Tribunal. The Tribunal held that the AAC was not justified in holding that the WTO erred in reopening the assessment u/s 17(1)(b) of the Act. The Tribunal, therefore, allowed the appeal preferred by the revenue. Aggrieved by that order, the assessee submitted an application for making a reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this Court for its opinion.

It is well settled that the jurisdiction of the WTO to reopen assessment u/s 17(1)(b) would depend upon the satisfaction of the two conditions precedent, specified in section 17(1)(b). The WTO should have reason to believe that net wealth chargeable to tax has escaped assessment and that the belief should be in consequence of information received by the WTO after the original assessment. If either condition is not satisfied, the action of the WTO would be without jurisdiction. In the instant case the assessment was reopened in consequence of information that life interest in Lal Bagh was not brought to tax and the value of house in Tijori Gali was assessed at Rs. 7,800. It is contended before us that both these facts are incorrect. The fact that life interest in the Lal Bagh Palace was brought to tax is evident from the original assessment order. That order also discloses that the value of the Tijori Gali House of the assessee was not assessed at Rs. 7,800 but at Rs. 18,000 while framing assessment for the assessment year 1970-71. It is, thus, clear that in the reasons recorded by the WTO for reopening the assessment, incorrect facts have been set out and there is nothing to indicate that the WTO came into possession of any information received after the original assessment. The Tribunal, however, held that the WTO was justified in reopening the assessment in view of the valuation report submitted by the assessee in subsequent years. In the first place, this reason does not at all find place in the order passed by the WTO recording reasons for reopening assessment. Secondly, the valuation report, which according to the Tribunal constituted information u/s 17(1)(b), came into existence on 4-10-1975, whereas the assessment was reopened by the WTO on 25-3-1975. The WTO, therefore, could not have reopened the assessment on the basis of information, which was not in existence on the date of reopening of the assessment. The Tribunal, in our opinion, therefore, was not right in holding that the assessment for the assessment year 1970-71 was rightly reopened by the WTO. For all these reasons, our answer to the question referred to this Court is in the negative and against the revenue. In the circumstances of the case, parties shall bear their own costs of this reference.