The Commissioner Of Income Taxnungambakkam High Roadchennai – 600 034 v. M/S.simpson & Co.,861/862, Anna Salaichennai – 600 002

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 6.7.2011 CORAM THE HON'BLE MRS.JUSTICE CHITRA VENKATARAMANandTHE HON'BLE MR.JUSTICE M.JAICHANDREN Tax Case (Appeal) No.550 of 2004 The Commissioner of Income TaxNungambakkam High RoadChennai – 600 034 ... Appellant Vs. M/s.Simpson & Co.,861/862, Anna SalaiChennai – 600 002... Respondent Tax Case (Appeal) filed under Section 27-A of the Wealth Tax Actagainst the order of the Income Tax Appellate Tribunal, Madras "D"Bench, Chennai, dated 11.2.2004, in W.T.A.No.107/Mds/97. Against theorder of the Commissioner of Wealth Tax (Appeals) Chennai, dated27.12.96, and made in IT/WT/GT/Appeal No.WTA 87/94-95. Against theorder of the Deputy Commissioner of Wealth Tax Special Range -1,Madras, dated 5.10.1994 in PAN/GIR NO.47-004-CX-7419/4-S. For Appellant : Mr.T.Ravikumar, Standing Counsel For Respondent : Mr.R.Vijayaraghavan (Judgment of the Court was delivered by CHITRA VENKATARAMAN, J.) This Tax Case Appeal is at the instance of the Revenue,challenging the order of the Income Tax Appellate Tribunal, Madras"D" Bench, Chennai, raising the following questions of law:- "1. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal is right in lawin holding that the reassessments made for the assessmentyear 1985-86 were valid under Section 17 of the Wealth TaxAct? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal is right in law innot considering Section 17(1)(b) which clearly mentions thatany information in possession of the wealth tax officer forinitiating reassessment proceedings and the valuationofficer's report would constitute an information for validlyreopening the assessment? 3. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal is right in law innot considering the judgments of the Full Bench of theKerala High Court in the case of CWT Vs. V.Cleetus, 213 ITR14?" 2. The assessment year in question is 1985-1986. In respect ofthe said assessment year, the assessment was originally completedunder Section 16(3) of the Wealth Tax Act on 13.3.1990. It is anadmitted fact that even before the completion of the assessment, theWealth Tax Officer made a reference to the Valuation Officer underSection 16A of the Wealth Tax Act. However, in view of the limitationon the assessment, the same was completed as early as on 13.3.1990.However, on the basis of the Valuation Officer's report, receivedsubsequent to the assessment, the assessment was reopened underSection 17 of the Wealth Tax Act and a notice was issued on16.3.1993. In response to the same, the assessee filed his return,admitting the value of net wealth at Rs.26,49,900/-. Rejecting theclaim of the assessee, the assessment in respect of the lands atMadhavaram and Sembium were assessed at the value based on thevaluation report. 3. Aggrieved by the same, the assessee filed an appeal beforethe Commissioner of Wealth Tax (Appeals). Agreeing with the assessee,the Commissioner of Wealth Tax (Appeals) pointed out that in theoriginal assessment of the assessee, in respect of the properties,the Wealth Tax Officer made 10% addition to the value adopted for theassessment year 1984-1985. In respect of the said valuation, theappeal filed by the assessee before the Tribunal for valuing theproperty in accordance with the compensation payable under the TamilNadu Urban Land (Ceiling and Regulation) Act, was allowed. Hence, theOfficer should have taken steps to reopen the assessment promptlyafter 12.3.1991 after the receipt of the report. However, the reportwas only an opinion and hence, cannot constitute the reason tobelieve the escapement of wealth tax for re-assessment under Section17 of the Wealth Tax Act. The said assessment came on further appealbefore this Court in COMMISSIONER OF WEALTH-TAX Vs. SHARDLOW INDIALTD., reported in (2006) 285 ITR 426 (Mad), wherein, this Court heldthat the compensation payable under the Tamil Nadu Urban Land(Ceiling and Regulation) Act should be the basis for valuing the https://hcservices.ecourts.gov.in/hcservices/ property and not the market rate. In the circumstances, theCommissioner of Wealth Tax (Appeals) held that even though thevaluation report of the Valuation Officer was received after theassessment, yet, the reopening could not be sustained under the Act. 4. The Revenue went on further appeal before the Income TaxAppellate Tribunal, where the Tribunal agreed with the assessee thaton the mere change of opinion, the assessment could not be revised.Citing the decision of the Supreme Court in the case of CIT & ANOTHERVs. FORAMER FRANCE reported in 264 ITR 566, the Revenue's appeal wasdismissed by the Income Tax Appellate Tribunal Chennai Bench 'D'.Hence, the present appeal. 5. Learned standing counsel appearing on behalf of the Revenueplaced reliance on the decision of the Bombay High Court in the caseof COMMISSIONER OF WEALTH – TAX Vs. SONA PROPERTIES P. LTD., reportedin (2010) 327 ITR 592 (BOM), to contend that when the reference tothe Valuation Officer under Section 16A was well before thecompletion of the assessment and that the original assessment had tobe completed within the period of limitation, on receipt of thevaluation report, rightly the assessment was reopened. Going bySection 17(1)(b) of the Wealth Tax Act, as it then stood, reopeningwas based on materials. Thus even though there was no omission orfailure on the part of the assessee in disclosing the details of netvalue, taking the valuation report as a good information inpossession of the Wealth Tax Officer, the reassessment done, was inorder. 6. Per contra, learned counsel appearing on behalf of theassessee pointed out that admittedly, in this case, notice was issuedonly on 16.3.1993, which means, as per Section 17(1)(b) as it thenstood, in the event of the absence of any failure on the part of theassessee in disclosing fully and truly all material facts necessaryfor the assessment, the reopening ought to have been done within aperiod of four years of the end of that assessment year to which thetax relates to. It is an admitted fact herein that the assessmentyear related to 1985-1986 and the reopening was done long after fouryears. Thus the assessee's case could not be fitted in to fall underSection 17(1)(b) of the Wealth Tax Act. Hence, the case has to fallnecessarily under Section 17(1)(a) of the Wealth Tax Act. Even if theperiod of limitation of eight years is available, yet, there wasnothing to suggest that there was a failure on the part of theassessee to fully and truly disclose all material facts necessary forassessment. 7. He further submitted that leaving aside the question as towhether the receipt of the Valuation Officer's report after theassessment could be a valid piece of information for the purpose ofreopening, going by the fact that there was nothing to suggest thatthe assessee had not disclosed fully and truly all material facts necessary for assessment, on a mere possession of the valuationreport, the assessment cannot be reopened. Secondly, even in theoriginal assessment, the Officer had made 10% addition to the valuedeclared. Thus taking note of the fact that the reopening itself waswithout jurisdiction in this case, the Tribunal rightly accepted theassessee's case. 8. Heard learned counsel appearing for both sides and perusedthe material on record. 9. Learned counsel appearing on behalf of the assessee admittedthat the Valuation Officer's report received subsequent to theassessment in this case, no doubt, constitutes a valid piece ofinformation. However, as rightly contended by the assessee, that, byitself, does not save the Revenue's case. A reading of the order ofreassessment shows that the assessment under Section 16(3) wascompleted on 13.3.1990 by increasing the returned value by 10% overand above the value adopted for the assessment year 1984-85. Thereference to the Valuation Officer under Section 16-A was made evenbefore the completion of the assessment. However, without waiting forthe Valuation Report, the Officer had to complete the assessment onaccount of the limitation. Hence, only after passing the assessmenton 13.3.1990, the valuation report dated 12.3.1991 was received.Thereafter, a notice under Section 17 was issued on 16.3.1993. 10. The provision of law relating to assessment on the wealthescaping assessment, as it then stood during the material assessmentyear 1985-86, reads as follows: "17. Wealth escaping assessment – (i) If the Wealth- tax Officer - (a) has reason to believe that by reason of theomission or failure on the part of any person to make areturn under section 14 of his net wealth or the net wealthof any other person in respect of which he is assessableunder this Act for any assessment year or to disclose fullyand truly all material facts necessary for assessment ofhis net wealth or the net wealth of such other person forthat year, the net wealth chargeable to tax has escapedassessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise; or(b) has, in consequence of any information in hispossession, reason to believe, notwithstanding that therehas been no such omission or failure as is referred to inclause (a), that the net wealth chargeable to tax hasescaped assessment for any year, whether by reason ofunder-assessment or assessment at too low a rate orotherwise; he may, in cases falling under clause (a) at any timewithin eight years and in cases falling under clause (b) atany time within four years of the end of that assessment year, serve on such person a notice containing all or anyof the requirements which may be included in a notice undersub-section (2) of section 14, and may proceed to assess orreassess such net wealth, and the provisions of this Actshall, so far as may be, apply as if the notice had issuedunder that sub-section." he may, in cases falling under clause (a) at any timewithin eight years and in cases falling under clause (b) atany time within four years of the end of that assessment year, serve on such person a notice containing all or anyof the requirements which may be included in a notice undersub-section (2) of section 14, and may proceed to assess orreassess such net wealth, and the provisions of this Actshall, so far as may be, apply as if the notice had issuedunder that sub-section." 11. The reading of the order of assessment says nothing aboutthe sub-section under which the assessment was reopened. If the caseof the Revenue has to fall under sub-section (a), then it mustsatisfy the following conditions, namely, the Assessing Officer musthave reason to believe that there was omission or failure on the partof an assessee to make a return of his net wealth under Section 14for any assessment year or there was an omission or failure on thepart of the assessee to disclose fully and truly all material factsnecessary for assessment for that year; that by reason of the same,the net wealth chargeable to tax has escaped assessment for that yeareither by reason of under-assessment or assessment at too low a rateor otherwise. If the case has to fall under Section 17(1)(b), theOfficer must have in his possession, information upon which theOfficer has reason to believe that even though there was no omissionor failure on the part of the assessee to disclose fully and trulyall material facts as given under sub-section (a), yet, the netwealth chargeable to tax has escaped assessment either by reason ofunder-assessment or assessment at too low a rate or otherwise. TheSection further provides the time limit that in cases falling underclause (a), the Officer has to serve a notice containing therequirements which may be included in a notice under sub-section (2)of Section 14 within a period of eight years of the end of thatassessment year; in cases falling under Section 17(1)(b), the noticehas to be served on the assessee within a period of four years of theend of that assessment year. Thus going by sub-clause (a) of sub-section (1) to Section 17 of the Wealth Tax Act, the failure todisclose the material particulars fully and truly had led the Officerto believe that there was an escapement of tax either by reason ofunder-assessment or assessment at too low a rate. As far as sub-clause (b) is concerned, notwithstanding that there was no omissionor failure on the part of the assessee, the Officer must haveinformation in his possession to result in a reopening of theassessment. 12. It is an admitted fact that the assessee had returned itsincome and the materials were also placed before the Wealth TaxOfficer at the time of the original assessment; thereby there isnothing to suggest that the assessee had withheld the material factsor that the facts placed before the Officer are not truly and fullydisclosed, necessary for assessment. Hence, we do not find any groundfor this Court to accept the case of the Revenue that the Officer hadexercised his jurisdiction under Section 17(1)(a) of the Wealth Tax Act to reopen the assessment. The second proviso to Section 17(1),which was introduced with effect from 1.4.1989, is not availableduring the relevant assessment year. 13. In the decision reported in 264 ITR 566 (Commissioner ofIncome-Tax and another V. Foramer France), arising under Income TaxAct relating to Sections 147 and 148 of the Income Tax Act, theSupreme Court pointed out that when there was no failure on the partof the assessee to disclose fully and truly all material facts forassessment, the assessment could not be reopened on the basis ofchange of opinion. Act to reopen the assessment. The second proviso to Section 17(1),which was introduced with effect from 1.4.1989, is not availableduring the relevant assessment year. 13. In the decision reported in 264 ITR 566 (Commissioner ofIncome-Tax and another V. Foramer France), arising under Income TaxAct relating to Sections 147 and 148 of the Income Tax Act, theSupreme Court pointed out that when there was no failure on the partof the assessee to disclose fully and truly all material facts forassessment, the assessment could not be reopened on the basis ofchange of opinion. 14. In the decision reported in 237 ITR 505 (Karni Singh Ji ofBikaner (Dr.) v. The Dy. Commissioner of Income-tax & Anr.), referredto by the learned counsel appearing for the Revenue, the Delhi HighCourt held that the Valuer's report received subsequent to the dateof assessment would be a sufficient ground to reopen the assessmentand notice of assessment under Section 17 of the Wealth Tax Act wasvalid. In so holding, the Delhi High Court followed the Full Benchdecision of the Kerala High Court reported in 213 ITR 14 (CWT v.V.CLEETUS). 15. In the decision reported in 238 ITR 440 (Commissioner ofWealth-tax v. K.L. Varadaraju), this Court considered the correctnessof the proceedings under Section 17 in a case of reassessment where,at the time of original assessment, the assessee had given fulldetails as regards the plan of the house, full details regarding thesite and the valuation of the shares. Proceedings were initiatedunder Section 17(1)(a) of the Wealth Tax Act. On appeal by theRevenue before this Court, confirming the findings of the Tribunalthat the assessee had produced all relevant particulars for thepurpose of proper assessment at the time of original assessment, thisCourt held that the assessee could not be stated to be guilty ofproducing inadequate particulars or untrue particulars at the time ofassessment and that the assessee had not omitted to produce full andtrue particulars at the time of the original assessment. In thecircumstances, this Court held that the Wealth Tax Officer had nojurisdiction to make reassessment under Section 17(1)(a) of the Act.As far as the claim based on Section 17(1)(b) of the Act isconcerned, this Court further pointed out that the case would notfall under the above-said sub-section, since the proceedings underSection 17(1)(b) had become time barred at the time of initiation ofproceedings. Hence, only on the basis of Section 17(1)(a) of theWealth Tax Act, the question of the validity of reassessment could bedetermined. This Court further pointed out that it was unnecessaryto express any opinion as regards the jurisdiction of the Wealth TaxOfficer to obtain the valuation report under Section 16-A of the Act.In the light of the findings under Section 17(1)(a), this Courtrejected the plea of the Revenue. 16. The reassessment proceedings were initiated in respect ofthe assessment year 1985-86 by issuing a notice on 16.3.1993. Whenthe case is to fall under Section 17(1)(b), then the proceedingsshould have been taken to serve the notice within four years of theend of that assessment year. Going by the above dates, theproceedings taken under Section 17 of the Act, would not fall under17(1)(b) of the Act. Hence, necessarily, the same has to beconsidered with reference to the provisions under Section 17(1)(b) ofthe Wealth Tax Act. Even here, to sustain the proceedings, the twinconditions, namely, that the Officer had reason to believe that byreason of omission or failure to disclose fully and truly allmaterial facts necessary for assessment had resulted in an escapementof tax and that there was under-assessment in the assessee's case,must be present to justify a reopening under Section 17(1)(a) of theWealth Tax Act. Thus, there must be a nexus between the material atthe hands of the Officer and formation of belief that there wasescapement of wealth from assessment on account of the failure of theassessee to disclose fully and truly, all material facts. In theabsence of any nexus or any one of the requirements, the reassessmentproceedings could not be upheld as one falling under Section 17 ofthe Wealth Tax Act. The mere fact that the Officer rejects thevaluation of the assessee based on the Valuer's Report, obtainedunder Section 16A in respect of a reference made during the pendencyof the assessment, by itself, would not justify the requirementsunder Section 17(1)(a) to reopen the assessment under Section 17(1)(a) of the Act. 17. Thus, when the requirements under Section 17(1)(a) are notsatisfied, we have no hesitation in rejecting the case of theRevenue, thereby, affirming the view of the Tribunal. Even assumingthat the case of the Revenue is to be accepted, going by the decisionof this Court in the same assessee's case in COMMISSIONER OF WEALTH-TAX Vs. SHARDLOW INDIA LTD., reported in (2006) 285 ITR 426 (Mad) asregards the valuation of the property to be adopted based on thecompensation payable under the Tamil Nadu Urban Land (Regulation andCeiling) Act, the revenue difference would be so minimal, that thecase does not call for any interference on the Tribunal's order.Hence, we have no hesitation in accepting the case of the assessee.Accordingly, the tax case appeal stands dismissed. No costs. lan https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, IIIrd Floor, Besant Nagar, Chennai-90 2. The Commissioner of Wealth Tax (Appeals) Chennai 3. The Deputy Commissioner of Wealth Tax Special Range -1, Madras 1 cc To Mr.T.Ravikumar, Advocate, SR.39998 1 cc To Mr.R.Vijayaraghavan, Advocate, SR.39707 Tax Case (Appeal) No.550 of 2004 GV (CO) RH (29.7.11)