Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the wealth- tax assessments for the earlier years, viz., 1966-67 to 1973-74, were made on a protective basis ?

Counsel Appeared

K. Ranganathanchari, for the Assessee : M. Suryanarayana Murthy & A.V. Krishna Koundinya, for the Revenue

B.P. JEEVAN REDDY, J.:

Three questions are stated for our opinion by the Tribunal under s. 256(1) of the IT Act, 1961. They are :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the wealth- tax assessments for the earlier years, viz., 1966-67 to 1973-74, were made on a protective basis ?

(2) Whether the Tribunal was right, on the facts and in the circumstances of the case, in holding that the wealth-tax assessments for the earlier assessment years did not constitute independent evidence which would help in deciding the tenability or otherwise of the assessee’s plea that the assessee was possessed of large funds in earlier years ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the addition to the extent of Rs. 1,60,974 for the asst. yr. 1974-75 ?”

The assessee filed IT returns for the asst. yrs. 1964-65 to 1973-74 simultaneously on 9th Oct., 1974. On 10th Oct., 1974, he filed the return for the asst. yr. 1974-75 with which we are concerned in this reference. In this return, he disclosed an income of Rs. 23,300 from tailoring business, business in cloth cut-pieces and moneylending. He also disclosed an agricultural income of Rs. 15,000 for the purpose of rate.

The filing of the returns suddenly on 9th & 10th Oct., 1974, was the result of a notice issued under s. 139(2) by the ITO on 25th Sept., 1974, for the asst. yr. 1974-75. This notice could not be served upon the assessee as he was involved in criminal cases and was also detained under the Maintenance of Internal Security Act. It is evident that he came to know of it. (He was detained on the ground that he was indulging in organizing the gambling known as “matka”).

The assessee disclosed varying figures of income for the asst. yrs. 1964-65 to 1973-74 ranging from Rs. 3,559 to Rs. 35,795. The sources of income were, however, the same throughout.

The ITO found that during the accounting year relevant to the asst. yr. 1974-75, the assessee had made certain investments and acquisitions to the tune of Rs. 2,53,524. The assessee was asked to explain the same. The explanation was that the said income has been generated by business activities in tailoring, cloth cut-pieces and moneylending, besides agriculture. After conducting necessary investigation and gathering necessary information, the ITO disbelieved the assessee’s explanation., According to him, the income from agriculture could not be more than Rs. 4,000 during the relevant accounting year. He was also of the opinion that the tailoring business could not have generated any income (when the Inspector visited the assessee’s house on 22nd July, 1975, one sewing machine was found lying in a corner of a room and it was not working). Coming to the business in cloth cut- pieces, the ITO held that no such business was done by the assessee and, therefore, no income could have arisen from the said source. He then considered the moneylending business and found that the assessee could produce promissory notes of the value of only about Rs. 10,000 odd and, therefore the said business also could not have generated any income. Accordingly, the ITO treated the said investments as unexplained cash receipts. He also examined the investments made by the assessee’s son. After taking into account the expenditure and other deductions, he determined the total unexplained investments at Rs. 2,73,727.

On appeal, the CIT(A) deleted certain items, as a result of which the addition of income came to Rs. 1,95,974 (as against Rs. 2,73,727 determined by the ITO). The assessee filed a further appeal before the Tribunal. Before the Tribunal, the assessee contended that in the assessments made under the WT Act for the earlier assessment years, the wealth returned by him has been accepted by the WTO, which clearly shows that the assessee possessed substantial wealth from year to year, and which also shows that the investments made were not out of any unexplained source. Reliance was placed upon the statement relating to the growth of moneylending capital from year to year which was accepted by the WTO and which, according to the assessee, establishes his case with respect to the source of funds. In view of the said contention, the Tribunal called for and obtained the wealth-tax records relating to the assessee and looked into the same. The Tribunal rejected the assessee’s contention on the following reasoning : the WT returns for the asst. yrs. 1967-68 to 1974-75 were filed only on 23rd Oct., 1974, simultaneously; indeed, the return relating to the asst. yr. 1966-67 was filed even later, on 3rd Feb., 1975. In other words, the WT returns were filed only after the IT returns for the said assessment years were filed only on 9th and 10th Oct., 1974. In his assessment orders made for the asst. yrs. 1966-67 to 1973-74, the WTO referred to the stand taken by him in the order of assessment relating to the assessments year of 1974-75 and stated that he was making those wealth-tax assessments accepting the returns as made by the assessee on a protective basis. In the wealth-tax assessment for the asst. yr. 1974-75, the stand taken by the WTO is the same as the stand taken by the ITO in the income-tax assessment for the said year. In this view of the matter, the plea of moneylending capital growing from year to year, as per the statement filed by the assessee, cannot be accepted and cannot be treated as an explanation for the sudden investments made during the accounting year relevant to the asst. yr. 1974-75. The Tribunal, however, gave certain marginal relief according to which the total additions came down to Rs. 1,60,974. At the request of the assessee, the Tribunal referred the aforesaid three questions for the opinion of this Court.

The main contention urged by Sri K. Ranganathachari, learned counsel for the assessee, is that the Tribunal was in error in holding that the assessment orders under the WT Act for the asst. yrs. 1966-67 to 1973-74 were made “on a protective basis”; on the other hand, the said assessments were made on a regular basis, accepting the wealth returned by the assessee, and that the said assessment orders under the WT Act completely and fully explain the investments during the accounting year relevant to the asst. yr. 1974-75. Counsel, therefore, contended that the addition of income on the ground that the assessee has failed to explain the source thereof is unsustainable. We are unable to agree.

Firstly, the copies of the assessment orders under the WT Act were not filed by the assessee before the Tribunal. It was the Tribunal which thought it fit to send for those orders and the records relating there to, evidently with a view to render a satisfactory judgment inasmuch as the said assessment orders were referred to by the assessee’s counsel during the arguments. Having not filed the wealth-tax assessment orders before the Tribunal, the assessee could not indeed have been nor should have been allowed to base any argument thereon. We are, therefore, unable to give any credence to the argument of Sri Ranganathachari before us that the Tribunal sent for and looked into the wealth-tax assessment orders after the arguments in the case were over and that it did not give an opportunity to the assessee to put forward his submissions with reference thereto. In our opinion, such an argument does not lie in the mouth of the assessee in view of his failure to file copies of the orders, on which he was relying. Just because the Tribunal, for the sake of completeness and out of concern for doing full justice, sent for the wealth-tax records, because the orders passed therein were referred to during the course of the arguments, it cannot be accused of looking into the same behind the back of the assessee. The attribution is, to say the least, uncharitable.

Now, coming to the assessment orders under the WT Act, which have been printed as part of the record before us, we find that all the assessment orders for the asst. yrs. 1966-67 to 1973-74 contain an express rider which negatives the very basis of the argument addressed by the assessee. In the assessment order for the asst. yr. 1966-67, the last sentence reads thus : “Consequently, without prejudice to my finding for the asst. yrs. 1974-75 and 1975-76, the wealth returned for the year 1966- 67 is hereby accepted.”

11. Similar words are found in each of the assessment orders for the said assessment years upto and inclusive of 1973-74. It is thus evident that not only the wealth returned was accepted, but it was accepted without prejudice to his findings for the asst. yrs. 1974-75 and 1975-76. It, therefore, cannot be said that the wealth returned by the assessee was implicitly accepted or that the said acceptance explains the source of the disputed income.

12. Mr. Ranganathachari then contended that the assessments made under the WT Act for the asst. yrs. 1966-67 to 1973-74 cannot be called “protective assessments”, as generally understood, and that the Tribunal was, therefore, in error in calling them “protective assessments”. He submitted that a protective assessment is one which is made when the assessing authority is in doubt as to the person liable for payment of tax. He relies upon the decision of the Supreme Court in Lalji Haridas vs. ITO (1961) 43 ITR 387 (SC) : TC10R.649, where it was held : “In cases where it appears to the IT authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or by B, or by both together, it would be open to the relevant IT authorities to determine the said question by taking appropriate proceedings both against A and B.”

13. Counsel submits that a “protective assessment” means only the aforesaid type of assessment and that the assessment made in the case of the assessee herein cannot be called a protective assessment. We are, however, not impressed by this argument. The expression “protective assessment” is not defined either in the Act or in the Rules. Even if a protective assessment is understood to have only one connotation mentioned in the judgment of the Supreme Court aforesaid, even then it would be a case of inappropriate use of that expression in this case and that cannot furnish a valid ground of attack to the assessee. We need not quarrel with the use of the expression “protective assessment”. What we must really look at is : what was the nature of the assessment made and what was really intended? For the asst. yrs. 1966-67 to 1973-74, the WT returns filed by the assessee were accepted, and, while accepting the same, it was specifically stated that the said acceptance was without prejudice to the findings recorded in the IT assessments for the asst. yrs. 1974-75 and 1975-76. In such a case, it is idle to contend that the wealth returned for the asst. yrs. 1966- 67 to 1973-74 has been implicitly accepted or that the acceptance explains the income in question during the accounting year relevant to the asst. yr. 1974-75. In view of the said express rider—which can be called an explicit qualification—no such argument is open to the assessee. For the same reason, we are also of the opinion that the said acceptance of the assessment does not constitute independent evidence relevant in the matter of determining the sources of income of the assessee for the accounting year relevant to the asst. yr. 1974-75.

14. Mr. Ranganathachari then contended on the basis of the decision of the Kerala High Court in CIT vs. Cochin Company (P) Ltd. (1976) 104 ITR 655 (Ker) : TC10R.662, that inasmuch as the Revenue has also collected wealth-tax on the basis of the assessment orders aforesaid, relating to the asst. yrs. 1966-67 to 1973-74, they are estopped from taking a contrary stand in the present proceedings. It is submitted that the Revenue cannot be permitted to collect tax on the basis of the assessment orders under the WT Act relating to the earlier years and, at the same time, take a contrary stand in the present proceedings under the IT Act. It is submitted that allowing the Revenue to take such a stand would be unjust and unequitable. May be the principle contended for is unobjectionable ; but, there is no material in this case, nor was any material placed by the assessee before the Tribunal, to show that tax assessed under the WT Act for the earlier assessment years has been collected by the Revenue. As stated above, not even the orders under the WT Act were filed by the assessee at any stage of the proceedings—not even before the Tribunal. However, it appears that, after the Tribunal disposed of the appeal, the assessee filed a petition, being Miscellaneous Petition No. 23 of 1981, in the nature of a review petition. In this petition, the assessee objected to the use of the expression “protective assessment” by the Tribunal in its order and submitted that the assessments made under the WT Act for the said earlier years were not made on protective basis. He submitted further that the said orders have attained finality and conclusiveness and are, therefore, regular and final assessments. It was further stated that the Department has also issued a notice of demand to pay the tax thereunder. Penalty notices were also said to have been issued. Even at this stage, it was not alleged that tax was paid, nor were the notice of demand issued before the Tribunal. This reference to demand notice was apparently made only in passing, because a reading of the petition, and the order of the Tribunal thereon shows that the main contention urged was that the assessment orders were not “protective” in mature and that the Tribunal was wrong in calling them as such. The Tribunal concluded that there was no error apparent on the face of the record in its order, as urged by the assessee and, accordingly, dismissed the said miscellaneous petition. We are, therefore, unable to countenance this argument urged for the first time in this reference, since it is not backed by, or based upon, the necessary factual data.

15. For the above reasons, we answer the questions referred in the following manner : Our answer to question No. (1) is that it is unnecessary to go into the question whether the assessment orders under the WT Act for the asst. yrs. 1966-67 to 1973-74 were made on a “protective basis”. The said expression has no definite connotation and even if it has, it may, at the most, be a case of the use of an inappropriate expression by the Tribunal in this case. Looking to the substance of the matter, it is clear that the said assessment orders were made accepting the returns submitted by the assessee and with an express rider that the said acceptance is without prejudice to the findings recorded in the income-tax assessment orders relating to the asst. yrs. 1974-75 and 1975-76. The net effect is that the said assessment orders under the WT Act do not, in any manner, invalidator vitiate the assessment orders made under the IT Act for the asst. yr. 1974- 75.

16. For the same reasons, we answer question No. (2) in the affirmative and hold that the said assessment orders under the WT Act for the earlier years do not constituted independent evidence relevant to the assessee’s plea that he was possessed of large funds in earlier years.

17. So far as question No. (3) is concerned, it is essentially a question of fact and no reasons are shown as to why we should interfere with the said question of fact on this reference. Indeed, question No. (3) is merely consequential upon questions No. (1) and (2). Inasmuch as we have answered question Nos. (1) and (2) in favour of the Revenue we must answer question No. (3) also in the affirmative, i.e., in favour of the Revenue.

18. Referred case is answered accordingly. No costs.

RAMA RAO, J.:

While agreeing with the conclusion of my learned brother Jeevan Reddy J., I Propose to touch upon the applicability of protective assessment with reference to wealth- tax assessments vis-a-vis income-tax assessments.

The concept of protective assessment evolved by judicial decisions based upon practice prevalent in England. In Attorney-General vs. Aramayo (1925) 9 Tax Cases 445, Rowlatt J. held as follows : “Of course, there are provisions in the Act which say you shall not have two assessments for the same property on the same person; if one has gone wrong, you cannot have another. If it is thought that we have assessed this business in the name of Robinson and it is really carried on by Smith, if it is Smith now and it was Smith or Robinson before, I cannot see the slightest objection to it in commonsense, and I cannot see any from the point of view of the statute.”

The IT Act and other direct tax statutes postulate a single assessment. Assessment is quantification of the net income, after filtering diverse deductions and exemptions. The income is exigible to tax once in the hands of one person or entity. In the event of a doubt entertained by the assessing authority as to the correct recipient of the income, a protective assessment on one of the persons is blessed with a view to rescue the assessments from the taboo of double taxation and save the bar of limitation. Though tax and equity are considered as sworn enemies, this is one of the situations where equity found a way. In the event of plurality of assessment, the protective assessment is kept as a standby and springs into action, when the other assessment is discovered to be not correct. If recovery proceedings pursuant to a protective assessment are initiated, both the assessments run the risk of being scotched as it is tantamount to double taxation. In the event an assessment other than a protective assessment is found to be incorrect, the protective assessment will be activised and the other assessment will be freezed or set at naught or set aside by the exercise of suo motu power by the CIT or otherwise. The concept of a protective assessment as such does not fit into the assessments under the WT Act and the IT Act. Both are independent and self-contained enactments providing different nucleus for chargeability to tax. Both the Acts, however, peep into each other as the WT Act generates income at times and the income under the IT Act produces wealth or provides an accretion to the already existing wealth. There are also situations of wealth-tax assessees having no chargeable income under the IT Act and likewise income-tax assessees do not attain the status of having sufficinet wealth chargeable to wealth-tax. As they are independent enactments, the assessments under both Acts for the same assessment year can co-exist without being treaded upon by the principle of double taxation and the estoppel does not operate as there can be no estoppel against stature. But, however, certain situations of incongruity and inconsistency cannot be overlooked. In the instant case, the WT returns filed at a time for the assessment years are accepted and assessments are made. The circulating capital provided by the wealth is sought to be exploited for the spurt of investments in the years relevant for the assessment year. By the acceptance of the returns, the assessments made under the WT Act have become final. The contention of the assessee that the assessing authority cannot blow hot and cold in the same breath and cannot label the investments, as undisclosed income, while accepting the wealth providing a feeder to investments has considerable force. The Tribunal categorised the wealth-tax assessments as protective assessments. But, however, learned counsel for the assessee says that penal proceedings for belated filing of the returns are initiated and a portion of the tax is recovered and this is merely a pretence for protective assessments. As already discussed above, the concept of protective assessment does not fit in. The wealth-tax assessments appear to have been made accepting the returns without realising the implications. The income-tax assessments cannot be rendered invalid on the sole criterion of subsistence of wealth-tax assessments. To avoid inconsistency, we are sure that necessary steps will be taken to set aside the assessments under the WT Act and refund the tax if collected.

I agree with the order proposed to answer the reference in favour of the Revenue.

[Citation : 170 ITR 181]