Madhya Pradesh H.C : 123 kgs. of primary gold was an asset belonging to the assessee on the relevant valuation date and the value thereof is includible in the net wealth of the assessee

High Court Of Madhya Pradesh

Meghji Girdhar (HUF) vs. Commissioner of Wealth-tax

Assessment Years : 1966-67 To 1975-76 And 1978-79 To 1981-82

Section : 2(ea)

Shantanu Kemkar And Prakash Shrivastava, JJ.

Misc. Civil Case No. 358 Of 1995

October 29, 2010

JUDGMENT

Prakash Shrivastava, J. – This reference is under s. 27(1) of the WT Act, 1957, at the instance of the assessee as well as the Revenue, whereby the Tribunal has referred the following questions to this Court for opinion :

At the instance of the assessee :

“(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that 123 kgs. of primary gold was an asset belonging to the assessee on the relevant valuation date and the value thereof is includible in the net wealth of the assessee ?

(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in considering and adjudicating upon the plea advanced for the first time before the Tribunal by the Revenue that the assessee did not entrust the gold bullion weighing 123.720 kgs. to Ganpatlal and others, and still continues in possession thereof ?

(3) If answer to the above question is in the affirmative, then whether on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that 123.700 kgs. of gold bullion was not entrusted by the assessee to Ganpatlal and others, and the assessee is still in possession and custody thereof and the same is the property of the assessee without any restriction of enjoyment ?

(4) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the value of 66 kgs. of gold out of 123 kgs. can be treated as an asset on the relevant valuation date, when the same was not traceable and was not returned by Ganpatlal and others ?

(For the asst. yrs. 1966-67 to 1975-76 and 1978-79 to 1981-82)

(5) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the silver in question is an asset belonging to the assessee on the relevant valuation date and its value is to be included in the net wealth of the assessee ?

(For all the assessment years under consideration except asst. yrs. 1973-74 to 1975-76)

(6) Whether on the facts and in the circumstances of the case, the Tribunal has erred in not accepting the alternative stand of the assessee that for the asst. yrs. 1966-67 to 1972-73, only the discounted value of the silver should be added in the net wealth of the assessee ?

(For asst. yrs. 1966-67 to 1972-73)

(7) Whether on the facts and in the circumstances of the case, the Tribunal was justified in including the value of 240 kgs. of primary gold in the net wealth of the assessee, although the same had been confiscated after the relevant valuation date but seized before the valuation date ?

(8) Whether on the facts and in the circumstances of the case, it can be held that the gold in question had any value on the relevant valuation date ?

(For the asst. yr. 1966-67)

(9) Whether on the facts and in the circumstances of the case, the Tribunal has erred in not allowing deduction for the sum of Rs. 25 lakhs being the penalty imposed for contravention of the Gold Control Rules and remaining unpaid on the relevant valuation date ?

(For all the assessment years under consideration except asst. yr. 1966-67)

(10) Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the AO to include 50 per cent of the value of silver as determined by him in the assessment orders in the net wealth of the assessee ?”

(For the asst. yrs. 1978-79 to 1981-82)

At the instance of the Revenue :

“Whether or the facts and in the circumstances of the case, the Tribunal is justified in law in directing to adopt the discounted value in respect of silver bullion ?”

(For the asst. yrs. 1978-79 to 1981-82)

2. As per statement of case, the assessee’s case is that after the raid by Central excise authorities in 1965, Shri Gunvantlal son of late Chhaganlal, the then Karta of assessee HUF, had handed over 51 gold bars each weighing 3 Sers gold for safe custody to Ganpatlal and Hiralal in whom the assessee had confidence. Subsequently, on asking Ganpatlal had returned only 7 gold bars weighing 19 kgs. for which the assessee had acquired Gold Bonds. For remaining 123 kgs. of gold, on 9th Dec., 1965, Gunvantlal had lodged a report for the offence of breach of trust under s. 406 of IPC at Police Station, Chhoti Sadri against Ganpatlal and others. During investigation 57 kgs. of gold was recovered from Ganpatlal and kept in the District Treasury at Chittorgarh. During trial in the criminal case Ganpatlal and Hiralal were convicted by the Court of Addl. Asstt. Sessions Judge, Udaipur, vide judgment dt. 11th Jan,, 1975. In appeal, the Addl. Sessions Judge, Udaipur, by order dt. 7th Aug., 1978 acquitted them and their acquittal was maintained by High Court in appeal.

3. In the assessment proceedings, for the assessment years under consideration, the assessee claimed that value of 123 kgs. of gold should not be included in computing his net wealth because 57 kgs. of gold, recovered from Ganpatlal was still in possession of the police and was not delivered to him and he had lost the ownership of this 57 kgs. gold and the same was not an asset belonging to the assessee. These gold bars had foreign marking and as such it was a prohibited article. As regards remaining 66 kgs. of gold, it was contended that the same cannot be treated as an asset of the assessee because it was not returned to him by Ganpatlal and others nor the same could be traced by the police. The AO rejected these contentions and included the value of the 123 kgs. gold in net wealth of the assessee. The addition made by the AO was confirmed in appeal by CWT(A). The appellate order of CWT(A) was set aside by the Tribunal in assessee’s appeal vide its order dt. 3rd Nov., 1982, and matter was remanded back to the CWT(A) for a fresh decision. On remand, the CWT(A) held that on the relevant valuation date, the gold in question was an asset of the assessee, but placing reliance on the order of the Tribunal dt. 3rd July, 1984, rendered in MA No. 20/Ind/1983, the learned CWT(A) held that the gold in question had “nil” value on the respective valuation date.

4. Against the above finding of the CWT(A), both sides had preferred appeals before the Tribunal. The Tribunal held that the entire story of the assessee about entrustment of gold weighing 142.720 kgs. to Ganpatlal is not worthy of belief and is a concocted story and the assessee had continued in possession of 123.720 kgs. of gold bullion and its value has to be included in the assessee’s net wealth. The Tribunal dismissed the appeals filed by the assessee and allowed the appeals of the Revenue.

5. In this background the Tribunal has referred the above questions to this Court. For convenience, question No. (2) is decided first :

Question No. (2)

6. The AO for the assessment years in question had accepted the assessee’s version that 142.720 kgs. of gold was given on trust to Ganpatlal and others. It is also not in dispute that before the CWT(A) no issue was raised by the Revenue that the version given by the assessee is a concocted story. Undisputedly no such ground was also raised by the Revenue in the grounds of appeal before the Tribunal. The order of the Tribunal does not indicate that any written application was filed by the Revenue for urging the additional ground in the appeal. Thus, till the hearing of the appeal before Tribunal, the Revenue had not questioned the assessee’s version, at any stage. The order of Tribunal indicates that at the time of final hearing before the Tribunal for the first time an argument was advanced by the counsel for the Revenue that the version of the assessee about entrusting 142.720 kgs. of gold to Ganpatlal and others is a concocted story. Therefore, counsel for the assessee had objected to raising of this new plea before Tribunal.

7. Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 (“Rules, 1963” hereafter) framed in exercise of the powers conferred by s. 255(5) of the IT Act, 1961 provides for the grounds which may be taken in appeal and in terms of r. 11 of Rules, 1963, the appellant before the Tribunal cannot urge a ground not set forth in the memorandum of appeal without taking leave of the Tribunal and the Tribunal cannot rest its decision on such additional ground unless the affected party had a sufficient opportunity of being heard on that ground. Rule 11 of Rules, 1963 is quoted below for ready reference :

“11. Grounds which may be taken in appeal.—The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule :

Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.”

8. The Supreme Court in the matter of National Thermal Power Co. Ltd. v. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC), while considering the scope of r. 11 of Rules, 1963, has held that the Tribunal has the discretion to allow or not to allow new grounds to be raised and in terms of the said judgment, a question of law though not raised before the authorities but having bearing on the tax liability of the assessee can be raised before the Tribunal.

9. Counsel for the asssessee has placed reliance upon the Full Bench judgment of the Andhra Pradesh High Court in the matter of CIT v. Late Begum Noor Banu Alladin (1993) 115 CTR (AP) 448 : (1993) 204 ITR 166 (AP), the Calcutta High Court in the matter of Indian Steel & Wire Products Ltd. v. CIT(1994) 121 CTR (Cal) 335 : (1994) 208 ITR 740 (Cal) and the Bombay High Court in the matter of Ugar Sugar Works Ltd. v. CIT (1982) 27 CTR (Bom) 174 : (1983) 141 ITR 326 (Bom), but these judgments of the High Courts lay down a very wide proposition, but this issue needs to be looked into in the light of express languague of r. 11 and law laid down by the Supreme Court in National Thermal Power Co. Ltd. (supra).

10. Counsel for the respondent in support of his submission that such a factual ground can be raised for the first time during hearing before Tribunal has relied upon the judgment of the Gujarat High Court in the matter of CIT v. Mayur Foundation (2005) 194 CTR (Guj) 197 : (2005) 274 ITR 562 (Guj), but in that case, the additional ground sought to be raised was a question of law relating to interpretation of one of the sections of the Act. He has also relied upon the judgment of the Delhi High Court in the matter of Maruti Udyog Ltd. v. ITAT & Ors. (2001) 169 CTR (Del) 366 : (2001) 252 ITR 482 (Del), wherein a separate application under r. 11 was filed before the Tribunal raising additional ground omitted inadvertently in the memo of appeal and the Tribunal had passed the order admitting the additional ground which was challenged in writ petition.

11. Counsel for the assessee has also relied upon the judgment of the Punjab & Haryana High Court in the matter of Abhishek Industries Ltd. v. CIT & Anr. (2006) 206 CTR 450(P&H) : (2007) 290 ITR 655 (P&H), but in that case, the High Court had held that the request made for raising the additional ground of appeal was reasonable because the facts with regard to the legal issues being raised as additional ground, were already on record and the additional issue was already decided by the Tribunal in favour of the assessee for other years. But the position is different in present case, therefore, the judgments relied upon by the counsel for the Revenue are distinguishable on their own facts and they do not help the Revenue in this case.

12. Coming to the facts of the present case, the additional ground raised by the Revenue before the Tribunal for the first time, that the version of the assessee that the gold was given on trust to Ganpatlal and others was a concocted story, was a purely factual ground which did not involve anylegal issue. For raising such a factual ground, there was no foundation in the order of the AO or before the CWT(A) since neither before the assessing authority nor before the appellate authority i.e., CWT(A), the Revenue had contested the assessee’s stand that the gold was given on trust to Ganpatlal and others.

13. It is not disputed before this Court that no application was filed by the Revenue under r. 11 of Rules, 1963, before the Tribunal for raising such a ground and the ground was argued for the first time when the appeal was being heard finally and no order was passed by the Tribunal granting leave to the Revenue to urge this additional ground which was not set out in the memo of appeal. The assessee had also objected to raising of this new plea at hearing stage. Therefore, in terms of proviso to r. 11 of Rules, 1963, the assessee had no adequate opportunity of being heard on that ground. Thus, the Tribunal was not right in considering and adjudicating upon new factual plea raised for the first time before it.

14. There is yet another reason why the Tribunal should not have considered and adjudicated such a new factual plea. The assessee for the earlier, intervening and subsequent assessment year had taken the same stand that 142/123 kgs. of gold was given on trust to Ganpatlal and others and for all these years the tax authorities accepted the version of the assessee and treated the gold to be given on trust to Ganpatlal and others.

15. The relevant orders of the Tribunal and this Court for the other assessment periods have been filed by the counsel for the assessee separately before this Court and the counsel for the Revenue has not objected to the referring to the same for deciding the present reference. He has also admitted that the orders for the previous periods 1964-65 to 1965-66, intervening periods 1976-77, 1977-78 and subsequent periods 1982-83 to 2000-01 have attained finality and they have not been challenged any further.

16. Thus, when for all the prior, intervening and subsequent years upto 2000-01 the version of assessee that he had entrusted 142 kgs. of gold to Ganpatlal and others, has been accepted, then it furnishes an additional reason for holding that the Tribunal should not have allowed the Revenue to challenge the version of the assessee in respect of entrustment of gold, for the first time before the Tribunal for the assessment years in question.

17. In view of the aforesaid analysis, we hold that the Tribunal committed an error in permitting the Revenue to raise the new factual plea for the first time at the stage of arguments in appeal contrary to r. 11 of Rules, 1963 and contrary to the judgment of the Supreme Court in the matter of National Thermal Power Co. (supra) and also contrary to the accepted version of the assessee for the prior, intervening and subsequent years which has now attained finality.

18. Thus, we answer the question No. (2) in favour of the assessee.

Question No. (3)

19. Since the question No. (2) is answered in negative, in favour of the assessee, therefore, the question No. (3) does not arise for consideration.

Question Nos. (1) and (4)

20. These questions are overlapping and interlinked since 66 kgs. of gold mentioned in question No. (4) is included in total 123 kgs. of gold mentioned in question No. (1). Out of 123 kgs. of gold mentioned in question No. (1) for 57 kgs. of gold recovered from Ganpatlal, the assessee had claimed ownership and balance 66 kgs. of gold is untraceable. Therefore, position of 123 kgs. of gold needs to be examined in two parts i.e., the one relating to 57 kgs. and other for 66 kgs.

21. So far as 57 kgs. of gold is concerned, on the assessee’s complaint, in the criminal prosecution of Ganpatlal and others, for offence under s. 406 of the IPC, the Addl. Asstt. Sessions Judge, Udaipur, in Sessions Case No. 22 of 1969 had convicted the accused by judgment dt. 11th Jan., 1975 and had directed that the police will convey the seized gold to the nearest Gold Control Officer. The Addl. Sessions Judge, Udaipur, in Criminal Appeal No. 153 of 1977 by judgment dt. 7th Aug., 1978 had set aside the conviction and sentence imposed upon the accused persons. This order has been maintained in appeal by High Court. The High Court of Rajasthan at Jodhpur by judgment dt. 14th Sept., 2007 dismissed the appeal of the State against acquittal and also dismissed the revision of the assessee against disposal of case property by holding that the recovered gold was not proved to be in ownership of the complainant as it was a contraband article at the relevant time and that the trial Court had already ordered under s. 452 of the CrPC for its delivery to gold control authority. The SLP against this order at the instance of the assessee has been dismissed by the Supreme Court.

22. Though the CWT(A) for the current assessment period has found it to be an asset belonging to the assessee but the assessee is not in actual possession of this asset and in view of the judgment of Rajasthan Court in criminal case, he has failed to receive its possession and with the dismissal of SLP by the Supreme Court he has lost all the chances of its recovery.

23. The question relating to 57 kgs. of gold has been answered in favour of assessee for other assessment period. For the asst. yrs. 1964-65 and 1965-66, the Tribunal found that the assessee was in constructive possession of 142 kgs. of gold entrusted to Ganpatlal and others and since the possession was of primary gold which was a prohibited item, therefore, it had no value, hence, it was not included in the net wealth of the assessee. For the asst. yrs. 1976-77, 1977-78 and 1982-83 to 1984-85 the Tribunal held that in respect of 57 kgs. of gold recovered from Ganpatlal that since assessee was claiming its ownership, therefore, it was included in the net wealth of the assessee and its value was included in the net wealth of the assessee. The order dt. 7th Oct., 1994 for the asst. yrs. 1976-77, 1977-78 and 1982-83 to 1984-85 was followed in the subsequent years 1985-86 to 1989-90 and 1990-91 to 1993-94.

24. For the assessment periods 1976-77, 1977-78 and 1982-83 to 1984-85 in Misc. Civil Case No. 521 of 1995 (Meghji Girdhar v. CWT) and for the periods 1985-86 to 1989-90) in IT Ref. No. 6 of 1996 (Meghji Girdhar v. CWT), and for the periods 1990-91 to 1993-94 in WT Appeal No. 50 of 2000 (Meghji Girdhar v. CWT), the following question was referred to this Court :

“(iv) Whether on the facts and in the circumstances of the case, the Tribunal has erred in holding that 57 kgs. of primary gold was an asset belonging to the assessee on the relevant valuation date and the value thereof is includible in the net wealth of the assessee ?”

25. The aforesaid question has been answered by this Court in favour of the assessee for those years at the joint request of the assessee as well as the Revenue by common order dt. 2nd July, 2009. Therefore, for the assessment periods under consideration also the Revenue is precluded from taking a different stand having conceded for the other assessment years.

26. For the periods 1994-95 to 2000-01 also the assessee’s version was accepted and following the order of the High Court dt. 2nd July, 2009 passed in IT Ref. No. 6 of 1996 (Meghji Girdhar v. CWT), the Tribunal by order dt. 23rd Oct., 2009 did not include 57 kgs. of gold in the net wealth of the assessee.

27. Thus, it is held that 57 kgs. of gold out of 123 kgs. of gold was not an asset belonging to the assessee on the relevant valuation date and it is not includable in the net wealth of the assessee.

28. So far as 66 kgs. of gold is concerned, though the assessee is claiming ownership of the 66 kgs. of gold on the premise that it was given on trust to Ganpatlal and others but the same has neither been returned by them to assessee nor recovered by the police. The civil remedy forrecovery of the said 66 kgs. of gold from Ganpatlal and others has also become time-barred, therefore, this 66 kgs. of gold is to be treated as lost and not to be included in the net wealth of the assessee. Same is the view taken for other assessment years also. The order of the Tribunal, dt. 7th Oct., 1994 for the periods 1976-77 and 1977-78 (intervening periods) and 1982-83 to 1984-85 (subsequent periods) has been placed on record which has become final in respect of 66 kgs. of gold wherein the value of the said gold was not included in the net wealth of the assessee on the following reasoning :

“(29) Having considered the rival submissions, we are of the opinion that the assessee must succeed on this point. As already stated earlier, 66 kgs. of gold has not been returned to the assessee nor the same could be recovered by the police. No proceedings for recovery of the said gold are pending. The assessee’s claim to get back the gold also stands barred by the law of limitation. Keeping all these facts in view, we find ample force in the contention of the assessee that the said gold stands lost. For including the value of an asset in the net wealth of the assessee, the asset must be in existence on the relevant valuation date. Since that gold was not in existence on the relevant valuation date, its value, in our opinion, is not includible in the assessee’s net wealth. In that connection, reference to the report of the Select Committee on the Wealth-tax Bill, 1957, can be of advantage. In the said report, the Select Committee had observed as under :

With regard to the definition of ‘net wealth’, the Committee have noted the assurance given by the Minister of Finance that if any asset referred to in the said definition was lost or stolen or destroyed, it would not be included in computing the net wealth of an assessee provided the same had not been insured and that necessary instructions in this respect would be issued to the authorities concerned.

(30) In view of what has been discussed above, we hold that value of 66 kgs. of gold is not to be included in the net wealth of the assessee.”

29. We find no flaw in the aforesaid reasoning and there is no reason to take a different view when for other assessment period the above finding has become final. Thus, we hold that this 66 kgs. of gold cannot be held to be an asset on the relevant valuation date and its value is not includible in the net wealth of assessee.

30. Thus, in view of the above analysis, it is also held that 123 kgs. of gold (57 kgs. + 66 kgs.) was not an asset belonging to the assessee and value thereof is not includible in the net wealth of assessee. The question Nos. (1) and (4) are accordingly answered in favour of the assessee.

Question Nos. (5) to (10)

31. Learned counsel appearing for the assessee has submitted that he did not wish to press question Nos. (5) to (10) referred by the Tribunal and the same may be answered against the assessee. Accordingly, question Nos. (5) to (10) are answered against the assessee on the basis of the statement made by counsel for the assessee.

Question at the instance of the Revenue

32. This question relates to adoption of discounted value of silver bullion by the Tribunal for the asst. yrs. 1978-79 to 1981-82. The WTO had made heavy addition on account of valuation of the silver bullion in question. The CWT(A) held that the silver bullion during the period was not an asset of the assessee, therefore, adopted nil value of the said asset. The Tribunal held that silver bullion in question was an asset of the appellant but the Tribunal because of the heavy addition accepted the contention of counsel for the assessee and took the discounted value of the silver bullion and directed the WTO to add 50 per cent of the additions adopted by him in the assessment order. We find substance in the argument of the counsel for the assessee that since the silver bullion was seized and it was not available to the assessee for use for such a long period of time, therefore, discounted value has rightly been adopted. The counsel for the respondent-Revenue could not point out as to what was wrong in adopting the discounted value of the silver bullion in the peculiar facts of the present case. Thus, this question is answered in favour of the assessee and against the Revenue.

33. The miscellaneous civil case is disposed of accordingly.

[Citation : 344 ITR 364]

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