High Court Of Rajasthan
Commissioner Of Wealth Tax vs. Sewalal Gafarlal
Sections WT 17, WT 27A
Asst. Year 1981-82, 1982-83, 1983-84
Rajesh Balia & H.R. Panwar, JJ.
WT Appeal Nos. 32 & 34 of 2001
22nd May, 2001
L.M. Lodha, for the Appellant
RAJESH BALIA, J. :
At the instance of CWT, these three appeals filed against the common order passed by the Tribunal, Jodhpur Bench, Jodhpur, dt. 19th June, 2000, holding that the initiation of proceedings under s. 17 of the WT Act after the expiry of four years from the end of relevant assessment years in question namely, 1981-82, 1982-83 and 1983-84 were barred by time and also that the proceedings were bad because notices have not been issued to all the members of the erstwhile HUF which has since been partitioned. As all the appeals raise common issue on same set of facts, we have heard the same together and propose to decide by this common order.
For the convenience we notice the facts relating to asst. yr. 1982-83. The facts of the case are that the HUF viz., M/s Sewalal Gafarlal was disrupted by a total partition on 16th Nov., 1982, and order under s. 20 of the WT Act, to that effect was recorded on 3rd Oct., 1986. The properties were distributed in the hands of the members of the erstwhile HUF. Out of seven members Shri Bhupatilal is being assessed to wealth-tax at Kota. Smt. Durga Devi expired after 16th Nov., 1982, and she transferred her interest to her daughter through a will. The other five coparceners are being assessed to wealth-tax at Banswara from 1984-85 in the status of their respective HUFs. Assessment of wealth-tax for the asst. yr. 1982-83 of the then existing HUF was completed on 7th Feb., 1986, by valuing the net wealth of HUF as on valuation date relevant to asst. yr. 1982-83 at Rs. 14,92,000 as against net wealth of Rs. 4,75,495 returned by the HUF.
In the case of assessment of (i) Shri Indra Kumar Sewalal, (ii) Durlabhlal Sewalal, (iii) Shri Govind Lal Sewalal, (iv) Shri Bharatlal Sewalal, and (v) Shri Surendra Kumar Sewalal during the assessment proceedings for 1989-90, long after partition of M/s Sewalal Gordhanlal (the erstwhile bigger HUF) had been recorded and its assessment for the asst. yr. 1982-83, the last year of its existence under the wealth-tax, reference for valuing the properties in the hands of the aforesaid five assessees were made under s. 16A to DVO. By a strange reasoning that had the properties not partitioned and remained with bigger HUF, its combined valuation as on the valuation date relevant to asst. yr. 1989-90 would have been three times the value declared by the new assessees for asst. yr. 1989-90. Assessment of M/s Sewalal Govindlal for asst. yr. 1982-83 was sought to be reopened under s. 17 of the WT Act, 1957, which notices were issued on 9th Sept., 1992, under s. 16(2) of the Act. Ultimately reassessment was made by valuing the property on the basis of valuation report obtained for the asst. yr. 1989-90, in the cases of properties held by the erstwhile members of the family in their hands respectively. The CWT(A) by a common order for the asst. yrs. 1982-83 and 1983-84 in the name of HUF Sewalal Gafarlal, through Karta Shri Govindlal Yagnik allowed the same and set aside the assessment orders by holding that notices issued to one member of disrupted HUF only which now no more exists, by describing him as Karta without notice to other members of the family was nullity and assessment was liable to be quashed.
4. On further appeal before the Tribunal, the Tribunal noticed that notices in respect of initiation of proceedings under s. 17 were beyond the expiry of period of four year provided under s. 17(1)(b) and barred by time. According to the Tribunal in the aforesaid case, the AO initiated proceedings under s. 17 on the basis of valuation report obtained for the asst. yr. 1989-90, treating it to be an information furnishing basis for holding reasons to believe regarding escapement of assessment due to underassessment or assessment at too low a rate, obviously the cases fall within s. 17(1)(b). In that view of the matter the initiation of proceedings under s. 17 were found to be time-barred in all the above three assessment years under appeal. It is in the aforesaid circumstances, the Revenue has filed these three appeals suggesting following substantial questions of law said to be arising for consideration in these appeals : “(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that initiation of proceedings under s. 17 of the WT Act was barred by limitation, which finding was arrived at by ignoring the amended provisions of law. (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that after the partition of HUF, notices need to be served on all the erstwhile members of the HUF, when service of notice upon Karta of the erstwhile HUF was sufficient compliance to the requirements of law.”
5. It has been contended by the learned counsel for the appellant that the Tribunal has seriously erred in considering the unamended provisions of s. 17 enabling the AO to reopen the completed assessment in the circumstances mentioned therein and there has been considerable change in the scheme of powers enabling the WTO to reopen the complete assessment under the amended provisions which were brought into effect by the Direct Tax Law (Amendment) Act, 1987, w.e.f. 1st April, 1989, the provision which existed at the time when notices were issued reads as under : Sec. 17(1) : If the AO, has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of underassessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and s. 17A, serve on such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereinafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under s. 14 : Provided that where an assessment under sub-s. (3) of s. 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 14 or s. 15 or in response to a notice issued under sub-s. (4) of s. 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment years : Provided further that the AO shall, before issuing any notice under this sub-section, record his reasons for doing so.”
For the purpose of clarity we may also reproduce here s. 17(1) as it existed prior to substitution of aforesaid provision : 17. Wealth escaping assessment.â(1) If the WTOâ (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under s. 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose, fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise; or (b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in cl. (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of underassessment or assessment at too low a rate or otherwise, he may, in cases falling under cl. (a) at any time within eight years an in cases falling under cl. (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section.”
6. The perusal of the aforesaid provision makes it abundantly clear that in the time-frame prescribes for initiating the proceedings for reassessment, where the AO has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year, two distinct categories of cases are envisaged and treated differently on that basis. Where there is no failure on the part of the assessee to make a return under s. 14 or s. 15 or in response to a notice issued under sub-s. (4) of s. 16 or s. 17 or to disclose fully and truly all material facts necessary for his assessment for that assessment years on the one hand. On the other hand, the cases where the escapement of assessment has not taken place for any failure on the part of the assessee for reasons those mentioned in proviso to sub-s. (1) of s. 17. Sub-s. (1A) lays down different period of limitation within which reassessment proceedings can be initiated depending on the quantum of tax chargeable on the net wealth chargeable to tax which has escaped assessment or is likely to have escaped assessment. However, in a case falling under proviso an embargo has been placed against resorting to s. 17 after expiry of four years from the end of relevant assessment year. In other words where there is no failure on the part of the assessee as envisaged under proviso to s. 17(1), the limitation for initiating proceedings under s. 17 is 4 years only from the end of relevant assessment year. A comparative reading of s. 17(1) as now exist and as it existed before, reveals that insofar as case falling under cl. (b) of s. 17(1) and proviso to new s. 17(1) is concerned there is no substantial difference. Under the previous provision cases where escapement of assessment was believed to be as a result of any failure on the part of the assessee in filing returns, or responding to notice or in disclosing truly and correctly all material facts necessary for assessment fell under cl. (a) time-limit for initiating proceedings under s. 17 was larger than case falling under cl. (b), which governed cases other than those where escapement was believed to be for failures on the part of the assessee. Like in the amended s. 17, proviso to s. 17(1), period for initiating proceedings under s. 17(1)(b) was also 4 years from the end of relevant assessment year. Thus, in spite of the fact that the Tribunal has wrongly mentioned s. 17(1)(b) in its orders, it remains a case of mere wrong mention of provision without making any difference in conclusion.
7. Another important provision safeguarding against arbitrary exercise of powers under s. 17 is that the AO shall, before issuing any notice under that section, records his reasons for doing so. Before he takes action under s. 17, he is required to record his reasons which have some nexus for holding opinion about the escapement of assessment for any assessment year. It is true that adequacy of the material on the basis of which such belief can be held by the AO is not within the domain of judicial review so long there exists some rational nexus between the existing material to the belief required to be held by the AO. However, the principle is well settled that requirement of law for holding belief may be howsoever subjective, such satisfaction must be held on the basis of existing material having some nexus with the belief held by the AO. Reference in this connection may be made to Barium Chemicals Ltd. vs. Company Law Board AIR 1967 SC 295 : “Since the existence of circumstances is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie. It is not sufficient to assert that the circumstances exist and give no clue to what they are because the circumstances must be such as to lead to conclusions of certain definiteness.” Belief as to escapement of wealth from assessment is a condition precedent for invoking s. 17. That such failure is because of such failure on the part of the assessee as envisaged under proviso is another condition to be satisfied to avail benefit of larger period of limitation prescribed under sub-s. (1A) and exclude the applicability of proviso to invoke jurisdiction validly, after 4 years from the end of relevant assessment year. No doubt the formation of belief is subjective but the existence of circumstance relevant to formation of such belief, about escapement having taken place because of failure on the part of the assessee to disclose truly and fully all material facts is sine qua non for initiating proceedings beyond 4 years from the end of relevant assessment year. Such reasons are also required to be recorded in writing which led to formation of such belief. To wit in the words of Hidayatullah, J. no doubt formation of opinion about escapement of wealth from assessment is subjective, but existence of circumstances relevant to inference is the sine qua non for action must be demonstrable. If the action is questioned on that ground that no circumstance leading to an inference of kind contemplated exists, the action might be exposed to inference, unless the existence of circumstances is made out. Since under s. 17 the reason for holding belief has to be recorded in writing, such existence of circumstance must demonstrably appear from reasons so recorded.
From the facts narrated above, it is apparent that the AO who had held belief that the net wealth chargeable to tax in respect of respondent-assessee has escaped assessment for the assessment years in question is not founded on the fact that the net wealth chargeable to tax has escaped assessment for such assessment year by reason of any failure on the part of the assessee to make a return under s. 14 or s. 15 or in response to a notice issued under sub- s. (4) of s. 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment years. It is solely on the basis of material which has come into existence in 1991, only after the original assessments were completed in 1986 or prior thereto. The AO has drawn inference that net wealth has escaped assessment only because of valuation report by Departmental Valuation Officer for the asst. yr. 1989-90, submitted in 1991. A report which did not exist when the return was filed and assessed, obviously could not be a material fact which could have been disclosed by the assessee. The present case in any view cannot travel beyond proviso to s. 17(1).
In fact it was for the AO to have referred the matter of valuing any property to DVO if he wished to verify the correctness of estimated market value disclosed by the assessee. There is no suggestion in the reasons that particulars of any asset had not been disclosed or were not truly disclosed. That apart the valuation report for 1989-90 of any property in the hands of different assessees is wholly irrelevant for the purpose of entertaining any belief as to what the value of the undivided property in the hands of erstwhlie HUF could have been on the valuation date relevant to asst. yr. 1981-82, 1982-83 or 1983-84. Valuation report of properties in the hands of erstwhile coparcener after almost seven years can have no relevant nexus to hold any belief even about estimate of value of such property on the relevant valuation dates for the asst. yrs. 1981-82, 1982-83 or 1983-84. Thus, the belief about net wealth escaping assessment is not founded on existing material. Thus, it was firstly a case falling within proviso to s. 17(1) whereunder no proceeding under s. 17 could have been initiated after the expiry of four years from the end of relevant assessment year that is to say 31st March, 1986, 31st March, 1987 and 31st March, 1988, respectively in the case of asst. yr. 1981-82, 1982-83 and 1983-84. Apart from the notices being barred by time the reason recorded by the AO reveals that condition precedent in the case of holding belief about escapement did not exist. The belief said to have been held as per reasons recorded was a mere pretence and not found on any relevant existing material having nexus to belief formed. Sec. 17(1)(b), of course was not in force when notices were issued. However, it does not make any difference as discussed above so far as period of limitation prescribed in respect of cases covered under s. 17(1)(b) as it was existing prior to amendment and a case falling in proviso to s. 17(1) as per newly substituted provision. Both operate on the same field, as will appear from comparable reading of two provisos.
The conclusion of the Tribunal viz., there is no satisfaction about alleged escapement of net wealth from assessment because of any failure on the part of the assessee to file return, or furnish material facts truly and correctly, as are necessary for the assessment is a finding of fact and does not give rise to a question of law.
As the reassessment proceeding stands vitiated for want of necessary jurisdiction the second question becomes of academic importance and does not require further consideration. Suffice it to say that after disruption of HUF Sewalal Gaferlal in 1983, it did not exist as such. Hence, there would not be any Karta of HUF Sewarlal Gafarlal. Therefore, service of notice on only one of the members of erstwhile HUF alone would not be sufficient to proceed against all the members of erstwhile HUF so as to bind them and affect property held by them. In such case only question that could, prima facie, call for consideration is whether assessment be nullified by quashing the same or required to be set aside only and proceedings may be directed to complete by issuing notices to other members, which will also be subject to limitation. However, in view of our conclusion that AO has initiated proceedings after expiry of period of four years, and the case, if at all, was governed by proviso to s. 17(1), it cannot fructify in any valid assessment order. we need not pursue this any further.
Accordingly, all the appeals fail and are hereby dismissed.
[Citation : 257 ITR 523]