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Commissioner of Wealth-tax Vs. Lalchand Singhai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 242 of 1976
Judge
Reported in(1981)25CTR(MP)123; [1983]140ITR314(MP); 1981MPLJ354
ActsFinance (No. 2) Act, 1971; Wealth Tax Act, 1957 - Sections 5(1) and 35
AppellantCommissioner of Wealth-tax
RespondentLalchand Singhai
Appellant AdvocateP.S. Khirwadkar, Adv.
Respondent AdvocateH.S. Shrivastava and ;A.K. Khaskalam, Advs.
Cases ReferredJ. M. Shah v. J. M. Bhatia
Excerpt:
- .....from 1st april, 1972, is as under:'explanation 1.--for the purpose of this clause and clause (viii), 'jewellery' includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.' 5. it would be seen that on 22nd march, 1971, when the aac allowed the exemption in respect of jewellery intended for personal use, the words 'but not including jewellery' were not in section 5(1)(viii) and the order passed was correct in law as it was in line with.....
Judgment:

G.P. Singh, C.J.

1. This is a reference made by the Wealth-tax Appellate Tribunal at the instance of the CWT, referring for our answer the following questions of law :

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that an order under Section 35 of the W.T. Act could not be passed in so far as there was no mistake apparent from the record ?

2. Whether, the Appellate Tribunal was right in holding that a debatable point of law was involved and consequently no proceedings for rectification could lie ?

3. Whether, the Appellate Tribunal was justified in law in cancelling the Appellate Assistant Commissioner's order which was passed under Section 35 on the basis of retrospective amendments to Section 5(1)(viii) with effect from January 1, 1963, by the Finance (No. 2) Act, 1971 ?'

2. The assessee is an HUF. The relevant assessment year is 1965-66, the valuation date being 31st March, 1965. The assessment of the assessee under the W.T. Act was done by the WTO on 30th July, 1969. In computing the net wealth, the WTO added a sum of Rs. 1 lakh as the estimated value of jewellery belonging to the assessee's family. The assessee preferred an appeal to the AAC, who deleted a sum of Rs. 57,500 from the net wealth of the assessee on the finding that this represented the value of jewellery which was intended for personal use of the members of the family. This deletion was made by granting exemption under Section 5(1)(viii) in the light of the decision of the Supreme Court in CWT v. Arundhati Balkrishna : [1970]77ITR505(SC) . The order of the AAC was passed on 22nd March, 1971. On the coming into force of the Finance (No. 2) Act, 1971, which amended Clause (viii) of Section 5(1), the AAC issued a show-cause notice to the assessee why the assessment may not be rectified in view of the retrospective insertion of the words 'but not including jewellery' in Clause (viii) with effect from 1st April, 1963. After considering the assessee's objection, the AAC held by his order dated 13th February, 1975, that there was an apparent error in the order dated 22nd March, 1971, and that it had to be rectified under Section 35 of the Act. In this view of thematter, the AAC cancelled the exemption allowed to the assessee in respectof jewellery valued at Rs. 57,500. In appeal, the Tribunal came to the conclusion that it was a highly debatable point whether the AAC could rectify the error in the order dated 22nd March, 1971, which was passed before the enactment of the Finance (No. 2) Act of 1971. On an application made by the Department the Tribunal referred the questions which we have set out above.

3. Section 5 of the Act provides an exemption in respect of certain assets. Clause (viii) of Section 5(1) as originally enacted granted exemption in respect of 'furniture, household utensils, wearing apparel, provisions and other articles intended for personal or household use of the assessee'. In the case of Arundhati Balkrishna : [1970]77ITR505(SC) , the Supreme Court held that jewellery intended for personal use of the assessee came within the scope of Section 5(1)(viii) being articles intended for personal use. To counteract the effect of this decision, Clause (viii) was amended by Finance (No. 2) Act of 1971. The Act added the words 'but not including jewellery' in Clause (viii) with retrospective effect from 1st April, 1963. Another amendment introduced was the addition of Expln. 1 with effect from 1st April, 1972. As a result of this Act Clause (viii) of Section 5(1) has to be read as follows with effect from 1st April, 1963 :

'(viii) furniture, household utensils, wearing apparel, provisions and other articles intended for personal or household use of the assessee but not including jewellery.'

4. Explanation 1, referred to above, which was also added by the same Act with effect from 1st April, 1972, is as under:

'Explanation 1.--For the purpose of this clause and Clause (viii), 'jewellery' includes-

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.'

5. It would be seen that on 22nd March, 1971, when the AAC allowed the exemption in respect of jewellery intended for personal use, the words 'but not including jewellery' were not in Section 5(1)(viii) and the order passed was correct in law as it was in line with the decision of the Supreme Court in Arundhati Balkrishna's case : [1970]77ITR505(SC) . But the Finance (No. 2) Act of 1971, which inserted the words 'but not including jewellery' in Section 5(1)(viii) with retrospective effect, creates a fiction as a result of which these words are deemed to exist from 1st April, 1963. The inevitable consequence of giving effect to this fiction is that the assessee wasnot entitled to an exemption in the assessment year 1965-66, in respect of jewellery under Section 5(1)(viii). Further, because of this fiction it has also to be held that no such exemption could have been allowed by the AAC by his order dated 13th February, 1975, and this was an apparent error in that order which he was justified in rectifying under Section 35. A question of this nature came up before the Supreme Court in M. K. Vcnkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) . In that case the Supreme Court considered the power of rectification under Section 35 of the Indian I.T. Act, 1922, to correct an assessment which was made on 9th October, 1952, for the assessment year 1952-53, but which was said to have become apparently erroneous because of insertion of a proviso to Section 18A(5) by the Indian I.T. (Amend.) Act, 1953, retrospectively from 1st April, 1952. The Supreme Court held that as a result of the fiction created by the amending Act which made the addition of the proviso applicable to the assessment year 1952-53, the error in the assessment order became apparent and the ITO was justified in rectifying the error.

6. Learned counsel for the assessee submitted that as the amending Act does not say specifically that the assessments which had become final would be reopened in the light of the retrospective amendment, it is doubtful whether the amending Act intended that the assessments that were final should be reopened. In support of this contention the learned counsel relied upon the decision of the Bombay High Court in J. M. Shah v. J. M. Bhatia, AAC : [1974]94ITR519(Bom) . This case does support the contention of the learned counsel for the assessee, but with great respect we are unable to agree with it. The Bombay High Court got over the decision of the Supreme Court in Bombay Dyeing and Mfg. Co. Ltd.'s case : [1958]34ITR143(SC) , by holding that it was in conflict with the decision of the Supreme Court in ITO v. Habibullah : [1962]44ITR809(SC) . A careful reading of the decision in Habibullah's case : [1962]44ITR809(SC) , which dealt with Section 35(5) of the Indian I.T. Act, 1922, however, in our opinion, does not disclose any such conflict. Clause (5) of Section 35 of the Indian I.T. Act, 1922, which was added by the I.T. (Amend.) Act, 1953, was made operative from 1st April, 1952, and hence was held to be not applicable to the assessments made before that date. It was on this view that the Supreme Court held that the ITO had no jurisdiction under the said clause to rectify the assessment of a partner consequent on the assessment of the firm, in case where the firm's assessment was completed before 1st April, 1952. A comparison of Bombay Dyeing and Mfg. Co. Ltd.'s case : [1958]34ITR143(SC) , with Habibullah's case : [1962]44ITR809(SC) , will go to show that in the former case the provision retrospectively added became applicable to the relevant assessment year and became operative from a date which was much anterior to the date when the assessment wasmade; whereas, in the latter case, the amendment was not retrospective enough to cover the date when the assessment of the firm was made. It is on this distinction that a completed assessment before 1st April, 1952, could not be rectified under Section 35(5) of the Indian I.T. Act, 1922, in Habi-bullah's case : [1962]44ITR809(SC) . The amendment made by the Finance (No. 2) Act of 1971, in Section 5(1)(viii) of the W.T. Act is of the nature as considered in Bombay Dyeing and Mfg. Co. Ltd.'s case : [1958]34ITR143(SC) and that ruling applies with full force here.

7. It was next contended by the learned counsel for the assessee that the meaning of jewellery in the expression 'but not including jewellery' as inserted in Section 5(1)(viii) by the Finance Act is itself ambiguous and as the scope of the amendment is debatable, the WTO had no jurisdiction to rectify the assessment under Section 35. Reference in this connection is also made to Expln. 1, which was inserted only with effect from 1st April, 1972. Section 5(1)(viii) as amended by the Finance Act and the Explanation added by that Act were considered by this court in CWT v. Smt. Sonal K. Amin : [1981]127ITR427(MP) . It was held in that case that the extended meaning of the word 'jewellery' as contained in the Explanation will be applicable only with effect from 1st April, 1972, and that, before that date, jewellery will cover only precious stones and precious stones in mountings, i. e., ornaments containing precious stones. In our opinion, there can be no debate or doubt that the word 'jewellery' covered precious stones and ornaments containing precious stones before 1st April, 1972. The doubt could only be whether the word 'jewellery' would also cover before that date ornaments not containing precious stones. The AAC, therefore, could rectify the assessment made by his order dated 22nd March, 1971, to the extent precious stones and ornaments containing precious stones were excluded under Section 5(1)(viii) by that order.

8. Learned counsel for the assessee relied upon the decision of the Gujarat High Court in Padmavati Jaykrishna v. CWT : [1976]105ITR115(Guj) . We agree with this ruling that rectification could not be made in an assessment for a year prior to 1972-73 on the basis of Expln. 1 added by the Finance Act which was effective from 1st April, 1972. But we are unable to hold that a rectification of any prior assessment cannot at all be made on the basis of amendment made in Section 5(1)(viii). As explained by us above, there could be no debate on the question that the word 'jewellery' at least covers precious stones and ornaments containing precious stones, and if assets of this nature were excluded in an assessment made before the enactment of the Finance Act, it would become apparently erroneous in view of the retrospective amendment in Section 5(1)(viii) and would be open to rectification under Section 35.

9. Learned counsel for the assessee then submitted that as it was not possible from the record as it is to hold that the jewellery excluded by the AAC by his order dated 22nd March, 1971, included precious stones and ornaments containing precious stones, it cannot be said that the assessment was erroneous. Paragraph 4 of the statement of case goes to show that the assessee had submitted details of jewellery before the AAC which was exempted as being intended for personal use in the assessment. The details of the jewellery which were exempted by the AAC under Section 5(1)(viii) are thus already on record and these details can show as to what extent they were precious stones or ornaments containing precious stones. The assessment order of the WTO, which is annex. A to the statement of case, also shows that the ornaments included diamonds and pearls, etc. It cannot, therefore, be said that from the record of the case it was not possible to find out whether the exemption of the value of Rs. 57,500 granted by the AAC by his order dated 22nd March, 1971, was in respect of precious stones and ornaments containing precious stones or in respect of other ornaments. The matter, however, will have to be examined by the Tribunal afresh from this angle.

10. For the reasons given above, we answer the questions referred as follows:

1. The Tribunal was not right in law in holding that the AAC was not justified in taking up rectification proceedings under Section 35.

2. The Tribunal was not right in law in cancelling the order of rectification passed by the AAC without examining whether and to what extent the order of rectification related to precious stones and ornaments containing precious stones.

11. There will be no order as to costs of this reference.


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