1. The WT appeals in the present case relate to the assessment years 1974-75 to 1976-77. The IT appeals relate to the assessment years 1974-75 and 1975-76. All the appeals which are by the revenue, arise out of reassessment proceedings and are, hence, considered together and disposed of by this common order.
2. We briefly set out the background of the case. A deed of trust was executed on 28-10-1965 by Smt. Radhabai Gopaldas and Sri Raja Kishandas Gopaldas. By this deed, five persons were appointed as trustees of whom the authors of the trust, referred to above, were two of the trustees.
The objects of the trust included worship, puja, utsav and observance of other festivals of Sri Mahaprabhuji and Sri Girirajji, the two deities. The trust also provided for the maintenance and residence for family people of the founders in certain circumstances.
3. For the assessment year 1966-67, an assessment was made to wealth-tax in the status of an individual on 23-7-1975. The WTO did not accept the contention that the trust was a public religious one. He held that it was a private religious trust and, thereafter, in his order, observed as under : I treat the assessee as a private religious trust and assess it as 'individual' under Section 21(4) of the WT Act as the interest of the beneficiaries (i.e., family deities and members of the family of the authors of the trust) in the corpus and income of the trust is indeterminate.
The wealth assessed was Rs. 3,24,567 and the rate applicable thereto taking it as net wealth was applied.
4. It would appear that sometimes later, the audit had scrutinised the wealth-tax assessment for the year 1966-67 to which we have referred and which was made in the status of an individual and audit gave a note dated 5-10-1977 which is applicable to this year as well as for the subsequent years up to 1975-76 and the relevant portion of which reads as under : ii. As per Section 21(4) where the trust is treated and assessed as the assets belonging to an individual, the rates applicable are the rates as per Part I of the Schedule or at 1per cent, whichever is beneficial to the revenue. Accordingly, in the present case, 1 per cent would be beneficial to the revenue and the short demand would be as follows :Asstt. year Tax levied Tax leviable Short demand1966-67 1123 3369 22461967-68 1123 3369 22461968-69 1123 3369 22461969-70 1138 3414 22761970-71 1194 3582 23881971-72 2437 3656 12191972-73 3663 5495 18321973-74 3554 5331 17771974-75 3564 5346 17821975-76 3568 5352 1784 ----- 5. The reference in the audit note to the tax percentage of 1 per cent is obviously in view of the provisions of Section 21(4)(b) of the Wealth-tax Act, 1957 ('the Act'). Apparently, this objection of audit was considered to be acceptable by the revenue initially, but thereafter on a further examination, the revenue took the stand that the provisions of Section 21(4) would not be applicable at all since the amended provisions were not to apply to a trust created before 1-3-1970 and the WTO was satisfied that the trust was created bona fide exclusively for the benefit of the relatives of the settlors. Since the trust in question was created on 28-10-1965, the revenue took the stand that the assessments did not call for any rectification because the tax rate applied was in order. Correspondence in this regard between the IAC and the Accountant General started on 13-9-1978. The revenue pleaded for the dropping of the audit objection. Thereafter, certain reports were called for by the Board, etc. In the meanwhile, on 25-1-1977, the WTO received a letter from the IAC (Audit) which read as under : Pending the decision on the audit objection in the present case, the WTO is directed to reopen the completed wealth-tax assessments from the assessment years 1974-75 to 1976-77.
The aforesaid directions of the IAC (Audit) were related to the assessment years, now under appeal. The WTO issued a notice under Section 17 of the Act dated 16-2-1979 to the assessee stating that there was reason to believe that wealth chargeable to tax had escaped assessment and calling upon the assessee to deliver the return.
Shortly, thereafter, the WTO received a further communication from the IAC (Audit) dated 26-3-1979 wherein a copy of the opinion of the Board in the matter was enclosed, viz., that the higher rate of tax should have been applied since the WTO had initially invoked the provisions of Section 21(4) and by this communication the IAC wrote stating that one copy of the Board's Letter F. No. 236/710/1978A and PAC I dated 16-3-1979 was enclosed and that as stated therein the WTO should take immediate steps for reopening the assessments. The WTO, in his order-sheet entry dated 27-3-1979, referred to the receipt of this memo from the IAC (Audit) dated 26-3-1979 and mentioned that notice under Section 17(1)(b) had already been issued (in fact the notice was served on 23-2-1979). There was no separate entry in the order-sheet or anywhere else as far as the wealth-tax proceedings were concerned about the reasons for initiating action under Section 17.
6. In due course, the assessments came to be made under the provisions of Section 16(5) of the Act inasmuch as the assessee did not file returns in response to the notice under Section 17, though the advocate on behalf of the assessee did appear before the WTO. The WTO completed the assessments by levying wealth-tax at 1 per cent.
7. The assessee appealed to the AAC who considered the WT appeals together with the IT appeals to which we will refer later (in that he passed only a consequential order in the WT appeals) and passed a consolidated order.
8. The assessee had challenged the reopening of the assessments as being bad in law relying on the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT  119 ITR 996.
The AAC held that all the information that the WTO had before him, was only an opinion of the revenue audit party. There was no judicial pronouncement or legislative enactment subsequent to the original assessment and, according to him, the case squarely fell within the ratio of the Judgment of the Supreme Court in Newspaper Society's case (supra) and the reopening based only on the opinion of the audit was held to be bad. The AAC accordingly cancelled the assessments.
9. The revenue is in appeal. The submission of the learned departmental representative was that initially the WTO had made the assessment for the assessment year 1966-67. In that order, he had categorically stated that the shares of the beneficiaries were indeterminate. For the assessment year 1974-75 he stated that the WTO referred to the assessment order for the year 1966-67 and stated that he was making the assessment on the same lines and for the same reasons as in 1966-67.
For the assessment years 1975-76 and 1976-77 he stated that though there was no express reference to the assessment year 1966-67, still the earlier order was repeated by referring to the values referred to in the earlier years. Since there was only a single trust-deed in existence, he stated that the reasoning which had weighed for the assessment year 1966-67 and which was expressly referred to and followed for the assessment year 1974-75 held good for the subsequent years also. All that audit did was to point out that where the shares of beneficiaries were not determinate and an assessment was made under Section 21(4), it was mandatory to consider whether the rate of 1 per cent of the net wealth or the rate applicable to the net wealth was more beneficial to the revenue. There was no question of any debate on this point and since the WTO had omitted to do it, the audit wanted him to rectify the mistake which from the audit note clearly resulted in loss of the revenue. Since it was a point which did not admit any argument, he submitted that the case did not fall within the ratio of the Judgment of the Supreme Court in Newspaper Society's case (supra) because there was no question of the audit note being an expression of any opinion. The audit note merely pointed to a mistake apparent from the records.
10. The learned counsel for the assessee, on the other hand, submitted that there was no reference to the assessment order for the year 1966-67 and, therefore, whatever may have been said in the year 1966-67 had no applicability as far as these two assessment years were concerned. As far as the assessment year 1974-75 was concerned, it was stated, that reference to the assessment order for 1966-67 should be construed as referring only to the finding that the assessee was not a public religious trust. He stated that it could not be construed as a reference to the finding that the shares of the beneficiaries were not determinate. In fact, he stated there were only two deities who were the beneficiaries and it was settled law that in such a case the shares would be equal.
11. We have set out the facts in some detail since the question of assumption of jurisdiction to be re-opened by the WTO is in issue. From the chronological events we have set out, it is clear that there was no recording of reasons by the WTO for reopening the assessments. The Act, of course, does not specifically state, unlike the Income-tax Act, 1961, that reasons should be recorded. Assuming for a moment that it is not mandatory to record reasons, still we have to scrutinize the records to see whether the WTO had reason to believe that there was an assessment at too low a rate. We are conscious of the law on the point that where the WTO has some reason to believe that there has been an assessment at too low a rate, or escapement of income, it is not open to an appellate court to go into the sufficiency of the reasons. [See observations of the Supreme Court in S. Narayanappa v. CIT  63 ITR 219 at pages 221 to 222.] Keeping this in. view, we have to examine whether the requisite conditions are satisfied in the present case.
There was the opinion of the IAC (Audit) that a rate of 1 per cent should have been applied. The assessment order for the year 1974-75 refers to the finding in the order for 1966-67 which includes the finding that the shares of the beneficiaries are not determinate. We are, therefore, to hold that in making the original assessment for the year 1974-75, the WTO considered that the shares of the beneficiaries are not determinate. Such also can be construed to be the findings by implica- tion for the subsequent two assessment years since it was a single trust-deed which was under consideration and there is no further discussion on the point. The IAC Audit had pointed out that in such a case, under the provisions of Section 21(4)(6), the WTO should have considered whether the rate of 1 per cent should be applied or the normal rate. Initially the revenue thought that there was merit in the audit objection. If at this stage the assessment had been re-opened, the matter would have been different. But, on further consideration, the revenue took the stand that there was no mistake because the provisions of Section 21(4) themselves were not applicabie singe the trust was one created prior to 1-4-1970. This stand was consistently maintained till the IAC (Audit) issued a direction to the WTO dated 25-1-1979 to re-open the assessments. Without recording any further reasons, the WTO issued the notice under Section 17. The facts speak for themselves. The reason to believe that there was assessment at too low a rate was not the belief of the WTO but an action which he was directed to take by the IAC (Audit) and that also pending decision on the audit objection. It was not even the belief of the IAC (Audit). We do not deal, as far as these appeals are concerned, with the instructions of the Board communicated under the IAC (Audit)'s letter dated 26-3-1979 because these instructions were issued subsequent to the re-opening of the wealth-tax assessments. This is a case, where the WTO did not have any belief that the provisions of Section 17 became applicable consequent to the assessment at too low a rate, etc. It is open to an appellate body to see whether the WTO had any belief or not for authority for this proposition-see, S. Narayanappa's case (supra)-and once we come to the finding that the WTO did not entertain any belief, it would follow that the reopening of the assessments was without jurisdiction. We would, for the aforesaid reasons, uphold the finding of the AAC quashing the reassessments as made though for slightly different reasons. The appeals of the department insofar as they relate to the wealth-tax matters, i.e. [WT Appeal Nos. 426 to 428 (Hyd.) of 1981] are accordingly dismissed.
12. As far as the IT appeals are concerned, there are two specific factors which we have to deal with. There is the communication of the IAC (Audit) dated 26-3-1979. The ITO had made an order-sheet entry for each of the years wherein he stated for the assessment year 1975-76 : Please see 1975-76 WT MR and IAC (Audit) Hyderabad Memo dated 26-3-1979 in ref. No. MI/30(j)/III(33)/1977-78 to reopen asst. under Section 147(b). Notice under Section 148 put up.
Please see WT file and MR for 1975-76 and IAC (Audit) Hyderabad letter dated 26-3-1979 in ref. No. MI 30(j)/III(33)/1977-78.
Accordingly notice under Section 148 put up and the asst. already completed is reopened under Section 147(6).
While completing the assessment for the assessment year 1975-76 on 7-11-1975 the tax was calculated at ordinary rates as against rate at 65 per cent (higher rate) as envisaged under Section 164 of the IT Act, resulting in short demand. I am therefore, satisfied that the income has been assessed at too low rates thereby calling for action under Section 147(b). Put up notice under Section 148 for 1975-76 immediately.
13. We have discussed the contents of the wealth-tax file earlier and we have come to the conclusion that the WTO could not have had reason to believe that the provisions of Section 17 apply. Merely because the instructions of the Board were communicated and the WTO was directed by the IAC (Audit) in his letter dated 26-3-1979 to reopen the income-tax assessments, it would not alter the position because still the belief that the provisions of Section 147(b) of the Income-tax Act applied would not be that of the ITO. Therefore, the additional communication dated 26-3-1979 does not alter our conclusion arrived at in wealth-tax proceedings, viz., that the reason to believe was not that of the ITO.14. We now have to deal with the separate note, recorded by the ITO.This note we have set out earlier. But this note has to be considered in the background to which we have referred. The ITO has merely stated that the rate of 65 per cent should have been applied. When the revenue was throughout contesting the finding of the IAC (Audit) that higher rate was applicable and had not accepted it, the mere mention that higher rate was applicable, in the separate note cannot be equated with the ITO forming a reason to believe that the provision of Section 147(6) were attracted. We would, therefore, come to the conclusion that the recording of this note separately does not alter the conclusion which we have arrived at. We would, therefore, uphold the decision of the AAC quashing the income-tax assessments also for the assessment years 1974-75 and 1975-76 though for slightly different reasons from those which weighed with him.