1. All the above appeals are by different assessees involving a common point and the facts are also identical. Hence, the appeals are consolidated and are disposed of by this single order for the sake of convenience.
2. None is present on behalf of the assessee when the cases are called up for hearing. On behalf of the revenue, the learned departmental representative states briefly the facts of the case and the background in order to clarify the position why the Commissioner took action under Section 25(2) of the Wealth-tax Act, 1957 ('the Act'). According to him, there was full justification for the Commissioner to take action under the above section in view of the facts as narrated by him in the revision order. It is stated that the WTO committed error in allowing liabilities as deduction from the value of the wealth of the assessee which resulted in a loss to the revenue. It is submitted that the Commissioner took action to cancel the assessment orders passed by the WTO under Section 16(3), read with Section 17(1)(a), of the Act.
According to the revenue, once the assessment is reopened validly under Section 17(1)(o), the entire proceeding stands open and the assessment would have to be done de novo. In this connection, it may be mentioned that all the assessees are connected since they are beneficiaries of certain trusts. The contention of the revenue is that the liability has wrongly been allowed by the WTO and the same required to be withdrawn which was done by the Commissioner in the present cases and as the ITO's orders were erroneous and prejudicial to the revenue, the orders of the Commissioner may be sustained.
3. We have perused the papers placed before us along with the submissions made. From the orders of the Commissioner it is seen that from a scrutiny of the wealth-tax records, he found that the liability towards Obedulla Khan Trust had been deducted while computing the net taxable wealth of the assessee for the above years. The Commissioner noted that the liability was initially secured on Shamla Deori Jagir which was converted into a cash annuity in the year 1953. Cash annuity being exempt under Section 2(e)(2)(ii) of the Act, the debt secured against such exempted asset was not deductible from the net wealth of the assessee in view of Section 2(m)(ii) of the Act. He noted that even otherwise, the debts, in question, were not deductible as a liability because it suffered a legal extinction by the time when Nawabzada Rashid-ur-Zaffar Khan died in August 1961. He further noted that in the circumstances, the assessments made by the WTO by ignoring the non-admissibility of the liability, as indicated above, resulted in underassessments and short levy of tax. According to him, the orders of the WTO appeared to be erroneous and prejudicial to the interests of revenue. Accordingly, action under Section 25(2) was taken in respect of all the assessees for all the years under appeals.
4. It was contended before the Commissioner on behalf of the assessee that there was no justification for taking action under Section 25(2) as in the original assessment orders for all the years, the liability, in question, has been allowed and, therefore, there was no jurisdiction for taking action under Section 25(2) when such assessment orders were made on 26-2-1971. It was contended that Section 25(2) cannot be applied to the reassessment orders passed by the WTO on 13-3-1979 in which the question of the liability was not at all considered. It was also contended that a liability, in question, was allowed by the Tribunal in the estate duty proceedings of late Nawab Rashid-ur-Zaffar Khan, vide its order dated 10-9-1976. It was also contended that in the assessment for the assessment year 1957-58 in the case of late Nawab Rashid-ur-Zaffar Khan, the liability was allowed in the wealth-tax case and the cash annuity of Shamla Deori Jagir was held to be taxable.
According to the assessee, the liability was not related or secured against exempted assets.
5. The Commissioner considered the submissions and rejected all the grounds. According to him, action under Section 25(2) was taken in respect of the orders passed by the WTO under Section 17(1)(a). He also considered the various case laws relied on, on this point, by the assessee. He noted further that when the WTO reopened these assessments under Section 17(1)(a), the question of allowability of the liability of Rs. 7 lakhs relating to Obedulla Khan Trust was in dispute in the estate duty proceedings and the departmental stand was that the debt, in question, had suffered legal extinction at the time when Nawab Rashid-ur-Zaffar Khan died in August 1961. He went on to say that although that issue was decided in favour of the assessee by the Tribunal in September 1976, the department had not accepted that decision and the matter was taken to the High Court. He observed that the assessees being the legal heirs of late Nawabzada Rashid-ur-Zaffar Khan, it cannot be said that the WTO was not aware of this fact. He concluded, therefore, that the WTO should have applied his mind to the withdrawals of the liability already allowed at the time of the original assessments when he reopened the same under Section 17(1)(a).
Having failed to do so, the assessment orders passed by him can be said to be erroneous insofar as these are prejudicial to the interests of revenue. On the reasons recorded by him, the Commissioner rejected the submissions made on behalf of the assessees and cancelled the assessment orders with the direction to the WTO to make fresh assessments according to law. Hence, these appeals.
6. The assessee objected to the jurisdiction assumed by the Commissioner in cancelling the orders of the WTO, as indicated above.
According to the assessee, the Commissioner erred in passing orders which are bad in law and against the facts of the case. The following grounds have been taken before us : 1. That the learned CWT has erred in passing the order which is bad in law and against the facts of the case.
2. That the learned CWT erred in passing the order which is barred by limitation and invalid and illegal. Your petitioner submits that according to Section 25(3) of the Wealth-tax Act, the learned CWT has got no power to pass any order under Section 25(2) for the above year.
3. That the learned CWT has erred in setting aside the order passed by the WTO for the above year for which he has got no jurisdiction under the Wealth-tax Act.
4. That the learned CWT has erred in holding that the liability was secured against the exempted asset and hence it was not deductible from the net wealth.
5. That the learned CWT has erred in holding that the liability was not deductible because it has suffered legal extinction. Your petitioner submits that the ITAT Indore, has in the estate duty case of my father vide their order dated 10th Sept., 1976 had specifically held that this liability had not become barred by limitation and it was properly fastened to the estate of the deceased. Moreover, the appellant has transferred one building to M.P. Waqf Board in the year 1972 in lieu of this liability. This also proves that there was a clear liability which existed during the above year.
6. That the appellant crave leave to add, amend, alter, modify or withdraw any of the above grounds of appeal at the time of hearing.
7. After going through the papers it is apparent that the Commissioner took action under Section 25(2) as the WTO did not disallow the claim of liability in spite of the fact that the department did not accept the decision of the Tribunal in connection with the aforesaid estate duty case. Briefly speaking, the Tribunal has given its decision to the effect that the liability was attached to the estate. In other words, that liability was entitled to deduction which the WTO allowed. The case of the Commissioner, however, is that the WTO should have taken into account the fact that the department has not accepted the decision of the Tribunal and has gone to the High Court. According to the Commissioner the orders of the WTO were erroneous so far as these are prejudicial to the interests of revenue. In fact, this was the main ground why action under Section 25(2) was taken. In our opinion, the Commissioner has no jurisdiction to assume jurisdiction under Section 25(2). It has to be shown at the first instant that the order sought to be revised is erroneous and prejudicial to the revenue. I an order is prejudicial to the revenue, but is not erroneous, such order cannot be revised. First it has to be shown and established that such order is erroneous and as a result, the interest of the revenue was prejudiced.
In the present case, it appears that the priority was reversed. It is not that all orders of the WTO can be revised by the Commissioner. In this connection, we may refer to the decision in the case of J.P.Srivastava & Sons (Kanpur) Ltd. v. CIT 1972 Tax LR 1198 (All.). From the facts available on record, the allegation that the orders of the WTO are erroneous, was only due to the fact that the WTO passed orders which are not in conflict with the decision of the Tribunal mentioned above. In other words, the orders of the WTO were valid and correct in law in spite of the fact that the department might have taken up the issue to the High Court. Such orders cannot be said to be erroneous and if such orders are prejudicial to the interests of revenue, action under Section 25(2) could not lie. Accordingly, in our opinion, when there is no error, the Commissioner would have no jurisdiction under Section 25(2).
8. We have perused the order of the Tribunal in the estate duty case referred to in the order and it is seen that the Tribunal noted among other things that the liability was allowed by the Appellate Controller and contested by the revenue. It confirmed the view taken by the Appellate Controller which was passed on the order of the AAC in the wealth-tax assessment of the deceased for the assessment year 1957-58.
The Tribunal also considered the order of the AAC which held that there was a liability of Rs. 7 lakhs in respect of Obedulla Khan Trust and that liability had not become barred by limitation and it was properly fastened on the estate of the deceased. In other words, this very issue was subjected even otherwise to the judicial scrutiny of the first appellate authority, i.e., the AAC in the wealth-tax assessments for the earlier years. In other words, the orders of the WTO have merged with the orders of the AAC.9. As discussed earlier, the Commissioner considered that the orders of the WTO were erroneous, as the stand of the revenue was not considered by him in the reassessments and the liability was not disallowed. On this ground alone, we find that it is not possible to sustain the orders of the Commissioner impugned before us, in view of what we have stated above. There was no error in the orders of the WTO as the same were not in conflict with the orders of the Tribunal at that particular point of time when such orders were passed (sic). In this view of the matter, the impugned orders of the Commissioner before us are cancelled.