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Gangadhar Narsingdas Agrawal Vs. First Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
Judge
Reported in(1984)7ITD864(Pune.)
AppellantGangadhar Narsingdas Agrawal
RespondentFirst Wealth-tax Officer
Excerpt:
1. these appeals filed by the assessee and the cross-appeals filed by the department raise several common contentions and have been heard together. they will, therefore, be disposed of, for the sake of convenience, together by this order.2. we shall take up the appeals filed by the assessee first. at the outset, an additional ground is sought to be raised on behalf of the assessee claiming deduction of liability for each of the years said to have accrued in terms of the mining concessions and leases of land for the purpose by the government to the assessee, on account of the obligations said to have been placed upon the assessee for restoration of the land, entered upon and used by the assessee under the concessions and leases for mining of ore, which is the business carried on by the.....
Judgment:
1. These appeals filed by the assessee and the cross-appeals filed by the department raise several common contentions and have been heard together. They will, therefore, be disposed of, for the sake of convenience, together by this order.

2. We shall take up the appeals filed by the assessee first. At the outset, an additional ground is sought to be raised on behalf of the assessee claiming deduction of liability for each of the years said to have accrued in terms of the mining concessions and leases of land for the purpose by the Government to the assessee, on account of the obligations said to have been placed upon the assessee for restoration of the land, entered upon and used by the assessee under the concessions and leases for mining of ore, which is the business carried on by the assessee. The additional ground is worded, thus : In the valuation of mines as per the statutory provision, the assessee has to restore the mines to its original condition as far as possible and this liability has not. been reckoned and such liability as estimated may be allowed in computing the value of the mines and the net wealth.

Shri K.R. Prasad, the learned counsel for the assessee, seeks to raise the additional ground by invoking the-power of the Tribunal in terms of Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. His plea is that the additional ground deserves to be admitted for adjudication since the ground involves a point of law and does not require any investigation of facts. Shri K.A. Sathe, on behalf of the department, strongly contests this claim and admission of the additional ground. He contends that the point was never raised before the WTO and, therefore, did not constitute the subject-matter of assessment which could not, therefore, be and was not adjudicated upon by the Commissioner (Appeals). As such, it cannot constitute the subject-matter of appeal before the Tribunal and the Tribunal cannot acquire jurisdiction to admit such a ground in the circum-stances. He relies for his contentions in the first instance upon the ruling of the Supreme Court in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 and also on the ruling of the Bombay High Court in the case of Ugar Sugar Works Ltd. v. CIT [1983] 141 ITR 326 and the case of CIT v. Steel Cast Corpn. [1977] 107 ITR 683 (Guj.).

3. We have carefully considered the rival submissions. The additional ground is sought to be raised on behalf of the assessee only on the strength of certain documents, viz., the documents providing the mining concessions to the assessee under the Portuguese Colonial Mining Laws and the lease agreements which substituted the mining concessions aforesaid granted by the Portuguese Government. It is on the strength of the terms of these documents and on an interpretation of the relevant terms that the assessee prefers its claim that liability for restoration of the land leased to it arose and became an accrued liability for each of the years under consideration. Now these documents are, admittedly, part of the assessment record in this case and have been the subject-matter for consideration for the purposes of the assessments as is clear from the valuation of the mines made in those assessments, exploitation of which was the business of the assessee in terms of the aforesaid mining leases. These mining concessions and lease documents, therefore, were the material available in the assessment records. Shri Prasad, the learned counsel for the assessee, is, therefore, correct in his submission that no new material is sought to be brought forth in order to adjudicate the additional ground. He further pleads that the assessee's failure to raise the claim in the assessment proceedings was due to ignorance on the part of the assessee and in the circumstances should not be allowed to bar or prohibit the assessee from raising a legitimate claim. We find force in these submissions made on behalf of the assessee. The claim raised in the additional ground has to be considered and decided, as contended by the learned counsel, for the assessee on a proper interpretation of the relevant clauses of the documents under which the mining concessions were given and of the lease agreements which are part of the assessment records of the case. As such, no new material is referred to on behalf of the assessee for preferring the claim. As for the authorities relied upon by the departmental representative in the case of Gurjargravures (P.) Ltd. (supra), the facts were that the claim for development rebate was never raised before the ITO and there was no material on the record supporting the claim. It was on these facts that their Lordships of the Supreme Court held that as neither was any claim made before the ITO nor was there any material in support thereof, admission of the additional ground raised before the Tribunal making the claim was erroneous. Their Lordships were pleased to observe in this very ruling that they were not called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it. Obviously, therefore, this case is clearly distinguishable on the facts, from the assessee's case. In the case of Ugar Sugar Works Ltd. (supra), the facts were that a claim for allowance of development rebate was made before the ITO but was rejected by him. The assessee did not raise a ground of appeal against this disallowance before the AAC nor was any such ground raised even in the course of the arguments before that authority. The claim was sought to be raised by way of an additional ground before the Tribunal. It was on these facts that the Bombay High Court was pleased to hold that the assessee not having appealed against the disallowance before the AAC could not be said to be aggrieved by that order and that, therefore, the claim could not constitute the subject-matter of appeal before the Tribunal. This case, therefore, is clearly distinguishable on the facts. In the case of Steel Cast Corpn. (supra), again it was held by the Gujarat High Court that the subject-matter of appeal before the Tribunal could only be the decision, express or implied, of the AAC and that the jurisdiction of the Tribunal is restricted to the subject-matter of the appeal. The issue before us, however, in these appeals as regards the additional ground raised by the assessee is, in our view, quite distinct and that is, whether a point of law can be raised before the Tribunal by way of an additional ground on the material which constitutes a part of the assessment records but the claim of the assessee arising on that material was not raised either before the WTO or before the Commissioner (Appeals) owing to the assessee's ignorance of the correct law. We hold that on the facts of the assessee's case, the assessee is entitled for the admission of the additional ground raised by it and we, accordingly, admit the same. We are fortified in our decision by the ruling of the Andhra Pradesh High Court in the case of CIT v.Gangappa Cables Ltd. [1979] 116 ITR 778 which we respectfully follow.

4. To consider now the contentions raised by the assessee in the additional ground on merits, Shri Prasad, the learned counsel for the assessee, squarely rests his case on the terms of the mining leases under which the assessee acquired its rights for working the mines along with the attendant liabilities and obligations required to be fulfilled. All the lands in question are situated in Goa and the mining leases had been granted to the assessee by the Portuguese Government when the territory of Goa lay under the Portuguese colonial rule. After the liberation of Goa, the Mines and Minerals (Regulation and Development) Act, 1957 ('the Indian Act') was extended to the Union Territory of Goa by Lease Regulation 12 of 1962. Subsequently, a notice was issued to the assessee and under the provisions of the said Act, the perpetual leases granted by the Portuguese Government under the Portuguese Colonial Mining Laws were converted into tenure leases for a period of 20 years with effect from 15-1-1966. Thus, the assessee stakes its claim for allowance of the liability for restoration of the lands which were demised to it under these leases in terms of the mining concessions which it acquired from the Portuguese Government for the years 1964-65 and 1965-66 under the said concessions and for the subsequent years on the leases as they stood modified under the Indian Act as stated above with effect from 15-1-1966. We may note here that the relevant valuation date is the 31st March preceding each assessment year. In order to appreciate his contention and to bring out the legitimacy of his claim on behalf of the assessee, Shri K.R. Prasad invites our pointed attention to the provisions of the lease deeds governing the mining leases under the Indian Act. It is submitted by him that these lease deeds were required in terms of the Indian Act to be framed in accordance with the Model Form of lease deed provided under the said Act, marked Form K Model Form of Mining Lease as provided in Rule 31 of the rules framed under that Act, His case is founded upon the terms of paragraph 4 of Part V of the Schedule annexed to the lease deed which is in the following terms : 4. Payment of surface rent and work rate.-The lessee/lessees shall pay rent and water rate to the State Government in respect of all parts of the surface of the said lands which shall from time to time be occupied or used by the lessee/lessees under the authority of these presents at the rate of Rs.... and Rs.... respectively per annum per hectare of the area so occupied or used and so in proportion for any area less than an hectare during the period from the commencement of such occupation or use until the area shall cause to be so occupied or used and shall as far as possible restore the surface land so used to its original condition. Surface rent and water rate shall be paid as hereinbefore detailed in Clause 2 provided that no such rent/water rate shall be payable in respect of the occupation and use of the area comprised in any roads or ways to which the public have full right of access.

He contends that the assessee's liability to restore the land is to be spelt out clearly from the terms in paragraph 4 expressed in the clause 'and shall as far as possible restore the surface land so used to its original condition'. In support of his case Shri Prasad heavily relies upon the order of the Tribunal, Bombay Bench 'C' in IT Appeal Nos. 1736 and 12533 of 1967-68, dated 30-3-1973 in the case of New India Mining Corpn. (P.) Ltd. He strongly commends for our acceptance the interpretation given to be terms of the raining leases by the Tribunal in that case which are similar to the terms of the assessee's leases, It is pointed out by him that the lease deed in the case considered by the Tribunal was similarly granted under the Indian Act and that there is no material difference in the facts of that case from the facts in the assessee's case, though the mines were situated in the State of Maharashtra. Relying upon the order of the Tribunal, Shri Prasad contends that on a correct reading of paragraph 4 of Part V of the Schedule extracted above along with paragraph 20 of Part VII which are similar in terms to the corresponding provisions of the lease deeds considered by the Tribunal in the aforesaid order, the resultant position would be, as found by the Tribunal in that order, that the assessee was liable under the terms and conditions of the lease agreement to restore to its original condition that, portion of the land which had been fully exploited and/or abandoned for any other reason but that this condition would not apply for that portion of the land where further exploitation was possible. This interpretation, according to the Tribunal, in the aforesaid order would follow from a harmonious reading of the provisions contained in Part V and Part VII, since the relevant paragraph of Part VII (paragraph 20 in the assessee's case) required the lessee on expiry of the term of the lease or its earlier termination to deliver un to the Government such of the mines as were fit for further working of the minerals. The Tribunal concluded on the interpretation which it placed on these provisions of the lease agreement that while the liability to restore the land to its original condition was squarely fixed on the lessee by the terms and conditions of the agreement, such liability did not extend to the entire area of operations but extended only to those parts which were fully exploited or were abandoned for other reasons. Holding thus, the Tribunal accepted the assessee's claim that it was entitled to deduction of an appropriate provision made by it for restoring the lands to its original condition as an outgoing on revenue account for the purpose of determining its true profits under the mercantile system of accounts which it followed for the assessment of its total income under the Income-tax Act, 1961, for the relevant assessment years.

Drawing support from this conclusion arrived at by the Tribunal, Shri Prasad contends that the liability on account of the restoration charges should be allowed as a debt due under the lease deeds on the respective valuation dates and that the amount of the liability should be fixed in the same way as was done by the Tribunal, i.e., at the rate of one rupee per ton of ore extracted. This is his case with regard to the assessment years 1966-67 onwards when the lease deeds were framed under the Indian Act effective from 15-1-1966. As for the two earlier years 1964-65 and 1965-66, he attempts to show from some of the clauses of the mining concession leases granted by the Portuguese Government that a similar liability lay upon the assessee. He invites our attention to Clauses 9 and 12 of Article 98 of the decree, in terras of which the mining concessions were granted to the assessee which, according to him, imposed obligation upon the assessee not to suspend the mining works with the intention of abandoning them without informing the Governor of the District and without keeping them in a safe condition (Clause 9) and to carry out the works necessary for safety and health of the public and workmen (Clause 12). These obligations, according to Shri K.R. Prasad, also qualify as debts due entitled for deduction in the computation of its net wealth on the respective valuation dates. He further calls in aid the provisions of Article 114 which enumerate the circumstances in which the mining concessions could be forfeited and on Article 115, Clause 2 in terms of which the engineer charged with the inspection of the mining works of the assessee was required to state in his inspection report the means necessary to maintain a safe condition of subterranean workings and of the surface of the mines for the public, such as filing the pits, covering or guarding openings and also marking the direction of the principal galleries with fixed signs. In support of his contention, he seeks to rely on the ruling of the Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1. Finally, Shri K.R. Prasad contends that even if it be held against him that no liability accrued as claimed under the lease agreements, such a liability was laid upon the assessee in law by virtue of Section 108 of the Transfer of Property Act, 1882.

5. Shri Sathe, the learned departmental representative, counters the assessee's claim on several grounds. In the first instance, he contends that on a proper reading of the lease deeds under the Indian Act, no liability Can be said to have been laid upon the assessee to restore the entire land occupied or used by the assessee under the leases to its orginal condition. Analysing the structure of the lease deed, he argues that the very placement of the so called liability in Part V of the deed which determines the rents and royalties payable by the lessee, shows that there was no liability suffered by the assessee for the restoration of the land used and occupied to its original condition. Had there been any such liability, it would have found its natural place in the agreement in Part III which enumerates the restrictions and conditions subject to which the lessee was to exercise its lease rights listed in Part II. Part III is completely silent as to any such liability of the lessee as claimed by the assessee. According to him, the scope of the liability was restricted only to the restoration of the surface of the land and that too as far as possible to its original condition. Now this liability has to be read with the right given to the assessee to use a part of the surface land demised under the lease for the purpose of stacking, heaping or storing or depositing there in any produce of mines or works carried on and any tools, equipment, earth and materials and substances dug or raised in the course of carrying on the mining business (Clause 7 of Part II). He then goes on to contend that it is of utmost significance that in fact not a penny has ever been spent by the assessee in discharge of the so called liability now claimed, although the mining concessions and leases have been worked by it for several decades. What is more, for all these years not a penny has ever been provided for in the accounts for the purpose of disbursing any such liability. We would straightaway note here that this point is fairly conceded by Shri Prasad on behalf of the assessee that nothing has ever been spent or provided for in the accounts or demanded by the lessor for meeting or discharging any such liability, though he contends that this maybe due to ignorance of the legal position on the part of the lessee as much as of the lessor and should not on that account defeat the assessee's claim.

6. The learned departmental representative then proceeds to his next contention that in any case, if at all, there was any liability laid upon the assessee for restoration of the surface of the land, it was only a contingent liability and not a liability or debt in praesenti and that being so, the ruling of the Supreme Court in the case of Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470 would apply so as to reject the assessee's claim. As for the contention raised invoking the provisions of Section 108 of the Transfer of Property Act, Shri Sathe's case is that, that provision has no application in the present case, since the liability in terms of that provision arises in the absence of a contract to the contrary ; so far as the assessee is concerned, its rights and obligations were to be spelt out from the mining lease agreements precluding the operation of Section 108.

7. We have carefully considered the rival contentions. So far as the assessee's claim raised in terms of the lease agreements under the Indian Act for the assessment years 1966-67 to 1976-77 is concerned, we do not accept the interpretation sought to be given to Clause 4 of Part V by the departmental representative that the obligation laid upon the assessee for restoration was limited only to such portion of the lands demised to it under the leases used or occupied for stacking and heaping, etc., of machinery, equipment and ore dug out. No such limitation, in our view, can be read in that clause. The real question, however, for decision in this case is whether this obligation or liability amounted to a 'debt' within the meaning of Section 2(m) of the Wealth-tax Act, 1957 ('the Act') for it is only if that condition is satisfied that the assessee would be entitled to its deduction in the computation of its net wealth for each of the years. What is, therefore, relevant to be determined is whether the assessee's claim amounts to a debt due on each of the valuation dates under consideration. Now it is clear from the very order of the Tribunal on which the assessee relies that its liability for restoration of the land to its original condition is only in respect of that portion of the land which has been fully exploited and/or abandoned for any other reason ; but that condition would not apply to that portion of land where further exploitation was possible. This is the categorical finding of the Tribunal, on the interpretation placed on the relevant clauses of the lease agreements and which indeed is the interpretation commended to us on behalf of the assessee. That being the case the liability could not, in our view, be claimed to constitute a debt due against the assessee, till the land, demised under the lease agreements, had been fully exploited and/or abandoned for other reasons in accordance with the terms of the lease agreements. The liability, in other words, was contingent upon the occurrence of these events, i.e., the land being fully exploited and/or abandoned. It is not the assessee's case before us that any of these events had occurred with reference to the valuation dates under consideration and, therefore, quite clearly the obligation of the assessee cannot be held to qualify as a debt in praesenti on the valuation dates. This inference accords, in our view, perfectly with the actual state of facts also, namely, that throughout all the years during which the assessee has worked the mining concessions or the mining leases, not a penny has been spent by it, nor a penny provided for in the accounts for the discharge of any such liability, nor has any demand on this account ever been made upon it by the lessor. In our view, this is a case which squarely falls within the ratio of the ruling of the Supreme Court in the case of Standard Mills Co. Ltd. (supra) referred to above, which we would respectfully apply and reject the assessee's contention. So far as the assessee's reliance on the case of Calcutta Co. Ltd. (supra) is concerned, the assessee's case is clearly distinguishable on facts.

Besides, that was a case which arose under the Income-tax Act, 1961, as indeed was the case of New India Mining Corpn. (P.) Ltd. (supra) before the Tribunal upon whose order the assessee so strongly relies and as observed by their Lordships in the case of Standard Mills Co. Ltd. (supra) while dealing with the ruling of the House of Lords in Southern Railway of Peru Ltd. v. Owen (Inspector of Taxes) [1957] 32 ITR 737 : ... But the House in that case was concerned to determine the deductibility of the present value of a liability which may arise in future in the computation of taxable profits for the relevant year under the Income-tax Act. The same considerations cannot, however, apply to a case under the Wealth-tax Act, where the liability to pay wealth-tax is charged upon the net wealth of an assessee. (p. 475) As for the assessee's reliance on Section 108 of the Transfer of Property Act, it is, in our view, quite misplaced. This is made clear by the very opening words of Section 108 to the effect "In the absence of a contract or local usage to the contrary...." In the assessee's case admittedly the rights and liabilities were spelt out under the contracts or lease agreements. It is trite law that an express covenant always overrides an implied covenant, i.e., the covenant implied by this section. The claim, therefore, raised by the assessee on the strength of the lease agreements under the Indian Act fails. As regards the claim for the two years 1964-65 and 1965-66 is concerned, we fail to read in Clauses 9 and 12 of Article 98 relied upon by the assessee anything in the nature of a debt due against the assessee on the relevant valuation dates. These clauses enjoined upon the lessee to keep the works in the mining area in a safe condition and take measures for the safety and health of the public and the workmen. They do not spell out anything even remotely related to restoration of the land to its original condition. Such is also the case and the inference to be drawn on a reading of Articles 114 and 115, Clause (2). The claim, therefore, raised on behalf of the assessee in the additional ground is rejected for all the years under consideration.

8. The next ground urged on behalf of the assessee is that on the terms of the Mining Concession Rules, 1960, framed under the Indian Act which governed the leases under consideration, the interest of the assessee in the mining leases could not be held to be an asset within the meaning of that term given in Section 2(e) and that, therefore, the value of the assessee's lease interest could not be included in its net wealth. Now Section 2(e) defines the term 'assets', excluding from its purview by virtue of item (v) of Sub-clause (1) of that section, any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee. The contention is that the lease rights obtained by the assessee under the mining concessions or under the Indian Act in terms of the lease deeds did not vest for a period exceeding six years, that, in other words, these were precarious and were as such saved from the mischief of Section 2(e). Now Shri Prasad, very fairly concedes that this question had come up for decision before the Tribunal, Pune Bench, in the case of Smt. Sushila, M. Timblo v. First WTO and was decided against the assessee by its order in WT Appeal Nos. 127 to 131 (Bang) of 1973-74, dated 4-7-1975, a copy of which has been enclosed in the assessee's paper book. The contentions raised on behalf of the assessee before us in these appeals are the same as had been raised before the Tribunal in the aforesaid case so far as the years 1964-65 to 1972-73 are concerned. Reliance is placed in support of the assessee's claim on Rule 45(iv) of the Mineral Concession rules. We have carefully gone through the aforesaid order of the Tribunal and find that the claim for exclusion in terms of item (v) of Sub-clause (1) of Section 2(e) has been considered therein at length. After detailed consideration of the conten-tion, the Tribunal, distinguishing the ruling of the Supreme Court in the case of CWT v. Smt. R.A. Muthukrishna Ammal [1969] 72 ITR 801, came to the conclusion that the contention as to the leases in question being pre-carious so as to fall within the protection of item (v) of Sub-clause (1) of Section 2(e) was unsustainable. The Tribunal's finding was expressed in the following words in paragraph 6 of its order : ... Sub-rule (iv) of Rule 45 of the Mineral Concession rules says that the State Government shall give notice to the lessee requiring him to pay the royalty if there is default in the payment of royalty and if the payment is still not made within 60 days from the date of receipt of the notice the lease can be terminated. Likewise if there is any breach of the conditions in the lease, the State Government shall give a notice to the lessee to remedy the breach and if that is not done within 60 days, the lease can be terminated. The power to terminate the lease is not absolute and that power is hedged by certain restrictions. We are, therefore, unable to come to the conclusion that the mining lease was precarious as pressed on behalf of the appellant. The fact that the lessee has got the right to terminate the lease by giving 12 months' notice is of no consequence. Hence, the broad contention that the decision of the Supreme Court governs the facts of the present case in spite of the amendment is too sophisticated to be applied to the facts of the present case. The Supreme Court itself has made it clear in Smt.

R.A. Muthukrishna Ammal's case (supra) that the amended clause was not intended to be a parliamentary exposition of the meaning of the original clause. We are of the view that the interest in property which is available to the taxpayer for a period exceeding six years from the date of the lease is an 'asset' within the meaning of Section 2(e) and the value thereof can be included in the net wealth of the assessee for the financial years relevant to the valuation dates.

We find ourselves in respectful agreement with this decision of the Tribunal following which the claim for the assessment years 1964-65 to 1972-73 is rejected.

9. Now it is the assessee's case before us that with effect from 1973-74, the position was completely changed by reason of the amendment of the Indian Act brought about by insertion of Section 4A in that Act.

This amendment was brought about by the Amendment Act, 1972, with effect from 30-9-1972. It is brought out in support of his contention that as against the limitation placed on the power of the lessor for termination of the lease placed in Sub-Clause (iv) of Rule 45 of the Mineral Concession Rules, Section 4A vested the Central Government with almost absolute powers, unfettered by any such limitations to terminate the leases at will. Section 4A is as follows : 4A. Termination of Mining Leases.-(1) Where the Central Government after consultation with the State Government is of opinion that it is expedient in the interest of regulation of mines and mineral development so to do, it may request the State Government to make a premature termination of a mining lease in respect of any mineral, other than a mine or mineral, (sic) and on receipt of such request the State Government shall make an order making a premature termination of such mining lease and granting a fresh mining lease in favour of such Government company or corporation owned or controlled by Government as it may think fit.

(2) Where the State Government after consultation with the Central Government is of opinion that it is expedient in the interest of regulation of mines and mineral development to do so, it may, by an order, make premature termination of a mining lease in respect of any mine or mineral and grant a fresh lease in respect of such mineral in favour of such Government company or corporation owned or controlled by Government as it may think fit.

Shri K.R. Prasad contends that on the terms of Section 4A the inference to be drawn is as to the unfettered power of the Central Government or of the State Government in respect of minor minerals, to make a premature termination of the mining leases and that is what rendered the assessee's mining leases under consideration precarious. We do not, however, find substance in this contention. It cannot be held on a proper reading of Section 4A that the power of termination held by the Government in terms thereof was absolute and unconditional. Section 4A in fact emphatically provides such a limitation to the exercise of that power. What it lays down is that the power of premature termination was to be exercised by the Government where it is of opinion that it is expedient in the interest of regulation of mines and development so to do. This limitation certainly distinguished the power exercisable by the Government in terms of Section 4A from an absolute, unfettered or uncontrolled power. The contention raised for the years 1973-74 to 1976-77 on the strength of Section 4A is, therefore, rejected.

10. We now come to the other grounds raised in these appeals contending that the Commissioner (Appeals) erred in holding that the gifts of certain properties to the HUF made by the karta to (a) persons outside the family fold and (b) to members of the assessee HUF, viz., karta's wife and son were invalid and that, therefore, continued to constitute part and parcel of the joint family property, the value of which was includible in the assessments under consideration. We find that the Commissioner (Appeals) has relied for sustaining these additions on an order of the Tribunal, Pune Bench, in the assessee's own case bearing IT Appeal Nos. 1175, 1401 (Nag.) of 1970-71 and 658 (Nag.) of 1971-72, dated 23-4-1974, wherein the question of validity of these gifts was considered and decided against the assessee. Shri Prasad fairly concedes that the question is covered in that order and that his contentions for exclusion of the gifted amounts are the same as were raised before the Tribunal in the aforesaid income-tax appeals. After carefully going through the order of the Tribunal, we find ourselves in respectful agreement with it and hold for the reasons stated in that order that the gifts were invalid and, therefore, the properties in question have been rightly included in the assessments under consideration. The contentions of the assessee are, therefore, rejected and these grounds are decided against the assessee.

11. It remains now to consider the last ground raising the contention that the value of the jetty and the income of the jetty credited to the accounts of Rajiv and Mahesh have been wrongly included and the assessments under consideration, on the footing that the jetty had been purchased out of the amounts gifted to the aforesaid Rajiv and Mahesh and these amounts, therefore, could not be included in the assessments of the HUF. This ground has been specifically given up for the assessment year 1964-65 and for that year, therefore, is decided against the assessee. It appears that this ground for 1964-65 was erroneously included. Now the grounds on which this claim is pressed for the other years, i.e., 1965-66 to 1976-77 are firstly, that the gifts made to the two persons Rajiv and Mahesh being valid, the jetty purchased out of the gifted amounts and its income could not be included in the assessments of the HUF and secondly, this contention pertains only to the assessment years 1975-76 and 1976-77, since more than 12 years had elapsed by 31-3-1975, the valuation date for the assessment year 1975-76, during which period the gifted properties were in adverse possession, provisions of Section 27 of the Limitation Act, 1908 would operate to exclude these amounts from the net wealth of the assessee for these two years. We find no substance in the first contention since the gifts having been found to be invalid and, therefore, non est in the eye of law, any assets or income thereof purchased or acquired from the amounts constituting the invalid gifts would remain the property of the assessee. This contention is, therefore, rejected. As regards the second contention pertaining to the years 1975-76 and 1976-77, Shri Sathe, on behalf of the department, objects to the assessee being allowed to urge this new contention. We, however, do not find merit in Shri Sathe's objection. It has always been the assessee's case before the authorities below that the value of the jetty or income derived therefrom was not includible in the net wealth of the assessee. What Shri Prasad seeks to do now is to urge a further contention in support of this claim. We do not find that any proper objection can be taken to such a contention being raised.

However, having allowed Shri Prasad to urge this contention, we find that for the question to be properly resolved, it is necessary to send the case back to the WTO on this point for making the requisite enquiries. As rightly contended by the departmental representative, before a finding of adverse possession can properly be given, it is necessary to determine whether in the assessee's case necessary conditions obtained so as to hold that the property in question was in adverse possession and those conditions are that the possession required must be adequate in continuity, in publicity and extent to show that its possession was adverse to the competitor, i.e., the true owner. It is, therefore, necessary, in our view, to determine the facts as to whether these conditions were satisfied or not before the assessee's claim can be properly decided. We would, therefore, set aside the orders of the authorities below on this point and direct the WTO to make necessary enquiries and determine the facts in regard to the nature of the adverse possession claimed by the assessee and then decide whether or not the property was in adverse possession in accordance with law. In this connection, the WTO's attention is invited to the provisions of Section 27 of the Limitation Act read with Article 65 of the Schedule annexed to that Act.

12. In the result, the assessee's appeals for the assessment years 1964-65 to 1974-75 are dismissed and its appeals for the years 1975-76 and 1976-77 are partly allowed for statistical purposes.

13. To take up now the cross-appeals filed by the department, the first contention raised therein is that the Commissioner (Appeals) erred in rejecting the valuation of the barges made by the Valuation Officer of the department and in accepting the unduly low value of these vehicles made by the assessee's valuer, whose valuation report was furnished before him for the first time in the appellate proceedings. It is strongly contended by the learned departmental representative that the admission and acceptance of evidence by the Commissioner (Appeals) of the report of the assessee's valuer without the WTO having had the opportunity to examine and make his representation thereon was unjustified. Besides, it is contended that the Commissioner (Appeals) has not advanced any convincing or acceptable reasons for reducing the valuation made by the departmental valuer. The learned counsel for the assessee relies on the order of the Commissioner (Appeals) in support of the assessee's case.

14. We find force in the contentions raised by the departmental representative. It was certainly appropriate and called for that the Commissioner (Appeals), having admitted the assessee's valuer's report, should have called upon the WTO to examine the same in detail and to make his representation thereon. His failure to do so vitiates his order which for that reason deserves to be set aside. Apart from that, we find that the Commissioner (Appeals) called for explanation from the Valuation Officer of the department in regard to his valuation of the barges. The Valuation Officer replied to this requisition by his letter dated 16-1-1982. In this letter, the departmental Valuation Officer explained the factors which he had taken in to account in making the valuation. The Commissioner (Appeals) found that the method of valuation adopted by the Valuation Officer, namely, cost of replacement method was correct in the circumstances of the assessee's case and he upheld the application of this method. But then he proceeded to make an observation that some of the deductions given in arriving at the market value of the barges as on the respective valuation dates were inadequate or low and it is for that reason that the Commissioner (Appeals) went on to conclude that the value computed by the assessee's valuer was preferable and directed it to be adopted. Now we are left completely in the dark as to what precisely was in the mind of the Commissioner (Appeals) when he speaks of some of the deductions made by the Valuation Officer being low. What are these deductions What were the grounds upon which or the reasons for which the Commissioner (Appeals) considered such deductions given by the Valuation Officer to be low If similar deductions had been given by the approved valuer in his computations, how did they differ in nature and amount from the deductions given by the Valuation Officer Why did the Commissioner (Appeals) consider that such deductions, if any, given by the assessee's valuer were reasonable and adequate In short, the Commissioner (Appeals) has signally failed to make a speaking order and to set out his reasons with any degree of clarity as to why he found the valuation made by the Valuation Officer of the department as excessive. It is noteworthy that the difference between the valuation made by the Valuation Officer of the department and the value adopted by the Commissioner (Appeals) is very substantial. For all these reasons, we consider it appropriate to set aside the order of the Commissioner (Appeals) on this point for all the years under appeal and direct him to dispose of this question afresh in accordance with law in the light of this order.

15. The next contention raised on behalf of the department is that the Commissioner (Appeals) erred in allowing the deduction of 10 per cent in the value of the immovable property included in the net wealth. It is contended on behalf of the department before us that the Commissioner (Appeals) misdirected himself by accepting the assessee's plea that since under the Hindu law, the property in question admittedly being Hindu joint family property, there are certain limitations imposed on the karta in respect of his powers to transfer or sell the property, this was a relevant factor in the computation of the market value of the property which would operate to depress its price.

16. On behalf of the assessee, the learned counsel invites us to consider the provisions of Articles 242, 243, 246, 259 and 270 at Mulla's Hindu Law, 14th edition to sustain his proposition that these clogs or fetters, as he terms them, on the karta's power to dispose of the Hindu joint family property must be taken into account for purposes of computing the market value of such property under the Act. In our view, there is no substance whatsoever in the assessee's claim. It appears to us that the contention put forth on behalf of the assessee is on account of a confusion between the owner of the property which is liable to charge under the Act, i.e., the HUF and the powers of the manager or karta of the HUF under Hindu law for disposition and sale of the property. The contention put forth is that inasmuch as the karta can only sell the HUF property or any part thereof for the benefit of the family, this restriction acts as a clog or a fetter for putting the property to sale and that this restrictive factor would depress the market value of the property for which a relevant deduction needs to be given. The fallacy in this contention is that the subject-matter of valuation is not the karta's property, but that of the HUF. The rule of Hindu law is that the karta may dispose of or sell the HUF property only for the benefit of the family or for legal necessity. But these factors would equally prevail in the ordinary course of human affairs, in the case of an owner of any property : sale of property by its owner takes place because the owner intends to benefit thereby or because he is prompted by his need to do so, Such a case is entirely different from that of property which is jointly owned by two or more co-owners : so long as such jointly owned property remains undivided, the market value of such undivided share of a co-owner is likely to be affected on account of the nature of his ownership of the property. The analogy from the case of co-ownership property which the learned counsel for the assessee seeks to draw and in this behalf seeks support from the ruling of the Calcutta High Court cited as J.N. Bose v. CWT [1976] 104 ITR 83, therefore, is, in our view, quite inapt and will not hold in the case of HUF property. We are, therefore, of the view that the Commissioner (Appeals) erred in allowing a deduction in the value of the immovable property by 10 per cent on this account. We set aside his order on this point and restore that of the WTO.17. The last contention raised in the departmental appeals is that the Commissioner (Appeals) erred in holding that the term 'jewellery' did not include ornaments of gold and silver till such inclusion was brought about by addition of the Explanation appended to the definition of jewellery in terms of Explanation 1 to Section 5(1)(viii) of the Act. The Commissioner (Appeals) had accepted the assessee's contention that since the aforesaid Explanation took effect only from 1-4-1972, ornaments of gold and silver were not includible in the assessee's wealth up to the assessment year 1971-72. The department's case is that by virtue of the amendment, the law merely clarified that the term jewellery included ornaments. We find that there is a conflict of authority on this point. The Allahabad High Court has held in favour of the department in the case of CWT v. H.H. Maharaja Vibhuti Narain Singh [1979] 117 ITR 246, while in the following cases a contrary view has been taken- CWT v. Binapani Chakraborty [1978] 114 ITR 82 (Ori.), CWT v. Aditya Vikram Birla [1978] 114 ITR 711 (Cal.) and CWT v. Smt. Sonal K. Amin [1981] 127 ITR 427 (MP). The departmental representative seeks to draw support for his case from the ruling of the Bombay High Court in the case of CWT v. Rasesh N. Mafatlal [1980] 126 ITR 173. We find that the issue which arises before us on this point, i.e., in regard to the correct interpretation of Explanation 1 to Section 5(1)(viii) concerning the scope of the term jewellery as inclusive of ornaments within the meaning of these provisions did not arise in the case before the Bombay High Court at all. That ruling, therefore, is of no assistance whatsoever to the department and the contention is rejected.

18. In the result, all the departmental appeals may be treated as partly allowed for statistical purposes.


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