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D.S. Chenai Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1985)11ITD9(Hyd.)
AppellantD.S. Chenai
RespondentWealth-tax Officer
Excerpt:
.....4-7-1980 passed in wt appeal nos. 62 to 68 (hyd.) of 1979. subsequently, the wto found that the urban assets in excess of the values specified in the schedule (part i given under the act) were not charged with additional wealth-tax by mistake. according to the wto, it is a mistake apparent from record and as such, he issued a notice under section 35 to the assessee calling for his/her objections on 19-12-1981. the assessee in his letter dated 13-1-1982 stated that the additional wealth-tax is not chargeable as the residue of the urban assets was less than the taxable limit prescribed for the levy of additional wealth-tax. due to the change in the incumbent of the office of the wto, again a notice was issued under section 35 on 20-7-1982.the assessee sent his/her letter dated.....
Judgment:
1. These are five appeals filed by the assessee against the common order of the Commissioner (Appeals), dated 28-5-1983, and they relate to the assessment years 1970-71 to 1974-75. The point involved is common in all these appeals and, hence, they can be taken up together and disposed of by a common order.

2. The assessee is common in all these appeals. He is a minor represented by his guardian mother. The common question involved in all these appeals is whether there is any mistake apparent from record present in the original assessments and in the consequential orders passed by the WTO while implementing the orders of this Tribunal dated 4-7-1980 in WT Appeal Nos. 62 to 68 (Hyd.) of 1979. Before coming to the grips of the matter, it is better to have a fair account of the events which led to the application of Section 35 of the Wealth-tax Act, 1957 ('the Act'). For these five assessment years, originally, the assessments were completed on 17-8-1978. Subsequently, appeals were filed against them and ultimately, the matters were brought to this Tribunal in WT Appeal Nos. 62 to 68 (Hyd.) of 1979. Some relief was granted to the assessee by common orders of this Tribunal passed in those appeals on 4-7-1980. Consequential orders were passed by the WTO redetermining the wealth of the assessee in pursuance of the orders of this Tribunal dated 4-7-1980 passed in WT Appeal Nos. 62 to 68 (Hyd.) of 1979. Subsequently, the WTO found that the urban assets in excess of the values specified in the Schedule (Part I given under the Act) were not charged with additional wealth-tax by mistake. According to the WTO, it is a mistake apparent from record and as such, he issued a notice under Section 35 to the assessee calling for his/her objections on 19-12-1981. The assessee in his letter dated 13-1-1982 stated that the additional wealth-tax is not chargeable as the residue of the urban assets was less than the taxable limit prescribed for the levy of additional wealth-tax. Due to the change in the incumbent of the office of the WTO, again a notice was issued under Section 35 on 20-7-1982.

The assessee sent his/her letter dated 28-7-1982, wherein she repeated all the grounds which were raised in her letter dated 13-1-1982. The assessment order, the date of original assessment order, wealth determined thereunder, date and particulars of the orders of the Tribunal, wealth determined as per the Tribunal's order, the date when the order under Section 35 was passed, the net wealth determined as per the rectificatory order and the date of the Commissioner (Appeals) now assailed before us, are all given in a tabular form as under:assessment 17-8-1978 17-8-1978 17-8-1978 17-8-1978 17-8-1978determined: 19,90,218 18,67,473 23,94,577 23,49,256 26,47,3554.Date of the Tribu- 4-7-1980 4-7-1980 4-7-1980 4-7-1980 4-7-1980nal's order in WT in WT in WT in WT in WTTribunal's reference Appeal Appeal Appeal Appeal AppealNo. No. No. No. No. No. 62 to 68 62 to 68 62 to 68 62 to 68 62 to68 (Hyd.) of (Hyd.) of (Hyd.) of (Hyd.) of (Hyd.) of5. Wealth deter- 16,65,398 15,75,328 20,74,605 30,40,151 23,72,4016. Date when 31-7-1982 31-7-1982 31-7-1982 31-7-1982 31-7-19827. Net wealth Rs. 17,22,473 15,66,897 20,52,442 20,18,680 23,57,1258. Date of the 28-5-1983 28-5-1983 28-5-1983 28-5-1983 28-5-1983" For the assessment year 1970-71, out of the net wealth the value of the immovable assets of the assessee accounted for Rs. 6,60,168 and movable assets for Rs. 13,28,679. The total of the liabilities eligible for deduction, in order to arrive at the net wealth, amounted to Rs. 3,00,728. After deducting the liability from the value of the movable assets, the net wealth of the assessee in movable assets amounted to Rs. 10,27,951. For the assessment year 1971-72, the value of the immovable assets held by the assessee similarly was Rs. 6,85,168 and the movable assets was Rs. 16,29,731. The liabilities eligible as deduction under Section 2(m) of the Act accounted for Rs. 7,06,471 and after deducting those liabilities from the value of the movable assets, the net wealth of the movable assets of the assessee amounted to Rs. 9,23,260. So also, for the assessment year 1972-73, the value of the immovable assets of the assessee was Rs. 6,85,168 and the value of the movable assets was Rs. 16,50,774. The liabilities eligible for deduction under Section 2(m) amounted to Rs. 1,92,997 and so after deducting the liabilities from the value of the movables, the net wealth of the movable assets of the assessee came to Rs. 14,57,977. So also, for the assessment year 1973-74, the total value of the immovable assets stood at Rs. 5,42,568 and the movable assets at Rs. 17,96,336.

The eligible deductions were of the value of Rs. 2,40,355. Thus, after deducting the liabilities from the value of the movables, the net wealth of the movable assets stood at Rs. 15,55,981. For the assessment year 1974-75, the value of the immovable assets amounted to Rs. 5,42,568 and that of movable assets at Rs. 20,99,713. The liabilities eligible for deduction under Section 2(m) came to Rs. 1,85,327. After deducting the liabilities from the total value of the movable assets, the net wealth of the assessee in movable assets came to Rs. 19,14,386.

In the objection letter filed by the assessee on 13-1-1982 which objections were reiterated on 28-7-1982, it is stated that the additional wealth-tax is not chargeable as the residue of the urban asset was less than the taxable limit set out for the levy of additional wealth-tax. According to the WTO, the only point of difference between him and the assessee is whether the liabilities like estate duty, income-tax and wealth-tax are to be deducted from out of the value of the immovable assets or movable assets. The assessee is of the view that the said liabilities are to be deducted from out of the immovable assets whereas in each of the rectificatory orders dated 31-7-1982, the WTO took the view that the said liabilities are to be deducted from out of movable assets. Therefore, he proceeded to levy additional wealth-tax on movable assets whose value exceeded the taxable limit set out for the levy of additional wealth-tax. The WTO in his rectificatory orders, determined the net wealth of the immovable properties for purposes of levy of additional wealth-tax and the figures given in SI. No. 7 of the statement furnished above disclosed figures of net wealth arrived at by him for the purposes of levy of additional wealth-tax. Thus, the WTO levied additional wealth-tax of Rs. 601 for the assessment year 1970-71, Rs. 9,255 for the assessment year 1971-72, Rs. 9,255 for the assessment year 1972-73, Rs. 2,125 for the assessment year 1973,-74 and Rs. 2,125 for the assessment year 1974-75. Aggrieved against the rectificatory orders passed by the WTO dated 31-7-1982, the assessee went in appeal before the Commissioner (Appeals).

3. It is contended before the learned Commissioner (Appeals) that the WTO should have held that no additional wealth-tax can be levied and an order under Section 35 cannot be passed as there was no mistake apparent from record. According to the assessee, there was no patent or self-evident error which could be rectified under Section 35. The WTO, according to the assessee, assumed jurisdiction without all the conditions laid down under Section 35 being fulfilled. According to the assessee, the error, if any, could be found out only by long-drawn process of reasoning on a legal point on which there are possibly two opinions. According to the assessee, the WTO erred in holding that the liabilities are not deductible from the value of immovable assets for arriving at the net wealth. It is also contended that instead of deleting the amount of Rs. 3,00,727, the WTO deleted only Rs. 2,47,727 towards liabilities for the assessment year 1970-71. Before the Commissioner (Appeals), reliance was placed upon the decision of the Supreme Court in T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50, the Kerala High Court in Abdul Rahim Haji Jacob Sait. v. CIT [1973] 87 ITR 183 and the Calcutta High Court in CIT v. New Central Jute Mills Co. Ltd. [1976] 105 ITR 262 in support of the proposition that a debatable point of law does not represent a mistake apparent from record and for the proposition that the mistake cannot be taken to be apparent from record, if it has to be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. The learned Commissioner (Appeals) held that the criteria laid down in the above decisions has to be applied in the light of the relevant provisions of the Wealth-tax Act which are dealt with in the rectificatory proceedings. He extracted the relevant clauses from the Finance Act, applicable for the assessment year 1970-71. The Commissioner (Appeals) held that as far as the assessment year 1970-71 is concerned, no set off of any kind whatever has been provided against the value of immovable property which is to be considered for levy of additional wealth-tax as per Rule 2 of Paragraph B of Part I of the Act. Therefore, he concluded as follows: I am afraid, in the absence of any restrictions placed in the matter of arriving at the value of such immovable property, it can never be said that such value will be subject to deduction of certain liabilities.

As regards the other four years involved, he said that in those years the term 'value' has been defined in Rule 2 of Paragraph B of Part I to be the amount after deducting any debts which are incurred for the purpose of acquiring, improving, reconstructing, etc., of such asset or property. Also other debts are deductible, provided the amounts thereof exceed the value of assets other than immovable property. The learned Commissioner (Appeals) held, in other words, only in case the value of assets other than urban assets are insufficient to cover the entire liabilities, then only the excess will be eligible for set off against the value of the immovable property constituting urban assets. The learned Commissioner (Appeals) was of the opinion that the provisions quoted in his impugned order for the assessment year 1970-71 and the provisions noted by him for the assessment years 1971-72 to 1974-75 are so obvious and patent that it cannot be said to admit of any ambiguity.

He stressed in his impugned orders that the ratio of the decisions cited before him have always to be applied in the context of the provisions, which were the subject-matter of rectification. He pointed out the classic exposition made about the scope of the rectification under taxation law in T.S. Rajam v. CED [1968] 69 ITR 342 (Mad.), where it is said: ...The essence of rectification is to bring the order which was expressed and intended to be in pursuance of the existing law, into harmony with such law. It presupposes a particular state of affairs and it requires proof that by such a mistake the final order fails to give proper effect of the law and its functions. Once the Tribunal or authority is able to predicate with certainty as to in what manner and how the order suffers by a mistake apparent on its record supported by irrevertiable evidence, then it would indeed enable them to bring the order complained against or impugned against in conformity with law and the facts in the record. (p. 352) According to the Commissioner (Appeals), there was absolutely no warrant for the assumption that the value has to be taken at the net figure after deducting all the liabilities as claimed by the assessee before him. Thus, he dismissed the appeals filed before him.

4. Aggrieved against the impugned common order of the Commissioner (Appeals), the second appeals are brought before this Tribunal and, thus, the matters stand for our consideration. We have heard Shri P.Muralikrishna, the learned Counsel for the assessee, and Shri C.Satyanarayana, the learned senior departmental representative. In the grounds filed before this Tribunal, the assessee had taken the stand that no additional wealth-tax is levied by passing an order under Section 35 as there was no mistake apparent from the record. It is also contended that the WTO assumed jurisdiction under Section 35 without the requirements of law being satisfied. According to him, there was no mistake apparent from record and that the learned Commissioner (Appeals) justified the action of the WTO by a long-drawn process of reasoning and by taking a particular legal view of the matter rejecting another possible view. According to him, the Commissioner (Appeals) erred in holding that the provisions governing levy of additional wealth-tax are obvious and patent. The assessee also contended that the Commissioner (Appeals) went wrong in upholding the view of the WTO that no liabilities are deductible from the value of immovable assets for the levy of additional wealth-tax. The analogy drawn from the Supreme Court decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 for concluding that additional wealth-tax is leviable on the gross value of urban assets and liabilities are not deductible, is erroneous.

At the time of hearing, Shri P. Muralikrishna, the learned Counsel for the assessee, filed the order of 'A' Bench of this Tribunal in WT Appeal Nos. 229 to 233 (Hyd.) of 1976-77, dated 24-1-1978. He also filed a note noting down his propositions and the authorities in support of the propositions. He contended that even if there is slightest possibility of controversy, the rectification under Section 35 is not possible. In support of the proposition, Shri Muralikrishna relied on the following decisions: Nandlal Mangaram Pamnani v. G.Lakshminarasimhan [1971] 82 ITR 1 (Bom.), National Rayon Corpn. Ltd. v.G.R. Bahmani, ITO [1965] 56 ITR 114 (Bom.), Nilgiris Potato Growers Co-op. Marketing Society Ltd. v. C/T [1978] 111 ITR 375 (Mad.), New Central Jute Mills Co. Ltd.'s case (supra) and Jeewanlal (1929) Ltd. v.ITO [1979] 118 ITR 946 (Cal.).

As against this, the learned departmental representative had chosen to bring to our notice the provisions contained in Part I, Paragraph A(3) and Rule 2 of Paragraph B of the Finance Acts, relating to the assessment years 1971-72, 1972-73, 1973-74 and 1974-75.

5. It is essential for us to note the contents of these Finance Acts in order to appreciate the real point in controversy. As far as the assessment year 1970-71 is concerned, in Paragraph A of Part I, there are three slabs of rates mentioned. The first slab relates to individual. The second slab relates to HUF. The third slab relates to either individual or HUF, where the net wealth of either of them includes the value of any asset, being building or land (other than business premises) or any right in such building or land, situated in an urban area (such asset being hereinafter referred in this part as urban asset). In short, this para 3 refers to the rates of tax applicable to an individual or HUF, who happened to hold an urban asset.

In this slab, we find that if the value of the urban asset does not exceed Rs. 5 lakhs, then no tax is leviable. But if the value of the urban asset is between Rs. 5 lakhs and Rs. 10 lakhs, the tax prescribed was 5 per cent of the amount by which such total value exceeds Rs. 5 lakhs. According to the said para, 'urban asset' means either building or land or any right in the building or land situated in an urban area.

The words 'urban area' is defined in Rule 1 of Paragraph B. It includes an area which is comprised within the jurisdiction of a municipal corporation which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the valuation date. It is not disputed in this case that the immovable asset held by the assessee was urban asset. The only dispute is that all the liabilities must be deducted from the value of the urban asset and if they are so deducted, the value of the urban assets held by the assessee falls below the taxable limit prescribed in Item (3) of Paragraph A of Part I of the Act, relevant to the assessment year 1970-71. Now the question is whether all the liabilities can be deducted from out of the value of the urban asset.

Net wealth can be determined only under Section 2(m). It is no doubt true that some liabilities, whose nature is mentioned in that provision, are entitled to be excluded before the net wealth is arrived at. Now, in this case, the point of dispute cannot more pithily be put by us than the WTO who stated that the dispute is that the liabilities like estate duty, income-tax and wealth-tax whether to be deducted from out of the immovable assets or movable assets. When this is the only area of difference, we feel that we can resolve it with reference to Rule 2 in Paragraph B of Part I of the Act, which is extracted as under: 2. In determining, for purposes of item (3) of Paragraph A, the value of any urban asset,-- (a) any debt (whether secured or not) incurred for the purpose of acquiring, improving, constructing, repairing, renewing or reconstructing such asset shall be deducted from the gross value of such asset; (b) other debts which are deductible in computing the net wealth shall be deducted from the gross value of such asset [as reduced by the debts, if any, under Clause (a)] only if, and to the extent that, such debts exceed the aggregate gross value of assets other than urban asset.

According to us, only the above liabilities are to be deducted in the manner shown above. It is not stated that any of the liabilities represent debts, secured or unsecured, incurred by the assessee for purposes of acquiring, improving, constructing, repairing, renewing or reconstructing any of the urban asset held by him. If there is no such debt, then the other debts could be excluded only if the total amount of such debts exceed the aggregate gross value of assets other than urban asset. Now, in this case, it cannot be argued by any stretch of imagination that the movable assets held by the assessee are part of urban assets. Therefore, it is clear that unless the liabilities exceed or exhaust the full value of the worth of the movable properties held by the assessee, then only the excess can be deducted from out of the gross value of the urban asset. According to us, there is no ambiguity in the rule and there is no possibility of getting two meanings out of it. The terms of rule are very clear and do not give scope to any argument or for a plausible opposite view of the matter.

6. For the assessment years 1971-72, again Rule 2 of Paragraph B of Part I of the rates of wealth-tax, provided under the relevant Finance Act, clearly lays down what categories of debts and liabilities are deductible from the value of the urban asset. Rule 2 framed for the assessment year 1971-72 is as follows: In determining, for the purposes of item (3) of Paragraph A, the value of any urban asset,-- (a) any debt (whether secured or not) incurred for the purpose of acquiring, improving, constructing, repairing, renewing or reconstructing such asset shall be deducted from the gross value of such asset; (b) other debts which are deductible in computing the net wealth shall be deducted from the gross value of such asset [as reduced by the debts, if any, under Clause (a)] only if, and to the extent that, such debts exceed the aggregate gross value of assets other than urban assets.

So also, Rule 2 of Paragraph B of Part I for the assessment year 1972-73 reads as follows: In determining, for the purposes of item (2) of Paragraph A, the value of any urban asset,-- (a) any debt (whether secured or not) incurred for the purpose of acquiring, improving, constructing, repairing, renewing or reconstructing such asset shall be deducted from the gross value of such asset; (b) other debts which are deductible in computing the net wealth shall be deducted from the gross value of such asset [as reduced by the debts, if any, under Clause (a)] only if, and to the extent that, such debts exceed the aggregate gross value of assets other than urban assets.

So also Rule 2 of Paragraph B of Part I of the Schedule of rates of wealth-tax, relevant to the assessment year 1974-75, reads as follows: In determining, for the purposes of item (2) of Paragraph A, the value of any urban asset,-- (a) any debt (whether secured or not) incurred for the purpose of acquiring, improving, constructing, repairing, renewing or reconstructing such asset shall be deducted from the gross value of such asset; (b) other debts which are deductible in computing the net wealth shall be deducted from the gross value of such asset [as reduced by the debts, if any, under Clause (a)] only if, and to the extent that, such debts exceed the aggregate gross value of assets other than urban assets.

The relevant provisions for the assessment years 1971-72 to 1974-75 would also show that in order to arrive at the net wealth of the urban assets, such of the debts and the liabilities which exceed the gross value of assets other than urban assets, only are eligible for deduction. That means before claiming deduction from the gross value of the urban assets, the whole gross value of assets other than urban assets should be exhausted. To apply it to the facts of our case, if the liabilities claimed deduction or exclusion liquidates the value of the whole of the movable property held by the assessee, the remaining liabilities only are entitled to be deducted from out of the urban assets. However, it can be seen in none of the years under consideration, liabilities exceed the value of the movable properties held by the assessee. Therefore, firstly, the claim of the assessee that he is entitled to deduct the liabilities from the urban assets held by him is utterly untenable. Secondly, the assessee claimed that the WTO went wrong in excluding the liabilities only from the value of the movable properties held by him is also not correct and against the fair reading of the provisions of Rule 2 of Paragraph B of Part I of the rates of wealth-tax prescribed for these five years under consideration. Further, it is not the case of the assessee that the question of levy of additional wealth-tax for the assets held by the assessee was considered in the original assessments for any of the assessment years under consideration. When applicable provision of law is left out without being applied, in our opinion, the order which suffers from the non-applicability of the relevant provision of law suffers from an apparent mistake which is liable to be rectified under Section 35. So, in such a case, we are not able to accede to the argument that the assumption of jurisdiction by the WTO itself is wrong. Under the circumstances, we are not convinced with any of the arguments advanced on behalf of the assessee. We do not feel that the case law cited on behalf of the assessee has any relevance, much less application to the facts and circumstances of this case and, hence, we felt that it is burdening the record unnecessarily if we discuss them threadbare. Therefore, we avoided it.


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