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Wealth-tax Officer Vs. Inderjitsingh Tuli - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1985)12ITD361(Nag.)
AppellantWealth-tax Officer
Respondentinderjitsingh Tuli
Excerpt:
.....act, 1957 ('the act'), in respect of the assessees' share of interest in the building owned by hotel skylark at nagpur, as against the exemption originally claimed by the assessees and also allowed by the wto in respect of their shares in the residential property situated at karnal. while considering the correctness or otherwise of the decision of the aac, an interesting question has arisen for consideration. we would discuss the same as also the facts of the case and our decision thereon hereunder.2. all the assessees are partners of hotel skylark, which own a building in which the hotel business is carried on at nagpur. besides, they also own jointly certain buildings and agricultural lands. one such co-owned building was being used as a residential house at karnal.in the.....
Judgment:
1. All these six appeals under the Wealth-tax Act, 1957, are by the revenue and directed against the orders of the AAC in his appeal Nos.

19, 18, 21, 20, 15 and 16 of 1982-83, dated 27-1-1983. The first four appeals relating to the assessment year 1982-83 and the last two appeals relating to the assessment years 1981-82 and 1982-83, are in respect of five different assessees and all of them involve a common contention and, therefore, they are disposed of by this common order.

The issue for consideration in all these appeals is, whether the AAC was justified in directing the WTO to allow exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957 ('the Act'), in respect of the assessees' share of interest in the building owned by Hotel Skylark at Nagpur, as against the exemption originally claimed by the assessees and also allowed by the WTO in respect of their shares in the residential property situated at Karnal. While considering the correctness or otherwise of the decision of the AAC, an interesting question has arisen for consideration. We would discuss the same as also the facts of the case and our decision thereon hereunder.

2. All the assessees are partners of Hotel Skylark, which own a building in which the hotel business is carried on at Nagpur. Besides, they also own jointly certain buildings and agricultural lands. One such co-owned building was being used as a residential house at Karnal.

In the wealth-tax returns filed by each of the co-owners, exemption was claimed under Section 5(1)(iv) in respect of the share of each co-owner in the residential property at Karnal. The value of the building was Rs. 18,500. The WTO allowed the claim under Section 5(1)(iv), in respect of the share of each co-owner in the respective assessments. It should be noted at this stage that there was no claim by the assessees for exemption under Section 5(1)(iv), in respect of any other building than their individual share in the value of the property used as a residential house at Karnal. The WTO allowed the exemption under Section 5(1)(iv), in respect of the Karnal property, in the hands of each individual co-owner.

3. The assessees filed appeals before the AAC against the enhancement in the valuation of each co-owner's share in the building known as Hotel Skylark. In those appeals, a ground was taken for the first time that the exemption under Section 5(1)(iv) should have been suo motu allowed by the WTO in respect of each individual co-owner's share in the property known as Hotel Skylark, as against the exemption under Section 5(1)(iv) claimed by the assessees in the returns filed by them in respect of their shares of interest in the Karnal property, and also allowed by the WTO. This contention was accepted by the AAC who directed the WTO to allow the exemption under Section 5(1)(iv) in respect of each individual co-owner's share, in the property known as Hotel Skylark in place of the exemption allowed in the assessments, in respect of the assessees' shares in the Karnal property. The AAC, while coming to this conclusion, relied on certain observations found on page 362 of Sampath Iyengar's The Three New Taxes, Fifth edn. of 1979 and an old circular of the Board No. 14(xi-35) of 1955, dated 11-4-1955. In view of their relevance, they are extracted hereunder : ...If the assessee is the owner of more than one building, or before 1-4-1972 he was having more than one residential house, the exemption shall be available only in respect of any one building, at the option of the assessee which would give him maximum tax benefit.

The passage relied upon by the AAC in the above-mentioned Board's circular is as follows : Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and in securing relief and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him.

According to the AAC, in the spirit of the above circular, it was incumbent on the WTO to have brought to the notice of the assessees that the assessees were eligible to the exemption under Section 5(1)(iv) in respect of any one house, if they owned more than one house ; more particularly after the withdrawal of the condition that the house should have been used exclusively for residence with effect from 1-4-1972 and, since it would be beneficial to claim this exemption in respect of the building owned by Hotel Skylark, he should have suo motu allowed such exemption in place of the exemption claimed in the returns filed by the assessees in respect of their shares in the Karnal property. He seems to have relied on the passage in Sampath Iyengar's The Three New Taxes, stating that an assessee would be eligible for the exemption in respect of any one building, which would give him the maximum tax benefit. Accordingly, he directed the WTO to allow exemption in respect of Hotel Skylark building as against what was claimed by the assessees and allowed by the WTO in the assessments.

4. Aggrieved with this decision of the AAC, the revenue is in appeal before us. The arguments of the learned departmental representative, Shri V.T. Muley, may be summarised hereunder.

The original claim for exemption before the WTO was in respect of each assessee's share in the residential property at Karnal. At the time of assessment, there was no claim for substitution of the Skylark building for the Karnal building for purposes of the exemption under Section 5(1)(iv). The claim in this behalf was made before the AAC for the first time, and the AAC erred in entertaining new facts which were not before the WTO at the assessment stage. Referring to the passage quoted from Sampath Iyengar's The Three New Taxes, extracted above, it was argued that the option to claim the exemption under Section 5(1)(iv) in respect of any one building, was that of the assessee and not to be decided by the WTO. In fact, our attention was invited to the words 'at the option of the assessee' appearing in the passage and italicised by us earlier. As to whether it was part of the duty of the WTO, particularly in the light of the Board's circular referred to earlier, to enlighten the assessees as to which course of action would be more beneficial from their point of view, the following submissions were made.

The property in which the hotel business, known as Hotel Skylark, is carried on, is a partnership business, in which all the assessees are partners. The fact, whether the exemption under Section 5(1)(iv) is to be allowed in respect of a building owned by a partnership, was itself the subject-matter of controversy in several decisions of the High Courts. Our attention was drawn to Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 (Mad.), in which, in the context of a claim for exemption under Section 5(1)(iv), in respect of a property owned by a partnership, it was held that the property being an asset of the firm, the partners could not claim to be entitled to any portion of the house property as exclusively belonging to them and, hence, they were not entitled to claim the exemption under Section 5(1)(iv). Our attention was also invited to the following decisions in which a contrary view was taken, namely, that the exemption under Section 5(1)(iv),is to be considered at the stage of assessment of the net wealth of an assessee and, therefore, the exemption could be allowed in the individual assessment of the partner in respect of his share in a property owned by the firm--CWTv. Mrs. Christine Cardoza [1978] 114 ITR 532 (Kar.), CWT v. Vasudeva v. Dempo [1981] 131 ITR 291 (Kar.) and CWT v. Nand Lal Jalan [1980] 122 ITR 781 (Pat).

In the first mentioned decision, the question was whether, in computing the net wealth of an assessee, being a partner of a firm, which owned agricultural lands, the value of the share of the assessee in agricultural lands could be included in his net wealth and the full deduction under Section 5(1)(iva) be allowed to him in his hands. The Karnataka High Court upheld this view. In the second mentioned case, an AOP owned certain properties. The question was whether exemption admissible under Section 5, in respect of properties owned by the association, could be allowed in the hands of the individual member while computing his wealth-tax assessment. The Bombay High Court held that the stage at which the exemption is to be considered and allowed is the stage after the share of wealth from the communion is brought to the individual's assessment. In the last mentioned decision, it was held by the Patna High Court that in determining for purposes of the net wealth of the assessee, the net wealth of the firm by reference to Rule 2 of the Wealth-tax Rules, 1957, the exemption under Section 5(1)(iv) was admissible. With reference to the above-mentioned decisions, it was argued by the learned departmental representative that when there was conflict of opinion between different High Courts as to the stage at which the exemption under Section 5(1)(iv) is to be allowed in respect of a building owned by a partnership, and as in the present case, the Hotel Skylark building was owned by a firm in which the assessees were partners, there was absolutely no duty cast upon the WTO to allow mo motu the exemption under Section 5(1)(iv) in respect of the individual interest of the assessees in the Hotel Skylark building.

It was submitted that the circular of the Board, referred to earlier, would apply to clear cut cases, where there was no controversy as to the stage at which the exemption under Section 5(1)(iv) was admissible or for that matter, whether the same would be applicable at all to a building owned by a partnership. In this connection, our attention was particularly drawn to the decision of the Madras High Court in Purushothamdas Gocooldas' case (supra), where it was categorically held that the exemption under Section 5(1)(iv) was not available in respect of the building owned by a partnership. Our attention was also invited to the decision of the Supreme Court in Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 wherein it was held, reversing the decision of the High Court, that: ...as neither was any claim made before the Income-tax Officer regarding the relief under Section 84 nor was there any. material on record in support thereof, and from the mere fact that such a claim had been allowed in subsequent years it could not be assumed that the prescribed conditions justifying a claim for exemption under Section 84 were also fulfilled, the Tribunal was not competent to hold that the Appellate Assistant Commissioner should have entertained the question of relief under Section 84 or to direct the Income-tax Officer to allow the relief.

It was therefore, finally submitted on behalf of the department that at no stage of the assessment proceedings, there was a claim for exemption in respect of the share of interest of each co-owner in the Hotel Skylark building, and the AAC was not justified in admitting new facts at the appellate stage and directing the WTO to allow exemption under Section 5(1)(iv) in respect of that building, in place of the actual exemption claimed in the returns filed by the assessees in respect of the Karnal property.

5. On behalf of the assessee, it was submitted that the AAC was fully justified in directing the WTO to allow the exemption under Section 5(1)(iv), in respect of Hotel Skylark building. Our attention was once again invited to the Board's circular, referred to earlier, and it was submitted that in the light of that circular, the WTO was duty bound to allow what was more beneficial to the assessee suo motu while completing an assessment. Reference was made to rule Rule 2. Our attention was also invited to CWT v. I Butchi Krishna [1978] 119 ITR 8 (Ori.), wherein it was held that exemption under Section 5(1)(a) was available in the hands of the partner in respect of assets owned by the firm. Our attention was particularly invited to the reference made to the decision of the Madras High Court in Purushothamdas Gocooldas' case (supra) and it was observed that the special mode provided for, under the scheme of the Act, to work out the valuation of the asset on deemed dissolution, had been lost sight of and the ratio of the Supreme Court's decision, which has only application in the case of any partnership property, had been relied upon by the Madras High Court. It was, therefore, submitted by the learned representative for the assessees that the AAC was justified in directing the WTO to allow exemption under Section 5(1)(iv), in respect of the building owned by Hotel Skylark, even though no such exemption was claimed by the assessees in the returns filed by them or during the assessment proceedings.

6. We have carefully considered the submissions on either side and also the authorities cited by either side. We are of the considered opinion that the AAC was not justified in directing the WTO to substitute the Skylark building for the Karnal property, for purposes of exemption under Section 5(1)(iv), in the hands of the assessees. We would like to observe that neither in the returns filed by the partners nor during the course of the assessment proceedings, there was any claim for exemption under Section (5)(1)(iv) of the interest of the assessees in the building known as Hotel Skylark. For the first time, such a claim was made before the AAC. We agree with the department that the AAC was not justified in admitting new facts and directing the WTO to allow exemption in respect of that building. The direct authority for this view is Gurjargravures (P.) Ltd.'s case (supra).

7. While considering the argument, whether the WTO was bound to allow a more beneficial treatment than the one actually claimed by the assessees in the light of the Board's circular relied upon, we are of the opinion that if the matter was free from doubt and once and for all settled, the WTO would no doubt be under an obligation to follow the settled course of action in this behalf. In the present case, the building known as Hotel Skylark belongs to a partnership and, as mentioned earlier, there is divergence of judicial opinion as to whether exemption under Section 5(1)(iv) is at all admissible in respect of a building owned by a partnership. The Madras High Court has held against the same. The Bombay and the Karnataka High Courts have held that the exemption is to be considered at the stage of assessment of the member of association or the partner of the firm, as the case may be. The Patna High Court held that the exemption is to be allowed while computing the net wealth of the firm itself for purposes of ascertaining the share of the partner therein. In the light of such divergence of judicial opinion, the matter cannot be considered to be once and for all settled in favour of the assessee and, therefore, even in the light of the circular, the WTO had no obligation to suggest to the assessee that it would be more beneficial for him to claim exemption under Section 5(1)(iv), in respect of the hotel building, as against the Karnal property. Even Sampath Iyengar's commentary, as we have italicised the portion earlier, only mentions that the assessee has the option to claim the exemption which would give him the maximum tax benefit. Having due regard to the above considerations, we are unable to agree with the AAC that the WTO should have allowed the exemption under Section 5(1)(iv) in respect of the Skylark building.

We, therefore, reverse the AAC's orders in this behalf and restore the orders of the WTO.


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