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Poonjabhai Vanmalidas Vs. Wealth-tax Officer, Circle Iv-a (Spl), Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 512 of 1976
Judge
Reported in[1978]114ITR38(Guj)
ActsWealth Tax Act, 1957 - Sections 3, 5(1), 23, 23(4), 23(5A), 30, 35, 35(1) and 35(7)
AppellantPoonjabhai Vanmalidas
RespondentWealth-tax Officer, Circle Iv-a (Spl), Ahmedabad
Appellant Advocate R.H. Mehta, Adv.
Respondent Advocate G.N. Desai, Adv.
Cases ReferredIn Karsandas Bhagwandas Patel v. G. V. Shah
Excerpt:
.....an order of assessment made by the income-tax officer could be said to merge in the order of the appellate assistant commissioner wholly, not only in respect of items considered and decided by the appellate assistant commissioner but also in respect of items not considered and decided by him ?' 10. the division bench in karsandas bhagwandas patel's case [1975]98itr255(guj) held that, having regard to principles as well as authority, it was not possible to say that the doctrine of merger does not apply at all to income-tax proceedings. it is obvious that what he was seeking to do was not in consequence of the order passed by the appellate assistant commissioner nor was it in consequence of what the appellate assistant commissioner had done in respect of each of the three years under..........to assess the petitioner under the wealth-tax act. for the assessment year 1965-66, the respondent passed assessment order on february 22, 1971. the immovable property was ascertained at rs. 13,10,000 and the net wealth was ascertained at rs. 9,07,560. for the assessment year 1966-67, the assessment order was passed on february 22, 1971. the immovable property was ascertained at rs. 13,01,600 and the net wealth was ascertained at rs. 8,21,574. for the assessment year 1967-68, the assessment order was passed on february 22, 1971. the immovable property was taken to be rs. 13,01,600 and the net wealth was ascertained at rs. 8,28,474. notices of demand were issued under section 30 of the act for assessment years 1965-66 to 1967-68 and necessary refund orders were issued and adjusted and.....
Judgment:

B.J. Divan, C.J.

1. The petitioner herein is assessed to Wealth-tax as a Hindu undivided family. The assessment years with which we are concerned in the present proceedings are assessment years 1965-66, 1966-67 and 1967-68, the relevant valuation dates being samvat years 2020, 2021 and 2022, respectively. The petitioner is being assessed to Wealth-tax and the assessment years are in connection with Wealth-tax dates. The respondent is the Wealth-tax Officer having jurisdiction to assess the petitioner under the Wealth-tax Act. For the assessment year 1965-66, the respondent passed assessment order on February 22, 1971. The immovable property was ascertained at Rs. 13,10,000 and the net wealth was ascertained at Rs. 9,07,560. For the assessment year 1966-67, the assessment order was passed on February 22, 1971. The immovable property was ascertained at Rs. 13,01,600 and the net wealth was ascertained at Rs. 8,21,574. For the assessment year 1967-68, the assessment order was passed on February 22, 1971. The immovable property was taken to be Rs. 13,01,600 and the net wealth was ascertained at Rs. 8,28,474. Notices of demand were issued under section 30 of the Act for assessment years 1965-66 to 1967-68 and necessary refund orders were issued and adjusted and ultimately the requisite amounts were paid by the petitioner. After adjustment of the refunds of some amounts notices of demand for the balance sum of Rs. 754 for the assessment year 1965-66 was issued and that amount was also paid by the petitioner. Against the assessment orders for these three years 1965-66 to 1967-68, the assessee went in appeal went in appeal before the Appellate Assistant Commissioner who by his order dated June 23, 1971, reduced the net wealth of the petitioner by Rs. 15,000 in each of the three assessment years under appeal before him. By virtue of the appellate orders passed by the Appellate Assistant Commissioner, the petitioner became entitled to refund of Rs. 150 in each of the three assessment years and the consequential orders in the light of the orders passed by the Appellate Assistant Commissioner were passed by the Wealth-tax Officer on March 30, 1974, allowing a refund of Rs. 150 each of the three assessment years. Thereafter, three notices were issued by the respondent herein all dated January 15, 1976, under section 35 of the Wealth-tax Act for each of the three assessment years under consideration calling upon the petitioner to show why the rectification proposed by him in those notices should not be made and the ground which was mentioned was :

'There is a mistake in calculation of tax. Additional Wealth-tax on immovable property was left out to be charged through oversight.'

2. By these notices, the respondent proposed to rectify the orders of assessment for the years 1965-66 to 1967-68, all dated February 22, 1971. The petitioner objected to the rectification proceedings and ultimately by orders dated February 10, 1976, the respondent purported to rectify the orders of assessment to Wealth-tax. The petitioner challenges these orders passed in rectification proceedings under section 35 of the Act and one of the principal contentions urged in this special civil application is that under the provisions of section 35, sub-section (7) of the Act, rectification proceedings were time-barred after the expiry of four years from the date of the orders sought to be rectified, that is, from February 22, 1971.

3. For the purposes of this judgment we will deal with this aspect of limitation because, in our opinion, the matter is capable of being disposed of only on that point.

4. Under the scheme of the Wealth-tax Act, section 3 is the charging section and subject to the other provisions contained in the Act, there shall be charged for every assessment year commencing on and from the first day Of April, 1957, a tax, referred to in the Act as 'Wealth-tax', in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. The Schedule to the Wealth-tax Act in part I sets out paragraph A and paragraph B which are relevant for the purpose of the following what was sought to be done in the rectification proceedings. Under part I, paragraphs A and B, in the case of every Hindu undivided family, the rate of wealth-tax have been specified at certain rates depending upon the slab in which the net wealth as ascertained in assessment proceedings falls. Clause (c) is material because under that clause, in addition to the flat rate of tax mentioned in the case of every individual and Hindu undivided family, where the net wealth of the individual or Hindu undivided family includes the value of any asset, being building or land (other than business premises), or any right in such building or land, situated in any area falling in category A or category B or category C or category D specified in rule 2 of Paragraphs B, tax at the specified rate or rates computed with reference to the value of such assets determined in accordance with rule 1 of the said Paragraph B and the various rates depend upon the category and the valuation has to be added to the Wealth-tax determined in accordance with clause (b) of Paragraphs A. The department apparently had not added this additional amount of wealth-tax in computing the wealth-tax when the assessment orders of February 22, 1971, were passed and the question is, whether the order which is sought to be rectified is the order of the Wealth-tax Officer passed on February 22, 1971, or the order which is sought to be rectified is the order which was passed after the Appellate Assistant Commissioner had disposed of the appeal and the consequential order was passed. As mentioned earlier the Appellate Assistant Commissioner had passed the orders in appeal on April 5, 1971, and the consequential orders were passed by the respondent on March 30, 1971.

5. Under section 23 provision is made for appeal to the Appellate Assistant Commissioner from orders of the Wealth-tax Officers and it was under that section that the Appellate Assistant Commissioner exercised these powers. Under sub-section (4) of section 23 the Appellate Assistant Commissioner may, at the hearing of an appeal allow an appellant to go into any ground of appeal; before disposing of an appeal, he may make such further inquiry as he thinks fit or cause further inquiry to be made by the Wealth-tax Officer. Under sub-section (5A), in disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the appellant. Thus, the powers, of the Appellate Assistant Commissioner are undoubtedly very wide. But in each case, when dealing with a matter which has been taken in appeal, the question that has to be considered is, what was the point or points out of the numerous points dealt with by the Wealth-tax Officer that were processed and dealt with by the Appellate Assistant Commissioner. Though the entire assessment is open before the Appellate Assistant Commissioner, it is only in respect of points which were touched by the Appellate Assistant Commissioner that it can be said that the Appellate Assistant Commissioner's order and the consequential order necessitated by the Appellate Assistant Commissioner's order will be the orders that can be subsequently considered for rectification proceeding from the date of those orders. In so far as the Appellate Assistant Commissioner has not dealt with or touched the points which were originally decided by the Wealth-tax Officer, it is the date of the original order of assessment by the Wealth-tax Officer that will have to be considered.

6. Under the Income-tax Act, 1961, the powers of the Appellate Assistant Commissioner are dealt with in section 251 of the Act and the Explanation to section 251 of the Income-tax Act, 1961, is on the same lines as sub-section (5A) of section 23 of the Wealth-tax Act. The Explanation to section 251 mentions :

'In disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the ordered appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the appellant.'

7. Under sub-section (1) of section 251 of the Income-tax Act, in disposing of an appeal, the Appellate Assistant Commissioner would have the following power : in an appeal against an order of assessment, he may confirm, reduce, enhance or annual the assessment; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the direction given by the Appellate Assistant Commissioner and after making such further enquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; and, in any other case, he may pass such orders in the appeal as he thinks fit. Thus, it will be seen that the amplitude of powers of the Appellate Assistant Commissioner under the Wealth-tax and Income-tax Acts is the same and the words are in pari materia and, therefore, decisions rendered in the context of the Income-tax Act, 1961, will be applicable to matters arising under the Wealth-tax Act so far as this aspect as to which is the final order that can be rectified and by whom it is required to be rectified is concerned.

8. In Karsandas Bhagwandas Patel v. G. V. Shah, Income-tax Officer : [1975]98ITR255(Guj) , the Division Bench consisting of Bhagwati C.J. and one of us (P. D. Desai J.) dealt with the provisions of rectification proceedings under section 35(1) of the Indian Income-tax Act, 1922, and the question was, what part of the Appellate Assistant Commissioner's order could be said to be the final order and what part of the original order of Income-tax Officer could be said to be the final order. At page 259, Bhagwati C.J., speaking for the Division Bench, observed :

'It is clear on a plain reading of the language of section 35, sub-section (1), that the power to rectify a mistake in an order is conferred only on the authority which passed the order. The Income-tax officer can rectify a mistake only if it is mistake in the order of assessment made by him and similarly the Appellate Assistant Commissioner can rectify a mistake only if it is in the order passed by him in appeal.'

9. Under section 35(1) of the Wealth-tax Act also the same scheme is preserved because under section 35(1)(a) the Wealth-tax Officer may amend any order of assessment or of refund or any other order passed by him. Proceeding further with the quotation from Karsandas Bhagwandas Patel's case : [1975]98ITR255(Guj) :

'It would, therefore, seem that if the order of assessment made by the Income-tax Officer has ceased to exist by reason of having merged wholly in the order of the Appellate Assistant Commissioner, the Income-tax Officer cannot rectify a mistake in the order of assessment; the mistake, if any, which vitiated the order of assessment would then be a mistake in the order of the Appellate Assistant Commissioner who alone would be entitled to rectify it. The question is whether this hypothesis is correct. Does the doctrine of merger apply in all its fulness so that an order of assessment made by the Income-tax Officer could be said to merge in the order of the Appellate Assistant Commissioner wholly, not only in respect of items considered and decided by the Appellate Assistant Commissioner but also in respect of items not considered and decided by him ?'

10. The Division Bench in Karsandas Bhagwandas Patel's case : [1975]98ITR255(Guj) held that, having regard to principles as well as authority, it was not possible to say that the doctrine of merger does not apply at all to Income-tax proceedings. At page 261 it was pointed out :

'So also where an appeal is preferred by an assessee against an order of assessment in respect of all the items considered and decided by the Income-tax Officer so that the whole of the order of assessment made by the Income-tax Officer is for consideration by the Appellate Assistant Commissioner, the effect of the decisions of the Appellate Assistant Commissioner would be to substitute his determination for that of Income-tax Officer in respect of all items considered and decided by the Income-tax Officer and the order of the Income-tax Officer would be merged wholly in the order of the Appellate Assistant Commissioner. But, what could be the position when an appeal is preferred against an order of assessment in respect of some only out of several items considered and decided by the Income-tax Officer ?'

11. At page 262 it was observed :

'If the Appellate Assistant Commissioner were under an obligation to examine the correctness of every decision recorded by the Income-tax Officer in the process of assessment, it might be possible to contend that when the Appellate Assistant Commissioner does not say anything about a particular decision recorded by the Income-tax Officer, he may be presumed to have assented to it and an inference of implied affirmance may be raised, but it cannot be disputed that, though the Appellate Assistant Commissioner has undoubted power to revise any decision of the Income-tax Officer suo motu, there is no obligation on him to do so and in the absence of such obligation, there can be no scope for the application of the doctrine of implied decision,'

12. Then the Division Bench : [1975]98ITR255(Guj) approved the following passage from the decision of this court in Commissioner of Income-tax v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) :

'But it is apparent and this indeed was not disputed on behalf of the assessee, that the Appellate Assistant Commissioner was under no obligation to examine the correctness of every decision recorded by the Income-tax Officer in the course of the assessment. The entire assessment was of course before him and he had the power, if he do so chose, to examine any particular decision of the Income-tax Officer and to correct it if he found it wrong but there being no obligation on him to do so, no inference can be drawn from his omission to reverse the decision of the Income-tax Officer on any particular matter.'

13. The Division Bench then proceeded to observe : [1975]98ITR255(Guj) :

'There being no decision of the Appellate Assistant Commissioner, express or implied, in regard to the particular item, we have to turn to the order of assessment made by the Income-tax Officer in order to see what is the decision in regard to that matter in the process of assessment. The ultimate assessment in such a case consists partly of decisions of the Appellate Assistant Commissioner and partly of decisions of the Income-tax Officer. The collective effect of these decisions results in the computation of total income and determination of tax. The order of assessment made by the Income-tax Officer thus does not merge wholly in the order made by the Appellate Assistant Commissioner. It is only that part of the order of assessment which consists of decisions reviewed by the Appellate Assistant Commissioner-and when we use the words 'reviewed', we mean, considered and examined irrespective of whether ultimately affirmed, modified or reversed - that is superseded by the order of the Appellate Assistant Commissioner.'

14. The legal position was thus summarized by the Division Bench at page 265 :

'The legal position may, therefore, be summarized by stating that even after an appeal from an order of assessment is decided by the Appellate Assistant Commissioner, a mistake in that part of the order of assessment which was not subject-matter of review by the Appellate Assistant Commissioner and was left untouched by him can be rectified by the Income-tax Officer.'

15. In the light of these principles with which we are in entire agreement, we have to considered as to what was the actual decision of the Appellate Assistant Commissioner because, if that part of the order which is sought to rectified was untouched by the Appellate Assistant Commissioner, then what is sought to be rectified under section 35 is the order of the Wealth-tax Officer as originally passed and not consequential order passed in the light of the decision of the Appellate Assistant Commissioner. In the order of the Appellate Assistant commissioner, which is annexure 'F' to the petition, it has been pointed out :

'The appellant's status is that of an HUF consisting of one female member. As per the decision of the Supreme Court in the case of Arundhati Balkrishna : [1970]77ITR505(SC) and subsequent decisions of Tribunals, value of jewellary is exempt not only as articles of personal use, but also as articles of household use. In this view of the matter, since the female member use of the ornaments as and when required, the value or ornaments have to be exempted under section 5(1)(viii) as articles household use. The appellant, therefore, gets reduction of Rs. 15,000'.

16. For the assessment year 1965-66 annexure 'E' is the order of the Appellate Assistant Commissioner whereas annexure 'F' is in respect of assessment years 1966-67 and 1967-68. In annexure 'E' in connection with assessment year 1965-66, there was an additional point on the ground that, admittedly, the tax liability of Rs. 94,023 was claimed as a deduction from the total wealth of the appellant and that claim was rejected by the Appellate Assistant Commissioner. It was held by him that since the liability was disputed, this could not be a 'debt owed' as per the provisions of the Act and the second point was regarding the deduction of Rs. 15,000 because of the ornaments of the female member of the family. Beyond these two points no other point was touched by the Appellate Assistant Commissioner and, therefore, there was no reversal, express or implied, or no review in the sense of affirmed, modified or reversed nor was it considered and re-examined irrespective of whether it was ultimately affirmed, modified or reversed. Under those circumstances it is obvious that the question as to whether the additional amount mentioned in clause (c) of Paragraph A of part I of the schedule to the Wealth-tax Act should or should not included was never dealt with nor touched upon by the Appellate Assistant Commissioner. It is, therefore, clear that the omission in the original order passed on February 22, 1971, was sought to be rectified by the Wealth-tax Officer when he initiated proceedings under section 35(1) of the Act and he wanted to rectify it by removing that error from the order of assessment for each of the three years under consideration. It is obvious that what he was seeking to do was not in consequence of the order passed by the Appellate Assistant Commissioner nor was it in consequence of what the Appellate Assistant Commissioner had done in respect of each of the three years under consideration but was a matter which should have been dealt with initially by the Wealth-tax Officer himself and was not dealt with by him at that stage when he passed the orders on February 22, 1971. Therefore, for the purpose of limitation under section 35, sub-section (7)(b), of the Wealth-tax Act, the period of four years has to be calculated from the date of the orders passed by the Wealth-tax Officer himself, namely, February 22, 1971; this point was not dealt with by the Appellate Assistant Commissioner and, therefor, it could not be the basis of the consequential orders passed by the Wealth-tax Officer in 1976. The notice calling upon the petitioner to show cause was issued on January 15, 1976, and the ultimate order was passed on February 10, 1976. Even at the stage when the show cause notice regarding rectification was issued, the period of four years had expired and, therefore, the action of the Wealth-tax Officer was clearly time-barred and, hence wholly without jurisdiction. It is, therefore, merely a purported exercise of power under section 35 by the Wealth-tax Officer but not under that Act. Under these circumstances, this special civil application is allowed and the orders or rectification for each of the three years and the consequential notices of demand are quashed and set aside.

17. The rule is made absolute accordingly. The respondent will pay the cost of this special civil application to the petitioner.


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