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Commissioner of Wealth-tax Vs. Master Kairas Tarapore and Naushir Khan Marfatia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Wealth-tax Reference Application Nos. 187 to 190 of 1981 and 101 and 228 of 1982
Judge
Reported in[1987]164ITR237(Raj)
ActsWealth Tax Act, 1957 - Sections 16A, 17, 17(1), 27(1) and 27(3)
AppellantCommissioner of Wealth-tax
RespondentMaster Kairas Tarapore and Naushir Khan Marfatia
Appellant Advocate R.N. Surolia, Adv.
Respondent Advocate N.K. Jain and; J.K. Singhi, Advs.
Cases ReferredIn K.G. Kemptur v. Second
Excerpt:
- - 9,92,000. after the report of the valuation officer was received, the wealth-tax officer issued notices to naushir marfatia under section 17(1) of the wealth-tax act on the ground that he has reason to believe that on account of the failure on the part of such person to make a return of wealth under section 14 of the wealth-tax act of his net wealth, the net wealth chargeable to tax under the act had escaped assessment for the years 1973-74, 1974-75, 1975-76 and 1976-77. similar notices were issued to master kairas tarapore under section 17(1) of the wealth-tax act in respect of the assessment years 1975-76 and 1976-77. the wealth-tax officer also issued notices for reassessment to mst. gulnar marfatia in respect of the assessment years 1975-76 and 1976-77. on account of the..........liable to payment of wealth-tax. in the case of smt. gulnar marfatia, a reference was made to the valuation officer on january 21, 1977, in respect of the assessment year 1976-77. the report of the valuation officer was received on april 22, 1978. the valuation officer assessed the value of the assets of the firm at rs. 9,92,000. after the report of the valuation officer was received, the wealth-tax officer issued notices to naushir marfatia under section 17(1) of the wealth-tax act on the ground that he has reason to believe that on account of the failure on the part of such person to make a return of wealth under section 14 of the wealth-tax act of his net wealth, the net wealth chargeable to tax under the act had escaped assessment for the years 1973-74, 1974-75, 1975-76 and 1976-77......
Judgment:

Dwarka Prasad, J.

1. These six applications under Section 27(3) of the Wealth-tax Act arise in similar circumstances and raise similar questions and are, therefore, disposed of by a common order.

2. Mr. Naushir K. Marfatia and Smt. Gulnar Marfatia were partners in the firm, M/s. New Majestic Talkies, Ajmer. Master Kairas Tarapore (minor) was also admitted to the benefits of the partnership. Smt. Gulnar Marfatia filed returns of wealth in respect of the assessment years 1975-76 and 1976-77 showing the value of the assets of the firm at Rs. 3,05,522 and submitted that the net wealth of the assesses was not liable to payment of tax under the Wealth-tax Act. She submitted an approved valuer's report in respect of her contention and the assessments were completed by the Wealth-tax Officer, accepting the report of the approved valuer.

3. No returns of wealth were filed in respect of Naushir K. Marfatia and Master Kairas Tarapore in relation to the assessment years 1973-74, 1974-75, 1975-76 and 1976-77, allegedly on the ground that they were not liable to payment of wealth-tax. In the case of Smt. Gulnar Marfatia, a reference was made to the Valuation Officer on January 21, 1977, in respect of the assessment year 1976-77. The report of the Valuation Officer was received on April 22, 1978. The Valuation Officer assessed the value of the assets of the firm at Rs. 9,92,000. After the report of the Valuation Officer was received, the Wealth-tax Officer issued notices to Naushir Marfatia under Section 17(1) of the Wealth-tax Act on the ground that he has reason to believe that on account of the failure on the part of such person to make a return of wealth under Section 14 of the Wealth-tax Act of his net wealth, the net wealth chargeable to tax under the Act had escaped assessment for the years 1973-74, 1974-75, 1975-76 and 1976-77. Similar notices were issued to Master Kairas Tarapore under Section 17(1) of the Wealth-tax Act in respect of the assessment years 1975-76 and 1976-77. The Wealth-tax Officer also issued notices for reassessment to Mst. Gulnar Marfatia in respect of the assessment years 1975-76 and 1976-77. On account of the failure on the part of the assessee to disclose true and full particulars of her wealth, net wealth had been underassessed. In pursuance of the notice issued under Section 17, the concerned assessees Filed their returns of wealth and the Wealth-tax Officer completed the assessments and reassessments adopting the value of the assets determined by the District Valuation Officer as the proper value thereof. The assessees filed appeals. The Appellate Assistant Commissioner held that the Wealth-tax Officer was justified in making assessments in the cases of Mr. Naushir Marfatia and Master Kairas Tarapore and also in reopening the assessmentin the case of Mst. Gulnar Marfatia. It was observed by the Appellate Assistant Commissioner that the assessees had valued the property on the basis of land and building method, while the District Valuation Officer had assessed the value of the property which formed the assets of the partnership, on the basis of the yield and that the method of valuation adopted by the District Valuation Officer was more correct.

4. All the three assessees, named above, filed appeals before the Income-tax Appellate Tribunal, Calcutta 'E' Bench (Camp Jaipur). The Appellate Tribunal allowed all the appeals by its order dated February 16, 1981, apparently first considering the case of Mst, Gulnar Marfatia relating to reopening of the assessments in respect of the assessment years 1975-76 and 1976-77. It was held by the Appellate Tribunal that as no proceedings were pending before the Wealth-tax Officer when he made a reference to the District Valuation Officer, the provisions of Section 16A of the Wealth-tax Act could not have been resorted to and a reference could not have been made to the District Valuation Officer under the said provisions because the reference under Section 16A(1) could be made only during the pendency of assessment proceedings and riot for the purpose of reopening a completed assessment. It was also observed by the Tribunal that once the assessment was validly reopened, the Wealth-tax Officer could make a reference under Section 16A, but the report of the Valuation Officer under Section 16A could not precede the reopening of the assessment when such reference under Section 16A was not made during the pendency of the assessment proceedings. The Tribunal, following the decision of the Calcutta High Court in Satyendra Chunder Ghose v. WTO : [1980]126ITR102(Cal) , held that the assessments had not been validly reopened and the orders passed by the Appellate Assistant Commissioner were set aside and the assessments made under Section 17 of the Wealth-tax Act were cancelled. It appears, on a reading of the order of the Appellate Tribunal dated February 16, 1981, that it only considered the case of Smt. Gulnar Marfatia as it came to the conclusion that on the basis of the report of the District Valuation Officer under Section 16A, the assessments could not have been validly reopened. In the case of Naushir K. Marfatia and Master Kairas Tarapore, assessments had not taken place earlier as neither did the concerned assessee file any returns under Section 14(1) of the Wealth-tax Act nor did the Wealth-tax Officer give any notice under Section 14(2) of the Act. The question as to whether the report of the District Valuation Officer received in connection with the assessment of Mst. Gulnar Marfatia relating to the assessment year 1976-77 could constitute material for the Wealth-tax Officer for having reason to believe that the net wealth of the assessee chargeable to tax under the Act has escaped assessment, was notconsidered by the Appellate Tribunal, but the assessments made under Section 17(1) of the Act and the orders passed by the Appellate Assistant Commissioner of Wealth-tax were set aside.

5. The Department submitted an application under Section 27(1) of the Wealth-tax Act before the Income-tax Appellate Tribunal requesting the Tribunal to refer the following question arising out of its order dated February 16, 1981, to this court for its opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment has not been validly reopened and in setting aside the order of the Appellate Assistant Commissioner and cancelling the assessment made under Section 17 of the Wealth-tax Act, 1957?'

6. The Appellate Tribunal, by its order dated May 25, 1981, rejected the applications for making a reference on the ground that the question sought to be referred by the Commissioner of Wealth-tax, Jaipur, was decided by the Calcutta and Rajasthan High Courts and the legal position set out by the two High Courts was accepted by the Department and further that the principle laid down in the decisions of the two High Courts was applied by the Appellate Tribunal to the cases at hand and the same became final. As such, there was no referable question of law arising out of the orders of the Appellate Tribunal. After the rejection of the applications under Section 27(1), the Commissioner of Wealth-tax, Rajasthan, Jaipur, has filed these applications under Section 27(3) of the Wealth-tax Act to this court seeking reference of the question arising out of the order of the Appellate Tribunal dated February 16, 1981, for its opinion.

7. Learned counsel for the Department submitted before us that the decisions of the Calcutta and Rajasthan High Courts referred to by the Appellate Tribunal related to the question as to whether a reference could be made under Section 16A(1) of the Wealth-tax Act after the assessments were completed and it was held that such a reference after the completion of the assessments was without jurisdiction and that the assessments made in such cases could not be reopened under Section 17 on the basis of the report of the Valuation Officer. However, the decisions of the aforesaid two courts did not consider the question as to whether in the case of asses-sees who did not file the returns under Section 14(1) and were not called upon to file a return under Section 14(2) by the Wealth-tax Officer, the report of the Valuation Officer in respect of a partner of the firm would statute material for having reason to believe that the net wealth of the said assessee had escaped assessment to tax under the Wealth-tax Act, because such a question did not arise in those cases. It was furthersubmitted that the Appellate Tribunal failed to consider this aspect of the matter, as to whether the report of the Valuation Officer in the case of Smt. Gulnar Marfatia could constitute material for the Wealth-tax Officer for having reason to believe within the meaning of Section 17(1)(a), in the cases of Naushir K. Marfatia and Mst. Kairas Tarapore on account of the omission on the part of those persons to file returns of their wealth in respect of the assessment years 1973-74 to 1976-77.

8. In Satyendra Chunder Ghose v. WTO : [1980]126ITR102(Cal) , the Calcutta High Court held that a reference could not be made under Section 16A(1) of the Wealth-tax Act where assessment has been completed. It was held that the provisions of Section 16A authorise the Wealth-tax Officer to make a reference to the Valuation Officer for the valuation of an asset for the purpose of making an assessment which contemplates a case where no assessment has been made. It may also include cases where the assessments having become final, the matter has already been reopened under Section 17 of the Wealth-tax Act, because it would also be a case of calling for the valuation of the asset for the purpose of making an assessment, but once assessment has been completed and assessment proceedings are not pending before the Wealth-tax Officer, the Wealth-tax Officer cannot make a reference to the Valuation Officer for the valuation of an asset because such power under Section 16A could not be exercised by the Wealth-tax Officer only for the purpose of deciding the question whether assessment already completed should be reopened under Section 17 or not. To the same effect is the decision of this court in Brig. B. Lall v. WTO . In that case also, after completion of the assessment, the Wealth-tax Officer called for the report of the Valuation Officer and on the basis of such report, the assessments were sought to be reopened under Section 17(1)(b). The notices for initiation of reassessment proceedings were challenged before this court in a writ petition and it was held that the Valuation Officer's report called for after the completion of the assessment proceedings could not form the basis of reassessment.

9. To the same effect is the decision of the Madhya Pradesh High Court in Onkarji Kasturchand (HUF) v. WTO : [1982]135ITR188(MP) . It was held in that case that the reference made by the Wealth-tax Officer to the Valuation Officer after the completion of the assessment proceedings was not valid and so also the subsequent proceedings before the Valuation Officer. It was observed that the Wealth-tax Officer could make a reference to the Valuation Officer afresh in accordance with law for the purpose of making an assessment of the assessee in respect of the years for which no assessment was made. The matters considered in the aforesaid decisions related to cases of completed assessments, where the assessments were sought to bereopened on the basis of valuation reports called for by the WTO after the completion of the assessment proceedings. None of the cases cited by learned counsel for the assessee before the Appellate Tribunal or before us, refers to such cases where no assessment had taken place on account of the omission of the assessee to file a return of his net wealth and no assessment proceedings under Section 14 had taken place and on the basis of the valuation report relating to the same property in another case, the Wealth-tax Officer gave notice for assessment under Section 17(1)(a) on the ground that he had reason to believe that by reason of the omission of the assessee to file a return under Section 14 of his net wealth, the wealth of such assessee chargeable to tax had escaped assessment for that year and the notices were not proper or valid.

10. In K.G. Kemptur v. Second WTO : [1984]146ITR611(KAR) , the Karnataka High Court held that the report made by the Valuation Officer is information on the basis of which it is open to the Wealth-tax Officer to reopen an assessment. In that case, on the basis of the report of the Valuation Officer in respect of one assessment year, the Wealth-tax Officer sought to reopen the assessments of the assessee relating to other assessment years. The Karnataka High Court distinguished the cases of Brig. B. Lall , and other similar cases holding that the question which arose in those cases did not arise for consideration in other cases. It was also observed that the assessment report of the Valuation Officer under Section 16A of the Wealth-tax Act is only an information, although that would also be a fact within the meaning of Section 3 of the Evidence Act and the same would be an information as to a fact to confer jurisdiction under Section 17 of the Act for the initiation of reassessment proceedings for other years. It was pointed out that if a reference is made to the Valuation Officer by the Wealth-tax Officer before completing the assessment in a particular year, the valuation made by the Valuation Officer is binding on the Wealth-tax Officer and assessment has to be completed in conformity with the assessment of the Valuation Officer and that the report of the Valuation Officer, who is a statutory authority under the Act, is unlike a valuation made by a registered valuer. Thus, the question in these cases still remains that although the report of the Valuation Officer obtained in the case of Smt. Gulnar Marfatia may not be binding upon the Wealth-tax Officer for the purpose of assessment of wealth-tax for other years, yet the material contained in that report could be considered as some material on the basis of which the Wealth-tax Officer could have reason to believe that the wealth of the other assessees has escaped assessment. The Income-tax Appellate Tribunal did not consider this aspect of the matter.

11. It was argued before us by learned counsel for the assessee that no question worth consideration arose in the present cases much less aquestion of law. We are unable to accept the contention of learned counsel. Even the Appellate Tribunal did not say that no question of law arose in these cases, but while rejecting the application filed on behalf of the Department under Section 27(1) of the Wealth-tax Act, the Appellate Tribunal held that no referable question of law arose in these cases, because the questions raised, in the opinion of the Appellate Tribunal, stood decided by the decisions of the Rajasthan High Court and Calcutta High Court, referred to above. As we have already pointed out above, the decisions relied upon by the Appellate Tribunal are not relevant for the purpose of the decision as to whether the report of the Valuation Officer received in the case of Smt, Gulnar Marfatia could constitute material for the purpose of the Wealth-tax Officer to have reason to believe within the meaning of Section 17(1)(a) of the Wealth-tax Act to initiate proceedings for assessment in those cases where no assessment had taken place earlier.

12. In view of the above discussion, we are definitely of the view that the following questions of law arise in these cases from the order of the Income-tax Appellate Tribunal, dated February 16, 1981 ;

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment proceedings under Section 17(1)(a) of the Wealth-tax Act, could not be taken in respect of the assessees and whether the Tribunal was justified in setting aside the order of the Appellate Assistant Commissioner and cancelling the assessments made under Section 17 of the Wealth-tax Act

(2) Whether, on the facts and in the circumstances of the case, the contents of the report of the Valuation Officer obtained in the case of Smt. Gulnar Marfatia could constitute material for the Wealth-tax Officer for having reason to believe that by reason of the omission of the assessees to make return under Section 14, the net wealth of the assessees chargeable to tax had escaped assessment ?'

13. We allow all these applications and direct the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to state the case and refer the above two questions of law arising out of the order of the Appellate Tribunal dated February 16, 1981, to this court for its opinion. It would be open to the Appellate Tribunal to send one consolidated reference in all these cases, if it so likes.


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