Full Judgment Text
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PETITIONER:
M/S. LOK NATH AND COMPANY, THE MALL, SHIMLA.
Vs.
RESPONDENT:
COMMISSIONER OF WEALTH TAX, PATIALA.
DATE OF JUDGMENT31/10/1995
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
MAJMUDAR S.B. (J)
CITATION:
1995 SCC Supl. (4) 610 JT 1995 (7) 598
1995 SCALE (6)184
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
B.P. JEEVAN REDDY, J.
Leave granted. Heard counsel for both the parties.
This appeal arises from the judgment of the Himachal
Pradesh High Court answering the question referred to it, at
the instance of the Revenue, in favour of the Revenue. The
question stated under Section 27(1) of the Wealth Tax Act,
1957 reads:
"Whether the Income Tax Appellate
Tribunal has been right in law in
vacating the orders passed by the
Commissioner of Wealth Tax under Sec.
25(2) of the Wealth-Tax Act, 1957, for
the assessment years 1959-60 to 1967-68
on the ground that on his own recorded
findings, the Commissioner wrongly
assumed jurisdiction."
For the Assessment Years 1959-60 to 1967-68, the
appellant-assessee filed returns on August 30, 1969
declaring the value of his house property at Rs.5,02,762/-.
Since the returns were filed beyond the prescribed period,
the Wealth Tax Officer issued notices under Section 18(1)
(a) of the Act. The assessee filed revised returns
disclosing higher valuation which were accepted by the
Wealth Tax Officer. He made an assessment order accordingly,
stating, inter alia, that the assessment was made under
Section 16(3). When these orders came to the notice of the
Commissioner of Wealth Tax, he proposed to revise them under
Section 25(2) of the Act. He issued notices calling upon the
assessee to show cause why the said orders of assessment be
not revised for two reasons, viz., (i) the Wealth Tax
Officer did not apply his mind to the valuation, etc. as he
did not give a notice under Section 16(2) of the Act and yet
completed the assessment under Section 16(3) which is as
such invalid and (ii) the Wealth Tax Officer erred in
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accepting the value of the house property for all the said
assessment years at a lower figure, even though value of the
very same house property was declared by the assessee in the
return relating to assessment year 1968-69 at a much higher
figure. The assessee submitted explanation to the said show
cause notice stating that non-issuance of notice under
Section 16(2) of the Act is a mere irregularity and not an
illegality and that inasmuch as his revised returns have
been accepted by the Wealth Tax Officer, the non-issuance of
the notice under Section 16(2) is neither erroneous nor
prejudicial to the interests of the Revenue. After hearing
the assessee, the Commissioner revised the aforesaid
assessment orders. The main reason assigned by him is to be
found in Para 3 of his order, which reads:
"I have carefully considered the various
points made by the assessee in its note
dated 27.9.74 as well as those made
during the course of hearings. According
to me there is no force in the
submissions of the assessee. No
assessment can validly be made u/s
16(2). Such an assessment can always be
challenged by the assessee legally even
after the period for re-opening the
assessment under section 17 of the
wealth-tax Act, is over. And if this
happens, the Department would have no
remedy for collecting the wealth-tax
dues from the assessee for this year as
it will be outside its purview. There
fore, the assessment order made by the
Wealth-tax officer is not only erroneous
but also prejudicial to the interests of
the revenue."
The assessee appealed to the Tribunal against the
orders of the Commissioner. The Tribunal allowed the appeal
on reasoning, which being rather involved, be better set out
in their own words. The Tribunal held:
"On the preliminary objection, we only
have to adjudicate whether when the
Commissioner invoked the provisions of
section 25(2), he had any justification
for doing so and here we have the recor
ded findings of the Commissioner himself
in the impugned orders that he was
taking recourse to vacating the
assessments because without issue of
notices under section 16(2), section
16(3) assessments could not be validly
and legally framed and such assessments
can be got vacated by the assessee at
any time. The facts of this case leave
us in not doubt that while resorting to
the provisions of section 25(2), the
learned Commissioner of Wealth-tax
assumed jurisdiction on the ground that
the assessments framed by the Wealth-tax
Officer under section 16(3) for all the
nine years were invalid. We do not feel
any necessity of giving a finding wheth
section 16(3) assessments in this case
were in fact invalid, as argued by Shri
B.R. Gupta. What we are keeping in mind
is that the Commissioner of Wealth-tax
while taking recount (recourse?) to
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section 25(2) provisions thought those
assessments to be invalid and once such
was the case, his aplication of mind for
vacating the assessments which he himse
lf thought to be invalid and void ab-
initio could not clothe him with power
or authority of ordering fresh
assessments."
The Tribunal also characterised the reason given by the
Commissioner for revising as imaginary and unreal.
The High Court answered the question aforesaid in
favour of Revenue on three grounds, viz., [1] the orders of
the Wealth Tax Officer though purporting to be under sub-
section (3) are in substance and effect under sub-section
(1) of Section 16 of the Act, since he had accepted the
revised returns submitted by the assessee. It cannot,
therefore, be said that the orders of assessment are
defective for violation of Section 16(2) of the Act, [2] the
Commissioner was well within his jurisdiction when he was
satisfied that all material facts necessary for the
assessment had not been disclosed and that there had been an
under-assessment. In such cases, the Commissioner is
empowered to exercise his jurisdiction under Section 25(2)
and [3] even if it is held that the assessment orders were
made under sub-section (3) of Section 16, yet the failure to
issue a notice under sub-section (2) of Section 16, does not
affect the jurisdiction of the Wealth Tax Officer and it
cannot be said that the orders of assessment are without
jurisdiction.
As would be evident from the order of the Commissioner,
the main ground upon which he exercised his power under
Section 25(2) is that the assessment orders made by the
Wealth Tax Officer purporting to act under sub-section (3)
of Section 16 were bad since no order of assessment could
have been made under sub-section (3) unless a notice under
sub-section (2) was given. In this case, admittedly no
notice under Section 16(2) was issued. Sub-sections (1), (2)
and (3) of Section 16, as they stood at the relevant time
read as follows:
"16.(1) If the Wealth-tax Officer is satisfied
without requiring the presence of the assessee or
production by him of any evidence that a return made
under section 14 or 15 is correct and complete, he
shall assess the net wealth of the assessee and
determine the amount of wealth-tax payable by him or
the amount refundable to him on the basis of such
return.
(2). If the Wealth-tax Officer is not so satisfied, he
shall serve a notice on the assessee either to attend
in person at his office on a date to be specified in
the notice or to produce or cause to be produced on
that date any evidence on which the assessed may rely
in isupport of his return.
(3) The Wealth-tax Officer, after hearing such
evidence as the person may produce and such other
evidence as he may require on any specified points, and
after taking into account all relevant material which
the Wealth-tax Officer has gathered, shall, by order in
writing, assess the net wealth of the assessee and
determine the amount of wealth-tax payable by him or
the amount refundable to him on the basis of such
assessment."
The Commissioner then expressed the following apprehension,
which forms the basis of his order; "Such an assessment can
always be challenged by the assessee legally even after the
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period for re-opening the assessment under Section 17 of the
Wealth-tax Act, is over. And if this happens, the Department
would have no remedy for collecting the wealth-tax dues from
the assessee for this year as it will be outside its
purview. Therefore, the assessment order made by the Wealth-
tax Officer is not only erroneous but also prejudicial to
the interests of the revenue."
We are of the opinion that once the High Court opined,
and in our opinion rightly, that quoting of sub-section (3)
in the assessment orders was really a case of quoting the
wrong provision of law and does not affect its legality,
question of setting aside the assessment orders did not
arise. The revised returns filed by the assessee-appellant
were accepted by the Wealth Tax Officer and the assessment
made. The assessment order for the Assessment Year 1959-60,
which is in identical words as all the assessment orders, is
a brief one. It reads:
"Assessment order.
Return declaring total Wealth of
Rs.NIL was filed on 30.8.1968 which is
late. Consequently notice under
section 18(1) (a) has been issued
separately. A revised return declaring
total wealth of Rs.706077/- has been
filed by the assessee which is accepted
as declared.
Assessed. Issue demand notice and
challan."
(Under the Column "Section and sub-section under which
the assessment is made", in the Preamble to the order, the
Wealth Tax Officer mentioned "16(3).)
The assessment order is obviously the one made under
sub-section (1) though wrongly mentioning Section 16(3).
Indeed, the High Court has held further that even if the
said assessments are deemed to be under sub-section (3), yet
they cannot be held to be without jurisdiction merely
because notice under sub-section (2) was not issued.
Now, coming to the apprehension expressed by the
Commissioner, which constitutes the basis of his order, it
is, in our opinion, a remote one at best. The counsel for
the Revenue could not also explain the observation of the
Commissioner that if an assessment is made under sub-section
(3) without issuing a notice under sub-section (2) of
Section 16, such an assessment can always be challenged by
the assessee legally even after the period of re-opening the
assessment under Section 17 is over and in which case, the
Revenue will be totally helpless. In our opinion, the
Commissioner has acted on certain assumptions which are, at
best, too remote, besides being difficult to appreciate.
For the above reasons, we are of the opinion that there
was no sufficient ground for the Commissioner to exercise
his jurisdiction under Section 25(2). This appeal is
accordingly allowed and the judgment of the High Court is
set aside. The question referred to the High Court is
answered din the affirmative, i.e., in favour of the
assessee and against the Revenue. No costs.