V. K. SINGHAL J. - The Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 23, 1988, in respect of the assessment years 1978-79 to 1984-85 under section 27(1) of the Wealth-tax Act, 1957 :
'Whether, on the facts and in the circumstances of the case, the order-sheet entry made by the Wealth-tax Officer dropping the proceedings commenced under section 14 or initiated under section 17 of the Wealth-tax Act, 1957, for the assessment years in question, without communicating it to the assessee, amounted to an order, which could be revised by the Commissioner of Wealth-tax in exercise of his powers under section 25(2) of the Wealth-tax Act, 1957 ?'
The brief facts of the case are that the assessee-trust was settled by H. H. Maharaja Gaj Singh of Jodhpur, vide registered trust deed dated March 25, 1972. The settlor donated a sum of Rs. 53 lakhs to the trust, vide letter dated March 15, 1974. The money was lying in deposit with Messrs. Marudhar Hotels Pvt. Ltd. free of interest and within 10 years the deposit was to be converted into investments (non-cumulative preference shares carrying on dividend at the rate of 5 per cent. per annum). The said deposit was later on converted into preference shares. The trust filed an application under section 12A of the Income-tax Act, 1961, for registration. The returns of wealth had been filed by the assessee in compliance with the notice issued under section 14(2) /17 of the Wealth-tax Act, and exemption was allowed under section 5(1)(i) of the said Act. The assessment proceedings for the assessment year 1979-80 were dropped, vide order dated June 29, 1984. No assessment order was framed nor any communication in respect thereof was made to the assessee. Similar was the position in respect of proceedings for the assessment years 1978-79, 1980-81 which were dropped on February 5, 1985, and in respect of the assessment years 1981-82 to 1984-85, the proceedings were dropped on October 17, 1985. It was found that the settlor of trust was one of the directors of Marudhar Hotels Pvt. Ltd., a deluxe hotel run by the ITDC Ltd. Marudhar Hotels Pvt. Ltd. was a subsidiary company of Jodhan Investment and Finance Corporation Pvt. Ltd. and Shri Gaj Singh was one of the nominee directors thereof. The settlor was provided with residential accommodation in Umaid Bhawan Palace Hotel along with the ITC staff (operators). The Commissioner of Wealth-tax set aside the aforesaid orders under section 25(2) by which the assessment proceedings were dropped. The Commissioner of Wealth-tax gave a finding that the assessee was very well in the know as to the contents of the orders directing to drop the proceedings. Even if it was not conveyed to the assessee, it is not fatal to the proceedings under section 25(2) of the Act. It was further observed that the authorities below erred in not examining the applicability of section 21A of the Wealth-tax Act with reference to section 13 of the Income-tax Act, and the authorities failed to consider the following issues before filing the wealth-tax assessment proceedings :
'(1) Whether the investment in the name of the assessee-trust by way of originally interest free deposit and subsequently in the form of preference shares at the fixed rate of dividend with Messrs. Marudhar Hotels Pvt. Ltd. is read with section 13(1) of the Income-tax Act.
(2) Whether section 13(2) is applicable in view of the rent-free residential accommodation being provided to the premises of Umaid Bhawan Palace, the property of Marudhar Hotels Pvt. Ltd. in which the investment by the assessee-trust to the extent of Rs. 53 lakhs remains undisputed.
(3) Whether the chairman and director of Hotels Pvt. Ltd. and also its holding company Jodhan Investment and Finance Corporation Pvt. Ltd. are covered within the ambit of section 13(3) read with Explanation 3 of the Income-tax Act, 1961.
(4) Whether the assessee-trust is liable to wealth-tax within the meaning of section 21A of the Wealth-tax Act, 1957; in the light of the facts as discussed above.'
In an appeal before the Income-tax Appellate Tribunal, the following questions were framed for determination :
a. Is the dropping of proceedings an order contemplated under the Act ?
b. Is the noting in the order-sheet tantamount to an order passed by the Wealth-tax Officer ?
c. Is the non-service of the order-sheet noting fatal to the jurisdiction of the Commissioner of Wealth-tax under section 25(2) ?
d. Do the observations of the Wealth-tax Officer that he has had consultation with the Inspecting Assistant Commissioner (Asstt.) and the Commissioner of Wealth-tax, have the effect of invalidating the jurisdiction of the successor-Commissioner of Wealth-tax ?
e. Has the Commissioner of Wealth-tax been able to point out any error in the order made by the Wealth-tax Officer, which could be said to prejudice the interest of the Revenue ?
f. Was the Commissioner of Wealth-tax right in considering the material in the case of Marudhar Hotels Pvt. Ltd. for his action under section 25(2) ?'
The Income-tax Appellate Tribunal came to the conclusion that dropping of the proceedings is not contemplated under the Act and the effect of the dropping of the proceedings is akin to a 'nil' assessment.
The decision of the apex court in the case of Esthuri Aswathiah v. ITO : [1961]41ITR539(SC) was also relied upon wherein it was observed that the noting by the Income-tax Officer 'no proceeding' meant that he had accepted the return of the assessee and has assessed it at nil income. Similarly, in the case of CIT v. Bidhu Bhusan Sarkar : [1967]63ITR278(SC) the apex court observed the words used by the Income-tax Officer 'case is filed' had to be interpreted as equivalent to 'dropping of'. It was, therefore, observed that the noting in the order-sheet is an order passed by the Wealth-tax Officer and will take full effect in the eye of law. On the point as to whether without communicating the order it has effect or not it was observed that the decision of the Madhya Pradesh High Court in the case of Smt. Jijeebai Shinde v. CGT : [1986]157ITR122(MP) holding that an order made by the authority under the statutory provision does not become effective and valid until it is served upon the party concerned, is not applicable because the non-service of the order-sheet is not fatal to the proceedings initiated by the Commissioner of Wealth-tax under section 25(2) of the Wealth-tax Act as the wrong committed by the Wealth-tax Officer by dropping the proceedings could be corrected by the Commissioner of Wealth-tax having jurisdiction to interfere. The order of the Commissioner of Wealth-tax in setting aside the order of the Wealth-tax Officer by invoking the provisions of section 25(2) was held justified. The only thing which has been set aside under section 25(2) is the order-sheet entry made by the Wealth-tax Officer dropping the proceedings commenced under section 14/17 of the Wealth-tax Act which is alleged not to have been communicated. The question is as to whether it amounts to an order and the power could, therefore, be exercised by the Commissioner under section 25(2) of the Wealth-tax Act.
So far as the communication part is concerned, the only thing which could be agitated is with regard to the prejudice which may be caused to the assessee if the order is not communicated in challenging such an order. If in the assessment proceedings the proceedings are dropped which resulted in 'nil' assessment no prejudice is caused to the assessee, he was not an aggrieved person and the order directing the proceedings to be dropped was in his favour. The said order could have been set right only by a superior authority in exercise of the powers conferred under section 25 of the Wealth-tax Act. Besides this, in the order passed by the Commissioner of Wealth-tax it has been clearly mentioned that the order which was passed the Wealth-tax Officer was in the knowledge with regard to the contents of the order directing to drop the proceedings. If an assessment order is made and it is not served by which any liability is created on the assessee or his rights are affected then in that case it can be said that it would not be effective unless it is communicated or served on the assessee. While in a case where a plea raised by an assessee is accepted and proceedings are dropped it is not necessary that the order should be communicated and served on the assessee, the assessee could even take a certified copy of the said order and keep it in record. Simply because the order has not been served, it cannot be said that the power could not be exercised by the Commissioner of Wealth-tax under section 25(2) of the Wealth-tax Act, as it would amount to fraud even by the assessing authority : In a given case where there is a liability of tax and the officer in connivance with the assessee or with ulterior motive passes an order dropping the proceedings, then the Revenue would be left with no remedy. The order passed was within the knowledge of the assessee. The view which the Tribunal has taken, therefore, is justified that even in a case where the order is not communicated which is not prejudicial to the assessee or affecting his rights the power under section 25(2) of the Wealth-tax Act could be exercised.
The question is as to whether the entry made in the order-sheet amounts to an order or not whereby the Wealth-tax Officer has dropped the proceedings. The dropping of the proceedings in respect of the return which has been filed under section 14/17 results in no liability assessment. Normally, once the return is filed in pursuance of the notice, the Wealth-tax Officer is expected to pass an order of assessment under section 16. Instead of going into various details of the matter, suppose an objection is taken with regard to the jurisdiction or on a point of exemption or any other point that there is no liability to tax, the Wealth-tax Officer may accept that objection even in proceedings under section 16 and can drop the proceedings which may be because he had no jurisdiction or the assessee is not liable to tax, etc. The order of the assessing authority that the proceedings are dropped is an order and it amounts that he has decided not to levy the tax. The manner in which the order is passed differs from assessing authority to assessing authority. On the verbal objections being raised or written submissions being made the assessing authority may be satisfied rightly or wrongly that he had no jurisdiction or the assessee is not liable to tax or the assessee is exempted under the Act or for similar other reasons he has not proceeded to assess the dealer. If the order is passed to the effect that 'proceedings dropped', it is an order and it ends the matter which results in termination of the proceedings initiated by the assessing authority. The 'assessment' is quantification of tax liability. The assessment envisages computation of income, ascertaining the tax liability and issue of notice for demand for payment of tax. In the case of Smt. Jijeebai Shinde v. CGT : [1986]157ITR122(MP) relied upon by learned counsel for the assessee the Madhya Pradesh High Court has taken into consideration the decision given by the apex court in the case of Raja Harish Chandra Raj Singh v. Dy. Land Acquisition Officer, : [1962]1SCR676 in which it was observed by the apex court that the award must be communicated. The said decision is not applicable so far as taxing provisions are concerned. The award affects the rights of the person whose land has been acquired. He has a right to file an appeal against such an order. But in a case where the taxing proceedings are dropped no right is available to the assessee to file an appeal and, therefore, the decision in the case of Raja. Harish Chandra Raj Singh v. Dy. Land. Acquisition Officer, : [1962]1SCR676 is not relevant. Similarly, another decision which was relied upon is CIT v. Oriental Rubber Works : [1984]145ITR477(SC) in which it was observed that when the books and documents of the assessee are seized in the search conducted, then the Revenue is obliged to communicate to the assessee not only the Commissioners approval but also the reasons recorded. This judgment has been given in a case where the rights of the assessee are affected. The various authorities relied upon by the Madhya Pradesh High Court are such where the rights of the assessees are affected in a case where the order is not communicated to them. The conclusions which have been drawn, therefore, in our respectful view, are not applicable to the taxing statute. It was a case where the order was passed for dropping the proceedings which results in no liability of the assessee. The assessee cannot be said to be aggrieved by such an action and, therefore, the communication of such an order cannot be said to be must. We may also observe that the communication could be actual or constructive and in the present case the finding of the Commissioner of Wealth-tax that there was constructive communication has not been denied and it is a finding of fact and the order dropping the proceedings must have been written by the Wealth-tax Officer after issuing the notice which has resulted in finally culminating the proceedings. The provisions of section 25(1) contemplate that the Commissioner may call for the record of any proceedings under the Act in which an order has been passed by any authority subordinate to him. Sub-section (3) of section 25 puts a bar only on exercise of the power by the Commissioner that no order shall be made under sub-section (2) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. This provision does not restrict the power of the Commissioner in a case where the order has not been communicated and even if an order is passed and not communicated, the power could be exercised by the Commissioner. If no assessment is to be framed then the assessing authority is within his jurisdiction to give the finding that the proceedings are dropped. The finding could be recorded on the basis of various factors which have been submitted by the assessee and then the ultimate conclusion could be arrived at that the proceedings are dropped. The authority may on the basis of documents submitted or even on verbal submissions come to the conclusion that the proceedings are dropped. In both these cases, it is an order which has culminated in nil liability so far as the assessing authority is concerned and so far as initiation of the proceedings by that authority is concerned. Therefore, in such a case it has to be considered that the matter of the assessee with regard to the initiation of the proceedings by issue of notice has resulted in nil assessment. In these circumstances, we are satisfied that the recording of the words that 'proceedings are dropped' amounts to an order.
On the basis of the aforesaid reasons, we are of the view that the order-sheet entry made by the Wealth-tax Officer dropping the proceedings without communicating it to the assessee amounts to an order which could be revised by the Commissioner of Wealth-tax under section 25(2) of the Wealth-tax Act, 1957.
Consequently, the reference is answered in favour of the Revenue A and against the assessee.