Kum. Vijaya Raja Vs. Union of India and Others. - Court Judgment

INDORE BENCH

A. R. TIWARI J. - This order shall also govern the disposal of the connected writ petitions particularised as -

(1). M. P. No. 38 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(2). M. P. No. 42 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(3). M. P. No. 37 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(4). M. P. No. 36 of 1992 (Ku. Vijay Raja v. Union of India and others).

(5). M. P. No. 35 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(6). M. P. No. 33 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(7). M. P. No. 40 of 1992 (Ku. Vijava Raja v. Union of India and others).

(8). M. P. No. 39 of 1992 (Ku. Vijaya Raja v. Union of India and others).

(9). M. P. No. 34 of 1992 (Ku. Vijaya Raja v. Union of India and others).

Briefly stated the facts of the case in each of these petitions are that Thakurani Ukta Kumari Devi who Thakur Vijay Bahadur Singh was the assessee to wealth-tax under the provisions of the Wealth-tax Act, 1957 (for short the 'Act'). This assessee expired on February 27, 1991. She has executed a will making the petitioner, her daughter, the executor of that will. Respondent No. 2 (Assistant Commissioner of Income-tax), Investigating Circle, issued notice to the petitioner in respect of the aforesaid assessee, as inheritor of the property under section 17 of the Act (annexure 'D') proposing to reassess on the linchpin that net wealth has escaped assessment for the assessment year 1981-82 in the aforesaid petition and for subsequent years till 1990-91 in the other connected petitions. The assessment year in each case is from April 1st to March 31st. After issuance of the notice, respondent No. 2 referred the matter to respondent No. 3 (The Valuation Officer, Income-tax Department) for report and respondent No. 3, in turn, issued notice to the petitioner for the purposes of valuation of the property in question under section 16A of the Act for the purpose of completion of proceedings as initiated with the aforesaid notice under section 17 of the Act. Aggrieved by the notice and the order of reference as noted above in each of these petitions, the petitioner has filed these petitions seeking quashment of the same.

The respondents have filed the return in oppugnation.

I have heard both sides.

Right at the threshold, counsel for the petitioner urged that if the reference made under section 16A of the Act and consequent notice in that behalf to the petitioner are held fit for demolition then the petitioner will not challenge the validity of the notice issued under section 17 of the Act and would prefer to contest the same before respondent No. 2. Shrinking his relief like this. counsel submitted that in proceedings under section 17 of the Act, the reference to respondent No. 3 is illegal and improper. He, therefore, submitted that the reference and consequential notice to the petitioner on that basis deserve to be dislodged and demolished leaving the petitioner free to contest the notice under section 17 of the Act before respondent No. 2. Counsel has placed reliance on K. M. Ramdas Prabhu v. First WTO : [1987]166ITR706(KAR) and Onkarji Kasturchand (HUF) v. WTO : [1982]135ITR188(MP) .

Counsel for the respondents, on the other hand, supported the notice issued by respondent No. 2 as well as the reference made to respondent No. 3. He submitted that once the condition precedent for initiating the action in terms of section 17 of the Act had existed, respondent No. 2 is competent in law to make a reference to respondent No. 3. Counsel has placed reliance on Phool Chand Bajrang Lal v. ITO : [1993]203ITR456(SC) and ITO v. Biju Patnaik : [1991]188ITR247(SC) . According to him, section 2(cb) of the Act clarifies that 'assessment' includes reassessment. He further submits that the scheme for assessment under section 17 of the Act is the same as the one for initial assessment. He, therefore, argued that if reference is permissible for initial assessment, there is no reason as to why the same should not be available for reassessment in terms of section 17 of the Act. He, therefore, justifies the notice as well as the reference.

As regards the question of notice, it is not assailed before me by counsel for the petitioner. His limited grievance is with regard to the reference to respondent No. 3 in terms of section 16A of the Act in proceeding initiated under section 17 of the Act.

I, therefore, proceed to examine the worth of rival contentions so far as the question of reference to respondent No. 3 is concerned.

Law first. Section 16A of the Act is inserted by the Taxation Laws (Amendment) Act, 1972, effective from January 1, 1973. The scope is clarified by employing the expression 'where under. . . . assessment', by the Direct Tax Laws (Amendment) Act, 1989, effective from April 1, 1989, and the words 'Wealth-tax Officer' have been replaced by the words 'Assessing Officer' by the Direct Tax Laws (Amendment) Act, 1987, effective from April 1, 1988. Even section 17 of the Act is altered by the Direct Tax Laws (Amendment) Act, 1987, effective from April 1, 1989. It is profitable to reproduce the relevant parts of sections 16A and 17 of the Act.

Section 16A(1) of the Act provides as under :

'16A. (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, where under the provisions of section 7 read with the Rules made under this Act or, as the case may be, the Rules in Schedule III, the market value of any asset is to be taken into account in such assessment, the Assessing Officer may refer the valuation of any asset to a Valuation Officer -

(a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so returned is less than its fair market value;

(b) in any other case, if the Assessing Officer is of opinion -

(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or

(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. . . .'

Section 17(1) of the Act embodies as under :

17. (1) If the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of underassessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and section 17A, serve on such person a notice requiring him to furnish within such period, not being less than thirty days as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under section 14 : .........'

It seems to be of some significance to bestow attention on section 16A(6) of the Act. It contains as under :

'16A. (6) On receipt of the order under sub-section (3) or sub-section (5) from the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.'

What emerges then is that on receipt of the order passed under sub-section (3) of section 16A of the Act (holding that the value has been correctly declared in the return made by the assessee) or under sub-section (5) of section 16A of the Act (recording estimation of the value of the asset) by the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer. This exercise manifestly furnishes a good guide and offers assistance in determination of the assessment required to be made in terms of section 16(3) of the Act which provides as under :

'16. (3) On the day specified in the notice issued under sub-section (2) or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by order in writing, assess the net wealth of the assessee and determine the sum payable by him on the basis of such assessment.'

This provision clearly declares the purpose as well as the stage and is codified before section 17 of the Act.

In my view recourse to section 16A of the Act becomes permissible in the face of the provision 'and such other evidence as the Assessing Officer may require on specified points' contained in section 16(3) of the Act. It is noteworthy that such a provision is non-existent in section 17 of the Act. The undernoted features explain and elucidate and enunciate the principle :

(a) Under section 17 of the Act, the return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice is demanded to enable the Assessing Officer to proceed to assess or reassess as may be noticed.

(b) Section 16A of the Act is usable for the purpose of making an assessment and not for reassessment. Notice (annexure 'D') has been issued to 'reassess'. The word 'assess' has been scored and struck off specifically.

(c) 'Valuation date' is the essential ingredient and provision for particulars exists.

(d) The order of the Valuation Officer is a vital piece of evidence to complete the assessment in terms of section 16A(6) of the Act whereas section 17 of the Act does not envisage such a position.

(e) The sustaining of a reference would tantamount to rewriting of section 16A of the Act which does not contain the word 'reassessment'. And this is impermissible.

The scheme of the law presents no conundrum. It is luculent that section 17 of the Act comes into play only after completion of the assessment in terms of section 16(3) of the Act, in conformity with the order of the Valuation Officer, if the Assessing Officer had elected to refer the valuation of any asset to a Valuation Officer, prior to assessment, in terms of section 16A(6) of the Act. It is not clarified as to how the clock is put back to the stage of sections 16(3) and 16A(6) of the Act through recourse to notice issued under section 17 of the Act. In fact the condition precedent for the exercise of jurisdiction under section 17 of the Act is the satisfaction of the Assessing Officer that he has reason to believe that net wealth chargeable to tax has escaped assessment. The existence of reasons, yielding such a belief and indicator of escapement, is the sine qua non for exercise of the power conferred under the law. The law does not permit retrojection to a previous stage.

In Onkarjis case : [1982]135ITR188(MP) the Division Bench of this court took the view that the officer had no jurisdiction to make a reference to the Valuation Officer where the assessment for the relevant year was not pending. In K. M. Ramdass case : [1987]166ITR706(KAR) the Karnataka High Court held as under (at page 710) :

'Section 2(ca) of the Act which defines assessment includes reassessment also. But, the term assessment occurring in section 16A of the Act, in the context, can be given the restricted meaning of assessment only and cannot be given the extended meaning as defined in section 2(ca) of the Act. The extended meaning in the definition section must be applied only when the context demands and not otherwise. In my view, the context of section 16A of the Act demands that the extended meaning in section 2(ca) cannot be given to the term assessment occurring in section 16A of the Act. . .

On the foregoing discussion, it follows that the notices issued by the Valuation Officer for the assessment years 1977-78 to 1979-80 relevant to the valuation dates as on December 31, 1976, December 31, 1977, and December 31, 1978, completed and concluded, are wholly without jurisdiction and illegal and are liable to be quashed. I, therefore, quash the impugned notices.'

Discretion has to be in accord with law. Lord Mansfield in John Wilkes case [1770] 4 Burr 2528 stated in classic terms that discretion meant sound one guided by law and governed by rule, not by humour.

In Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 WLR 1174 Lord Diplock stated in classic terms that (at page 1196) :

'. . . Judicial review has I think developed to a stage today when without reiterating any analysis of the steps by which the development has come about, one can conveniently classify under three heads the grounds upon which administrative action is subject to control by judicial review. The first ground I would call 'illegality, the second irrationality and the third procedural impropriety. That is not to say that further development on a case by case basis may not in course of time add further grounds.'

It is trite law that reopening of assessments, i.e., proceedings for reassessment are serious proceedings permissible on 'reasons'. And if reasons are existing, then where is the question of reference to the Valuation Officer Does the scheme of law permit the state of uncertainty up to the specified period Is there no characteristic difference between section 16(3) and section 17 of the Act Are these two sections not distant neighbours In my view, recourse to section 16A of the Act is simply impermissible at that stage. In fact the view taken by the Division Bench of this court concludes the issue in favour of the assessee/petitioner.

This court in Sharmisthabai Holkar v. CWT : [1988]169ITR496(MP) held that reassessment is not justified on the basis of a valuation report which is subsequent to the date of reopening assessment. It is held that (at page 498) :

'The Tribunal, however, held the action of the Wealth-tax Officer justified on the ground that the valuation report submitted before the Wealth-tax Officer could afford sufficient reasons for reopening the assessment. It was, however, not disputed before us that the valuation report is dated October 4, 1975, while reasons for reopening the assessments were recorded by the Wealth-tax Officer on March 26, 1975. The Tribunal was not justified in supplanting the reasons recorded by the Wealth-tax Officer and, moreover, the reason so supplied by the Tribunal could not have been in existence on the date when the assessments were reopened. The Tribunal, therefore, was not justified in holding that the Wealth-tax Officer was right in reopening the assessments in question.'

The respondents have placed reliance on two Supreme Court decisions as cited above. In my view, these are not helpful to them because the validity of the notices under section 17 of the Act is not questioned by the petitioner and no attempt, as recorded above, is made to clip the wings of the Assessing Officer so far as the enabling power under the aforesaid section is concerned.

In para 13 of the 'return', the respondents have pleaded that -

'That the right to refer under section 16A is very much there because the present proceedings are also assessment proceedings.'

This contention is contrary to the decision as noted above. The respondents, however, went on to plead further -

'That it is logical to suggest that section 16A is not applicable to reassessment proceedings.'

If this is so, then the argument in opposition ex facie ceases to be logical and becomes destructible by the pleading, since the notice (annexure-D) itself conveys the proposal for reassessment. It is apt to observe that a torn umbrella can offer no succour or safety against rains. The debility is easily visible.

As for the reasons contained in annexure R/1, the same do not appear to be insufficient or irrelevant. It is however, difficult to see any point of merit in recording the valuation of the 'plot', but proposing to refer the question of valuation of the 'building' to the Superintendent Engineer. Sections 16(3), 16A (1) and (6) and 17 of the Act required proper appreciation.

It is also noticeable that the expression failure to make a true and full disclosure of all material facts, holding the field for exercise of jurisdiction under section 147(a) read with section 148 of the Income-tax Act is no longer retained in the altered section 17 of the Act. It is not for nothing that the earlier situation existing from April 1, 1965, viz., the Wealth-tax (Amendment) Act, 1964, was amended by the Direct Tax Laws (Amendment) Act, 1987, effective from April 1, 1989.

It, however, needs to be observed that counsel for the respondents is right in his submission that the assessee or successor cannot be allowed the latitude to plead the bar on the fulcrum of acceptance of his or her position as indicated earlier in the return. The avowed object behind section 17 of the Act is to 'discover' escapement and 'prevent' evasion. The provision is intended to inflict wherret on designs unapproved by law. Respondent No. 2 perhaps felt that valuation of houses by the Valuation Officer was the only means and method to arrive at the realistic value of the asset. Respondent No. 2, in my view, formed this impression in overlooking the scheme and stage and in ignoring that the answer to the question was not far to seek and was purposefully available in the relevant section itself. By section 17 of the Act, the Assessing Officer is empowered not only to demand in the proper form and manner a return setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned is the notice but also along with it 'such other particulars as may be required by the notice. 'The purpose of demanding such particulars in a given case seems to enable the authority to ascertain, confirm or verify the extent of built-up area, nature of construction, age of building, income fetched or fetchable, valuation of such house in the vicinity, estimate of valuation on relevant date, comparable position, etc., and thus, to decide about the extent of net wealth chargeable to tax vis-a-vis the return. The aforesaid provision, enabling in nature, is to operate in lieu of and not in addition to collection of evidence under section 16A of the Act. Once that is the mode, other modes would appear to be forbidden. The withdrawal of the order of reference thus imposes no hurdle or fetter in the completion of the proper reassessment as envisaged under the law.

Some do hold that tax evasion has been the national sport of India, a situation which needs to be sent on holiday. This has to be changed. Jean Monnet, however, observed that 'men will only accept change in the face of necessity and they see that necessity only when confronted by crisis'. In 1979, Ireland abolished wealth-tax, Germany appreciably lowered it, the U.S.A. reduced capital gains tax and the U. K. slashed its maximum rate of personal tax from 83 to 60 per cent. It seems that our economic efficiency and efficacy still depends on level of taxation which may appear to be a bit tortuous and may induce the individual, falling in the net, to turn tax-avoider, if not tax evader. Individual should not be allowed to escape the rigour of law in case of proved escapement in assessment. This is why taxation law meaningfully provides the power to reopen and reassess. But such exercise cannot be seen to degenerate as energumen. The limit of law, noticeable as 'Lakshman Rekha', lapidates the overstepping and declares the course for recourse. All occasions demand duties to preserve truth. The Poet James Russel Lowell very appropriately observed :

'New occasions teach new duties

Time makes ancient good uncouth

They must upward still and onward

Who would keep abreast of truth.'

So charged with duties, authorities have rights as well as responsibilities. The right is available under section 17 of the Act and the responsibility is to operate within the limits of that provision. This is the 'more and less' of the game. Nothing should be done which may fall foul of the law. The emphasis is the need to eradicate and end evil, whenever in sight, within the periphery of a provision. There is no charm in knowing the right and doing the wrong. The scheme of law spurns tenebrosity and is luculent indeed. The enabling section, as noted above, is manifestly absolute in terms, absolute in intent and thus absolute in effect. So far and no further is the echo audible enough; section 16A of the Act thus does not seem to be the protective umbrella. The remedy, as noted, is evidently elsewhere. Right thing is to be done rightly.

In the ultimate analysis, I find that reference to the Valuation Officer, after completion and conclusion of the assessments, on action in terms of section 17 of the Act and consequent notices in terms of section 16A(2) of the Act to the petitioner are not in conformity with law and are fully fragile on account of illegality, irrationality and procedural impropriety.

Accordingly, in the absence of impugment against notices under section 17 of the Act, I sustain the validity of the notices (annexure D), issued under section 17 of the Act, in all these petitions but quash the references to the Valuation Officer and his notices to the petitioner as impugned in these petitions holding the same as invalid and illegal, but leaving the Assessing Officer free to proceed further and 'reassess' in terms of section 17 of the Act. Sine ira et studio in conformity with law as expeditiously as possible.

Ex consequenti, this petition as also the abovequoted nine petitions are thus allowed only in part as indicated above with no order as to costs. Security costs, deposited in each petition, shall be refunded to the petitioner, after due verification.

A copy of this order shall be retained in the record of the aforesaid petitions for ready reference.