Commissioner of Income Tax Vs. Dr. C. Ashokan Nambiar - Court Judgment

Pasayat, C.J.

At the instance of the revenue, following questions have been referred under section 256(1) of the Income Tax Act, 1961 Income Tax Act by the Tribunal, Cochin Bench, for opinion of this Court:

'1. Whether, on the facts and in the circumstances of the case, should not the Commissioner (Appeals) have under law given an opportunity of being heard to the Valuation Cell, and the Tribunal is right in law in rejecting such a contention ?

2. Whether, on the facts and in the circumstances of the case and also in view of the disagreement of the Commissioner (Appeals) with the cost fixed by the Valuation Cell, should not the Commissioner (Appeals) who has a 'duty to act judicially', a duty to accord a hearing to the Valuation Cell before rejecting their report and is not such compliance of natural justice 'implicit in the exercise of such power as opined by the Supreme Court in Binapani Dei : (1967)IILLJ266SC ?

3. Whether, on the facts and in the circumstances of the case and in view of the contents of the sworn statement and the finding of the officer that the assessee is having unaccounted professional income and in the absence of a contrary finding by the Tribunal should not the Tribunal have under law sustained the addition to that extent under the head 'Professional income'?'

The learned counsels for the parties agreed that while the third question needs no change, the first and second questions may be clubbed together and reframed. The questions are consolidated and reframed as follows :

'Whether, on the facts and in the circumstances of the case, principles of natural justice warranted hearing of Valuation Officer, even if it is held that such a prescription has not been statutorily made ?'

2. Factual position, as set out in the statement of case, is as follows: The assessee is an Associate Professor of Cardiology in Calicut Medical College. He had not maintained accounts for his professional income. Search was conducted in his residential premises under section 152 of the Act on 26-6-1985 and certain documents were seized. During the search, a statement was recorded from him. Therein he had stated that he was engaged in private practice for 22 days in a month, and consulting fees received by him were Rs. 200 to 250 per day. The assessing officer was of the view that considering his professional reputation and also investments made by him and expenditure incurred during the year, his statement that he was receiving consulting fees at the aforesaid rates was not acceptable. During the previous year corresponding to the assessment year in question, i.e., 1984-85, the assessee had completed construction of a residential building. Cost of the construction, according to the assessee, was Rs. 4,35,000. A reference was made to the Valuation Cell, which determined the cost of construction at Rs. 5,40,550. The assessing officer determined the 'unexplained investment' and expenses at Rs. 1,02,640. Considering the variation between cost of construction disclosed and determined by the Valuation Cell, the assessing officer determined income from profession at Rs. 1,05,000 as against Rs. 45,000 admitted by the assessee. Matter was carried in appeal before the Commissioner (Appeals), Calicut, who held that cost of construction would be Rs. 4,44,673 and since it was marginally higher than the cost of Rs. 4,35,000 declared by the assessee, addition was deleted. So far as addition towards drawings is concerned, a sum of Rs. 11, 100 was sustained. The revenue preferred appeal before the Tribunal. It was contended that the Commissioner (Appeals) should have given an opportunity to the Valuation Officer before accepting the cost of construction as admitted by the assessee. An additional ground was taken to the effect that the Commissioner (Appeals) should have determined professional income on the basis of the assessee's statement made during search. The Tribunal did not find substance in either of these stands. In regard to the grant of opportunity, it was observed that reference was not under section 16A of the Wealth Tax Act, 1957 and, therefore, there was no requirement to grant opportunity to the Valuation Officer. So far as professional income is concerned, the Tribunal observed that in the absence of any specific addition by the assessing officer on the basis of the assessee's statement, though referred to for a minor variation of Rs. 2,500, no interference with the Commissioner (Appeals)'s order was warranted.

3. The learned counsel for the revenue, with reference to section 55A of the Act, submitted that provisions of section 23(3A) of the Wealth Tax Act were ipso jacto applicable and the Tribunal has not considered it in the proper perspective. The learned counsel for the assessee submitted that reference under section 55A has no application to the facts of the case. By way of reply to the said contention, it is submitted by the learned counsel for the revenue that even if it is accepted that provisions of section 55A are not applicable, the principles of natural justice mandated grant of such opportunity of hearing.

4. Since much stress has been laid by the learned counsel in regard to applicability of section 55A, it is necessary to refer to said provision, which read as follows:

'Reference to Valuation Officer-With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the assessing officer may refer the valuation of capital asset to a Valuation Officer-

(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a Registered Valuer, if the assessing officer is of opinion that the value so claimed 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 claimed by the assessee by more than such percentage of the value of the asset as so claimed 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,

and where any such reference is made, the provisions of sub-sections (2), (3),(4),(5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall -xvii h the necessary modifications, apply, in relation to such reference as they apply in relation to a reference made by the assessing officer under sub-section (1) of section 16A of that Act.

Explanation-In this section, 'Valuation Officer' has the same meaning, as in clause (i) of section 2 of the Wealth Tax Act, 1957 (27 of 1957).'

Section 55A appears in Chapter IV of the Act. Section 14 appearing in said Chapter deals with 'Heads of income'. For the purpose of charge of income-tax and computation of total income, all income has been classified under six heads. But the head 'Interest on securities' has been omitted by the Finance Act, 1988. Heads of income have been dealt within this Chapter under various sections. Head 'Salaries' is dealt within sections 15 - 17. Head 'Income from house property' is dealt within sections 22 - 27. Head 'Profits and gains of business or profession' is dealt within sections 28 to 44D, and head 'Capital gains' is dealt within sections 45 to 55A. Head 'Income from other sources' is dealt within sections 56 - 59. Section 55A is a part of the cluster of sections relating to 'Capital gains'.

5. According to the learned counsel for the revenue, the words used in section 55A being 'for the purposes of this Chapter', it cannot have application only to Part E of section 14 dealing with 'Capital gains'. On the contrary, the learned counsel for the assessee submitted that it is exclusively meant for income from 'Capital gains'. In order to appreciate these rival submissions, apart from section 55A, some other provisions of the Act having bearing need to be noted. Section 2(14) of the Act deals with 'capital asset', which has been referred to in section 55A. Same reads as follows :

'(14) 'capital asset' means property of any kind held by an assessee. Whether or not connected with his business or profession, but does not include-

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.

Explanation-For the purposes of this sub-clause, jewellery' includes-

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;'

'Fair market value' is dealt with in section 2(22) in relation to capital asset and is defined as follows:

'(22B) 'fair market value', in relation to a capital asset, means-

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and

(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act;'

6. Part E of Chapter IV deals with 'Capital gains' and, as indicated, pertains to sections 45 to 55A. Section 45 deals with 'any profits or gains arising from the transfer of a capital asset effected in the previous year, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54E13, 5417, 54G and 54H. It is deemed to be the income in the previous year in which distribution of assets by companies in liquidation'. Section 47 categorises transactions not falling within the purview of section 45. Mode of computation relating to income chargeable under 'capital gains' is dealt within section 48. Acquisition of capital asset, computing the cost of acquisition in the case of depreciable assets, advance money received, consideration for transfer in cases of under-statements, capital gains exempt tax, profit on sale of property used for residence, etc., are dealt within sections 49 - 54. It, therefore, stands to reason and logic that the scope of section 55A is confined to ascertaining the fair market value of capital asset, which has been the subject-matter of transfer. Though the expression 'under this Chapter' has been referred to in section 55A, it could not be shown as to how section 55A has relevance to any transaction other than 'Capital gains'. Therefore, section 55A has application only to transactions involving capital gains.

7. It is to be noted that the first appellate authority is not required statutorily to give notice under section 246 and/or section 250 or 251 of the Act to the Valuation Officer. When an appeal is heard by the Commissioner (Appeals) under section 23 of the Wealth Tax Act and one of the questions involved relates to valuation of any asset, the appellate authority is required to give notice to the Valuation Officer under sub-section (3A) of section 23 of the said Act. Similarly, the Tribunal is required to give notice before disposing of an appeal under proviso to sub-section (5) of section 24 of the Wealth Tax Act. Section 16A deals with reference to the Valuation Officer and his order thereunder. Sub-section (6) thereof provides that the assessing officer shall make the valuation in conformity with the estimate of the Valuation Officer. Said provision was introduced by the Taxation Laws (Amendment) Act, 1972 with effect from 1-1-1973. Sub-section (3A) of section 23 and proviso to sub-section (5) of section 24 dealing with appeals before the first appellate authority and the Tribunal were simultaneously introduced. They specifically provide for opportunity of hearing to the Valuation Officer. There are no corresponding provisions in sections 250 and 254 of the Act. Mittatis mutandis application of certain provisions of sections 16A, 23 and 24 of the Wealth Tax Act vis-a-vis section 55A of the Income Tax Act shall not change the position, so far as this case is concerned. Above being the position, there was no requirement of giving any notice or opportunity of hearing to the Valuation Officer.

8. Alternatively, it is submitted by the counsel for the revenue that by application of the principles of natural justice, such requirement is inbuilt. Where a statutory provision does not exclude the principles of natural justice, an opportunity of being heard can be given, particularly when proceedings are quasi-judicial. Exclusion can either be by a clear provision or by inference from the scheme of the statute; as also, the nature of power which is being exercised. Principles of natural justice must be read into unoccupied interstices of the statute, unless there is a clear mandate to the contrary. In the scheme of the statute whenever observance of the principles of natural justice is thought necessary, specific provision has been made. If the plea of the learned counsel for the revenue that even if there is no statutory requirement of observing principles of natural justice and granting of opportunity is to be accepted, then section 23(3A), proviso to sub-section (5) of section 24 of the Wealth Tax Act were not necessarily to be inserted. Same cannot be said to be meaningless or purposeless prescription. It is a well-known principle of statutory interpretation that no provision of a statute can be said to be without any purpose or superfluous. Inevitable conclusion, therefore, is that whenever there is a requirement for observance of the principles of natural justice, the same has been specifically provided for in the statute and in other cases, by necessary implication excluded.

9. It is relevant to note that as per section 250 of the Act, right to be heard at the hearing of the appeal has been conferred on the appellant to appear either in person or by an authorised representative, and on the assessing officer to appear either in person or by a representative. It is pertinent to note that the Wealth Tax Act has no provision giving right of hearing to the Assessing Officer or the Wealth Tax Officer, as the case may be, in the appeal filed by, the assessee before the first appellate authority. In that context, it was held that the assessing officer/Wealth Tax Officer has no right to be heard and non-grant of opportunity to him would not render the order of the first appellate authority bad in law. No doubt, nothing prevents such officer from appearing at the hearing of the appeal or the first appellate authority calling upon him for hearing- CWT v. Shrenik Kasturbhai (HUF) : [1987]165ITR661(SC) . There is no fetter on the assessing officer/Income Tax Officer appearing, if so required, before the first appellate authority. By (lie Amendment Act of 1972, special provisions have been made in the Wealth Tax Act relating to references to the Valuation Officers by the Wealth Tax Officer and appearance by the Registered Valuers. These provisions relate to valuation of assets for the purpose of capital gains. The following provisions of the Wealth Tax Act applicable in relation to a reference made by the Wealth Tax Officer under section 16A of the Act apply mutatis Mitandis to a reference made by the Income Tax Officer under section 55A :

'(i) Sub-sections (2), (3), (4), (5) and (6) of section 16A relating to a reference to a Valuation Officer.

(ii) Clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23 (relating to appeal to the Appellate Assistant Commissioner from orders of Wealth- tax Officer).

(iii) Sub-section (5) of section 24 (relating to appeal to the Appellate Tribunal from orders of the Appellate Assistant Commissioner),

(iv) section 34AA (relating to appearance by registered Valuers).

(v) section 35 (relating to rectification of mistakes) and section 37 (relating to power to take evidence on oath, etc.).'

As indicated above, the first appellate authority was not required to grant an opportunity of hearing to the Valuation Officer. Similar view was taken by the Gujarat High Court in IT Appeal No. 49 of 1982 by order dated 1 -4-1982. Special leave petition filed before the Apex court against this order was rejected in CIT v. Anupanza Theatre (1984) 150 ITR 79.

10. Under the provisions of section 254(1A), the Tribunal was empowered to refer the question under dispute to arbitration of Valuers, one of whom nominated by the appellant and the other by the respondent. The section was omitted with the Amending Act, 1972 with effeet from I- 1- 1973. The Tribunal has no power to refer the question for arbitration. A new section 287A has been introduced in the Act providing for appearance by, the Registered Valuers in certain matters and any assessee who is entitled to require to appear before the income-tax authority or the Tribunal in connection with any proceeding relating to valuation of any asset. It is operative with effect from 1-1-1973.

11. The other question relates to the assessment of professional income. The Tribunal found that deletion of the addition towards cost of construction, as done by the Commissioner (Appeals), was in order. It was found that the difference involved was a very petty amount. The learned counsel for the revenue submitted that the approach of the Commissioner (Appeals) was wrong and an additional ground was permitted to be raised by the Tribunal. The same should have been considered by the Tribunal irrespective of what was considered by the Commissioner (Appeals). The assessee's own admission was not taken into account. We find that the Tribunal has proceeded on the basis that the assessing officer himself did not place reliance on the said statement while determining the professional income. The Commissioner (Appeals) considered that the difference involved was too small. The Tribunal affirmed the conclusion. We are of the view that the conclusions are essentially factual, giving rise to no question of law.

The questions referred as reframed are answered in the negative, in favour of the assessee and against the revenue.