Anantkuverba (Legal Representative of H.H. Maharaja Sri Natwarsinghji) Vs. Commissioner of Wealth-tax - Court Judgment

R.C. Mankad, Actg. C.J.

1. The Income-tax Appellate Tribunal ('the Tribunal' for short) has referred to us for our opinion the following question :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the Commissioner of Wealth-tax was not a nullity, though it was passed without notice to the assessee regarding valuation of immovable property 'Lal Palace

(2) Whether the Tribunal was right in law, after allowing the assessee's appeal, in restoring the matter to the file of the Commissioner to give notice to the assessee and pass fresh orders instead of quashing the Commissioner's order as being null and void, illegal and without jurisdiction ?'

2. This reference arises out of the assessee's wealth-tax assessment for the assessment years 1972-73 to 1975-76. The Wealth-tax Officer, while making wealth-tax assessment for the years under reference, included the value of immovable property known as 'Lal Bungalow' in the net wealth of the assessee. We do not consider it necessary to set out the details of the other properties of the assessee, the value whereof was included in the assessee's net wealth for the assessment years under reference because they are not the subject-matter of this reference. On examining the records of the assessment proceedings for the assessment years under reference and assessment years 1976-77 to 1979-80, the Commissioner of Wealth-tax ('the Commissioner' for short) noticed that the Wealth-tax officer had granted excess exemption under various provisions of section 5(1) of the Wealth-tax Act, 1957 ('the Act' for short). The Commissioner also found discrepancies in respect of the valuation of movable and immovable assets. He was, therefore, of the view that the assessment orders passed by the Wealth-tax Officer for the aforesaid assessment years were erroneous and prejudicial to the interests of the Revenue. He, therefore, initiated proceedings under section 25(2) of the Act and issued notice dated July 26, 1980, to the assessee in respect of the aforesaid assessment years which include the assessment years under reference. In the annexure to the notice details of the excess exemption granted under section 5(1) of the Act and the discrepancies in respect of the valuation of movable and immovable assets were stated. So far as the immovable property known as 'Lal Bungalow', which is the subject-matter of this reference is concerned, in the annexure, it was stated as follows :

'The Wealth-tax Officer had erred in taking value of immovable property known as Lal Bungalow, as per valuer's report as the report of the approved valuer appears to be on the lower side. There is under assessment of wealth on this account for the assessment year 1976-77 to 1979-80.'

3. The Commissioner, exercising his powers under section 25(2) of the Act, passed an order dated January 24, 1981, holding that so far as the immovable property known as Lal Bungalow was concerned, the report given by the authorised valuer did not represent the correct value of the property. It was observed that the sale of the said immovable property effected in the year 1976-77 indicated that the value of half the property as on March 31, 1976, was as high as the value of the entire property shown by the assessee in the immediately preceding year. According to the Commissioner, in a place like Porbandar where the immovable property is situated, the value of the property would appreciate in the normal course at the approximate rate of 5 per cent. In his view, therefore, the valuation of the immovable property known as Lal Bungalow accepted by the Wealth-tax Officer was erroneous and prejudicial to the interests of the Revenue. The Commissioner also held that the Wealth-tax Officer had granted excess exemption under section 5(1) of the Act. On that ground also, the Commissioner was of the view that the assessments made by the Wealth-tax Officer for the assessment years 1972-73 to 1979-80 were erroneous and prejudicial to the interests of the Revenue. He, therefore, directed the Wealth-tax Officer to refer the question of correct valuation of the immovable property known as Lal Bungalow to the Valuation Cell and adopt the value in the light of the report that may be given by the Valuation Officer. He also directed the Wealth-tax Officer to withdraw the excess exemption granted to the assessee.

4. Being aggrieved by the order passed by the Commissioner, the assessee carried the matter in appeal so far as the immovable property known as Lal Bungalow is concerned. The contention which was raised by the assessee before the Tribunal was that the order of the Commissioner was based on the notice which did not mention the assessment years under reference, i.e., assessment years 1972-73 to 1975-76. It was urged on behalf of the assessee that the assessee not having been given notice, the action of the Commissioner for the assessment years under reference would be a nullity. The Tribunal held that the objection raised by the assessee was factually justified. It was, however urged on behalf of the Revenue that the assessee was given oral notice by the Commissioner as stated in his letter. The Tribunal was of the view that there was no reason to doubt the statement made by the Commissioner but it was not necessary to enter into that controversy. The Tribunal, relying on the decision of this court in CIT v. Sumantbhai C. Munshaw : [1981]128ITR142(Guj) , held that lack of notice would not make the order of the Commissioner a nullity because it could be waived. The Tribunal, therefore, restored the matter to the file of the Commissioner to give adequate notice to the assessee for the assessment years under reference and pass appropriate orders in accordance with law. It is in the background of the above facts that, at the instance of the assessee, the question set out above have been referred to us for our opinion.

5. The main provision of section 25(2) of the Act is in pari materia with the main provision of section 263(1) of the Income-tax, 1961. The provisions contained in section 25(2) of the Act and section 263(1) of the Income-tax Act, 1961, in so far as relevant, read as under :

'25. (2) Without prejudice to the provisions contained in sub-section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by an Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment.'

'263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.'

6. It is alleged on behalf of the assessee the since the Commissioner had not stated in the notice by him to the assessee that the valuation of the immovable property known as 'Lal Bungalow' accepted by the Wealth-tax Officer in his assessment orders for the assessment years under reference was erroneous and prejudicial to the interests of the Revenue he could not have given a direction to the Wealth-tax Officer to refer the question of valuation of the said property for the assessment years under deference also to the Valuation Cell and adopt the value in the light of the report that may be given by the Valuation Officer. It was submitted that the order passed by the Commissioner was clearly in violation of the principles of natural justice and the provisions of section 25(2) of the Act in so for as the said immovable property is concerned and, therefore, it is void ab initio. It was submitted that once the order is held to be void ab initio, the Tribunal could not have restored the matter to the file of the Commissioner to give notice to the assessee and pass appropriate orders afresh.

7. In our opinion, the questions which are raised on behalf of the assessee are concluded by the decisions of the Supreme Court in CIT v. Electro House : [1971]82ITR824(SC) and CIT v. National Taj Traders [1980] 121 ITR 535. In CIT v. Electro House : [1971]82ITR824(SC) , the Supreme Court held that section 33B (1) of the Indian income-tax Act, 1922, corresponding to section 263(1) of the Income-tax Act, 1961, did not prescribe any notice to be given. The Supreme Court further observed as follows (at page 827) :

'It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between section 33B and 34. For the assumption of jurisdiction to proceed under section 34 the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by section 33B. The jurisdiction of the Commissioner to proceed under section 33B. The jurisdiction of the Commissioner to proceed under section 33B is not dependent on the fulfillment of any condition precedent. All that he is required to do before reaching his decision and not before commencing the enquiry, is that he must give the assessee an opportunity of being heard and make or cause to be mad such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner.'

8. In view of the aforesaid decision of the Supreme Court, in our opinion, no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under section 25(2) of the Act and hence the question of validity or invalidity does not arise and it does not, therefore, affect the jurisdiction of the Commissioner to exercise power under section 25(2) of the Act. As already observed, the Supreme Court has held that breach of the principles of natural justice may affect the legality of the order but that does not affect the jurisdiction of the Commissioner. Therefore, the Commissioner has validly exercised his jurisdiction under section 25(2) the Act. The question of giving an adequate opportunity to the assessee has no impact on the question of the jurisdiction of the Commissioner to pass an order under section 25(2) of the Act. The question of adequate opportunity will affect only the question of legality of the order of the Commissioner. In such a case, the Tribunal, undoubtedly, has jurisdiction to remain the matter to the Commissioner and to direct him to disposal of the proceedings under section 25(2) of the Act afresh, after giving due opportunity to the assessee.

9. A question identical to the one which we are called upon to answer had also arisen for consideration before the Supreme Court in CIT v. National Taj Traders [1980] 121 ITR 535. The Tribunal in that case had held that the Commissioner had not conformed to the requirements of natural justice by putting it to the assessee what case it had to meet and by giving due opportunity for explaining the same and the Tribunal, therefore, vacated the order of the Commissioner and remanded the case to him with the direction to dispose of it afresh after giving due opportunity to the assessee. On a reference being made, the High Court held that the Tribunal did not act properly in directing the Commissioner to dispose of the case afresh. On a appeal, the Supreme Court held that the order of the Tribunal was proper. It is thus clear that, when the order of the Commissioner under section 263(1) of the income-tax Act is set aside by the Tribunal on the ground that there was no adequate opportunity given to the assessee, the Tribunal had jurisdiction to remand the case to the Commissioner for deciding the case afresh in accordance with law. The same would be the position in the case of an order passed under section 25(2) of the Act, which is in pari materia with section 263(1) of the Income-tax Act, 1961. When the order of the Commissioner under section 25(2) of the Act is set aside by the Tribunal on the ground that there was no adequate opportunity to the assessee, the Tribunal has jurisdiction to remand the case to the Commissioner for deciding the case afresh and in accordance with law. In CIT v. Prem Syndicate : [1983]141ITR290(MP) , the Madhya Pradesh High Court and in v. Raju v. CIT : [1984]147ITR212(Mad) , the Madras High Court, have taken a similar view.

10. In the light of the above discussion, the questions, which have been referred to us, are answered in the affirmative and against the assessee. Reference answered accordingly with no order as to costs.