Madras High Court
Income Tax Officer vs Sarojini Ramaswamy (Died) on 21 January, 2022
WA No. 687 of 2012
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 21.01.2022
CORAM :
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Writ Appeal No. 687 of 2012
and
M.P.No.1 of 2012
Income Tax Officer, Ward V (I)
Aayakar Bhavan
Nungambakkam High Road
Chennai - 600 034 .. Appellant
Versus
1. Sarojini Ramaswamy (died)
rep. by power of attorney holder
V.Ramaswamy
2. V. Ramaswami
3. Geetha Toke
4. Bhamini Narayanaswamy
5. Uma Ramaswamy
6. Ashok Ramaswamy
7. Sanjay Ramaswamy
(RR2 to 6 were brought on record as
legal heirs of the deceased sole respondent
as per order dated 19.03.2019 passed in
CMP No. 12336 of 2018 in Writ Appeal
No. 687 of 2012) .. Respondents
Appeal filed under Clause 15 of The Letters Patent against the Order
dated 08.12.2011 passed by the learned single judge of this court in WP Nos.
13948 to 13954 of 2002.
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WA No. 687 of 2012
For Appellant : Mr. A.P. Srinivas, Senior Standing Counsel
for Mr. A.N.R. Jayapratap,Jr. Standing Counsel
For Respondents : Mr. M.P. Senthil Kumar
for Mr. N. Muthukumar
JUDGMENT
R. MAHADEVAN, J.
Assailing the validity and correctness of the order dated 08.12.2011
passed by the learned single Judge in WP Nos.13948 to 13954 of 2002, the
Revenue has come forward with this intra-court appeal. By the order impugned
herein, the writ petitions filed by the assessee were allowed by setting aside the
re-opening of the wealth tax assessment for the assessment years 1990-91 to
1996-97.
2. Pending this appeal, the sole respondent, who was the petitioner
before the learned single Judge, died and therefore, her legal heirs were
brought on record as the respondents 2 to 7 to this appeal.
3. For the sake of convenience, the parties are referred to, as per their
original status i.e., appellant as Revenue and the respondent / writ petitioner as
assessee.
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WA No. 687 of 2012
4. The case of the assessee as projected in the writ petitions would
run thus:
The assessee had filed her returns of wealth for the assessment years
1990-91 to 1995-1996, on 30.08.1990, 13.08.1991, 10.03.1993, 14.07.1995,
14.07.1995 and 14.07.1995 respectively. After processing the assessment
under section 16(1) of the Wealth Tax Act, 1957, notices under section 17
were issued on 17.11.2000 stating that there was escaped assessment and
calling upon the assessee to file revised returns, on the ground that the property
at Mugappair owned by the assessee was sold in the year 1995 for a higher
price of Rs.1,33,00,000/-. In response to the same, the assessee filed her return
for the assessment year 1996-97, disclosing the taxable income at Nil.
Whereas, in respect of the other assessment years, she filed her replies
requesting to treat the returns originally filed as having filed in response to the
said notices. After conduct of enquiry and upon perusal of the documents
placed, the assessing officer proposed to revise the assessment with a view to
adopt the value of the said property by changing its nature from agricultural
land to commercial land, for the assessment years 1990-91 to 1995-96. Having
regard to the fact that the assessee sold the said property before the valuation
date and the sale consideration received by her was invested in the Park Town
Benefit Fund in the name of her husband, the assessing officer estimated the
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WA No. 687 of 2012
total deposit held by her on the valuation date viz., 31 st March, 1996 at
Rs.1,00,00,000/- and determined the same assessable to tax, for the year 1996-
97. The assessee filed her objections to the proposed revision of assessment.
Without considering the same, the assessing officer confirmed the proposed
revision by assessment orders dated 26.03.2002. Aggrieved over the said
reassessment orders passed by the assessing officer, the assessee filed
WP.Nos.13948 to 13954 of 2002.
5. After hearing both sides, the learned single Judge allowed the writ
petitions. While doing so, referring to a decision of this court in Commissioner
of Wealth Tax v. Smt. Suguna Mahendran and others (1994) 209 ITR 684, it
was held that 'where the sale itself takes place long after the assessment year
under consideration, the question of reopening the assessment for the purpose
of redetermination of the value of the property based on the subsequent year's
sale, as such, does not arise'. Placing reliance on the decision of the Apex court
in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd (2010) 320
ITR 561, it was further held that a reassessment cannot be made based on the
sale of the asset, which had taken place long after the assessment and hence,
there was no material to establish that the assessee had not disclosed true and
full particulars on the valuation of the property. Considering the long pendency
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WA No. 687 of 2012
of the writ petitions i.e., right from 2002, the learned single Judge also rejected
the plea of the Revenue relating to availability of an alternative remedy by way
of appeal. Challenging the same, the Revenue is before this court with the
present writ appeal.
6. The learned senior standing counsel appearing for the appellant
would contend that during the assessment proceedings for the year 1996-97,
the assessee had admittedly sold the immovable property at Mugappair for
Rs.1,33,00,000/- on 03.06.1995 and the said property was earlier developed to
be a commercial property as on 01.04.1981. Thus, the assessee had not made a
full and true disclosure of wealth, which warranted issuance of notice dated
17.11.2000 and consequential reassessment orders under section 17 of the
Wealth Tax Act, for the assessment years in question. The learned senior
standing counsel would further contend that the returns filed by the assessee
were only processed under Section 16 (1) and no assessment orders under
Section 16 (3) were passed and therefore, as per explanation (b) to section 17,
the net wealth chargeable to tax had escaped assessment and accordingly, the
reassessment proceedings were validly initiated. It is also submitted that the
assessee has an alternative remedy of appeal as against the reassessment
orders, but she straight away approached this court by filing the writ petitions.
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WA No. 687 of 2012
Thus, according to the learned senior standing counsel, without considering the
said aspects in a proper perspective, the learned single Judge allowed the writ
petitions by the order impugned herein, which is liable to be set aside, as it is
illegal and contrary to law.
7. Per contra, the learned counsel for the respondent / assessee would
contend that the sale of the property on 03.06.1995 for a higher price cannot
be the basis for initiating the reassessment proceedings, especially when the
value of the property was truly and correctly disclosed in the returns filed by
the assessee. Further, there was no additional material made available requiring
the assessing officer to resort to the provision under section 17 of the Wealth
Tax Act. Having found so, the learned single Judge has set aside the
reassessment orders passed by the assessing officer, which does not call for
any interference at the hands of this court. In support of his contentions, the
learned counsel relied on the following decisions of the supreme court as well
as this court:
(i) Commissioner of Income Tax and another v. Foramer France,
(2003) 264 ITR 566 (SC);
(ii) Commissioner of Wealth Tax v. V.Vatsala, (1989) 177 ITR 120
(Mad); and
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WA No. 687 of 2012
(iii) Commissioner of Wealth Tax v. Smt. Suguna Mahendran and
others, (1994) 209 ITR 685 (Mad).
8. This Court considered the rival submissions and perused the
materials available on record.
9. A short point that arises for consideration herein is, as to whether
the reassessment proceedings initiated by the assessing officer under section 17
of the Wealth Tax Act, 1957, based on the sale consideration of the property at
Mugappair owned by the assessee that took place after the assessment years
under consideration, is correct.
10. According to the assessee, she purchased the property at
Mugappair, measuring about 56 cents, from and out of the agricultural family
income and all the family members were the co-owners of the same. In the
returns filed for the assessment years 1990-91, 1991-92 and 1992-93, the
assessee declared the value of the said agricultural property at Rs.2,47,230/-
and claimed exemption, since the agricultural land was not included in the
definition of 'assets' for the purpose of wealth tax. Subsequently, section 2 of
the Wealth Tax Act was amended with effect from 01.04.1993 by the Finance
Act, 1992 pursuant to which, the exclusion of agricultural land from the
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WA No. 687 of 2012
definition of 'assets' was withdrawn. Consequently, in respect of the assessment
years 1993-94 to 1995-96, the assessee included the value of the property as
part of the asset and offered for assessment. Accordingly, the value of the
property was declared as Rs.21,60,000/- for the assessment year 1993-94,
Rs.22,80,000/- for the assessment year 1994-95 and Rs.24,00,000/- for the
assessment year 1995-96. Since the property was sold before the valuation
date and was not liable to be included in the net wealth, the assessee did not
file her returns for the assessment year 1996-97. However, in response to the
notice under section 17, she filed her return for the said year 1996-97. It was
the specific claim of the assessee that since the property belonged to all the five
members of the family, the sale consideration of the same was distributed to
each individual and accordingly, she was received one-fifth share thereof,
which was deposited in the name of her husband. Thus, there has not been any
omission or failure on the part of the assessee to disclose fully and truly all
materials facts, warranting the assessing officer to reopen the assessment under
section 17 of the Act.
11. On the other hand, the Revenue pleaded that the subject property
was not used for agricultural activities; it was developed to be a commercial
property as on 01.04.1981; and the same was sold for a higher price of
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WA No. 687 of 2012
Rs.1,33,00,000/- during the year 1995. Therefore, the assessee failed to
disclose the true and correct value of the property assessable to tax.
Accordingly, the assessing officer reopened the assessment and passed the
reassessment orders on 26.03.2002, for the assessment years in question, in
accordance with law.
12. At this juncture, it would be relevant to refer to section 17 of the
Act, which reads as follows:-
"17. Wealth escaping assessment
(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 under-assessment 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
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 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;
Provided that where an assessment under sub-section (3)
of section 16 or this section has been made for the relevant
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WA No. 687 of 2012
assessment year, no action shall be taken under this section after
the expiry of four years from the end of the relevant assessment
year, unless any net wealth chargeable to tax has escaped
assessment for such assessment year, by reason of the failure on
the part of the assessee to make a return under section 14 or
section 15 or in response to a notice issued under sub-section
(4) of section 16 or this section or to disclose fully and truly all
material facts necessary for his assessment for that assessment
year;
Provided further that the Assessing Officer shall, before
issuing any notice under this sub-section, record his reason for
doing so;
Provided also that the Assessing Officer may assess or
reassess such net wealth, other than the net wealth which is the
subject matter of any appeal, reference or revision, which is
chargeable to tax and has escaped assessment.
Provided that, after the expiry of four years from the end
of the relevant assessment year, no notice shall be issued unless
the Chief Commissioner or Commissioner is satisfied, on the
reasons recorded by the Assessing Officer aforesaid, that it is a
fit case for the issue of such notice.
Provided that the provisions of this sub-section shall not
apply in any case where any such assessment or reassessment
relates to an assessment year in respect of which an assessment
or reassessment could not have been made at the time the order
which was the subject-matter of the appeal, reference or
revision, as the case may be, was made by reason of any
provision limiting the time within which any action for
assessment or reassessment may be taken."
The aforesaid provisions postulate that for invoking Section 17 of the Act, it
must be shown that (i) there are reasons to believe that certain income earned
by the assessee has not been subjected to assessment or (ii) the assessee should
have defaulted in filing of the return. In other words, the proceedings for
reassessment should be based on the failure of the assessee to have made full
and true disclosure of income, wilfully. Thus, based on certain omissions or
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WA No. 687 of 2012
misrepresentation or suppression of certain material particulars at the time of
filing the return of wealth, by the assessee, the Assessment Officer can initiate
proceedings under Section 17 of The Act. Such a power conferred on the
Assessing Officer is akin to the power conferred upon the Assessing Officer
under Section 147 of The Income Tax Act, 1961. In this case, the assessing
officer had invoked the provisions of Section 17 of the Act and passed the
reassessment orders dated 26.03.2002 against the assessee, based on the sale
consideration of the subject property subsequent to the assessment years under
consideration and hence, it must be examined as to whether the Assessing
Officer is justified in reopening the returns filed by the assessee under section
17 of the Act.
13. It is an admitted fact that the assessee had owned the property at
Mugappair measuring 56 cents, which was sold on 03.06.1995 for a sale
consideration of Rs.1,33,00,000/-; and she filed her returns disclosing wealth
for the assessment years from 1990-91 to 1995-96. There is no allegation that
there has been any omission or failure to disclose fully and truly all the
materials facts by the assessee for the assessment in respect of the years under
consideration. While so, the assessing officer issued the notices dated
17.11.2000 wherein, it was merely stated that there was reason to believe that
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WA No. 687 of 2012
the net wealth chargeable to tax for the assessment years in question has
escaped assessment within the meaning of section 17 of the Wealth Tax Act.
Pursuant to the same, the assessee filed her return for the assessment year
1996-97 as well. Thereafter, the assessing officer completed the reassessment
proceedings and passed orders dated 26.03.2002, after determining the value
of the property as on valuation date, on the premise that the assessee estimated
its value at Rs.3,50,000/- per ground as on 01.04.1981, whereas the property
was sold for a consideration of Rs.1,33,00,000/- during the year 1995; and
thus, the assessee did not adopt the fair market value of the property for
determining the IT purposes.
14. When the said reassessment orders were put to challenge in the
writ proceedings, the learned single judge, placing reliance on the decision of
this court in the Commissioner of Wealth Tax v. Smt. Suguna Mahadevan
and others (supra), held that the question of reopening the assessment for the
purpose of redetermination of the value of the property based on the
subsequent year's sale, as such, does not arise. In that case, in similar situation,
this court pointed out that it is not permissible to the assessing officer to rely
upon an event of sale, which took place subsequent to the assessment year in
question, to determine the value of the property as on the valuation date,
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WA No. 687 of 2012
relating to the assessment year in question; and such method is not known in
the field of income capitalisation method. The relevant passage of the said
decision is usefully extracted below:
"3. We are of the view that it is not at all permissible to
the Assessing Officer or for that matter the Tribunal to rely upon
an event of sale which takes place subsequent to the assessment
year in question to determine the value of the property as in the
relevant assessment year. Such a method is not known in the
field of income capitalisation method. On the contrary, the value
is worked out from the event of sale that takes place till the
assessment year if that assessment year happens to be
subsequent to the year of sale. In addition to this the Tribunal
cannot be held to have committed an error in law in relying upon
Circular No. 326 (see (1982) 134 ITR (St.) 167) dated 6th Feb.,
1982 as that circular is issued for the purpose of determining the
value of the lands by following the income capitalisation method.
The circular lays down the guidelines for the purpose of
determining the valuation so that different methods are not
followed by the Department for the purpose of determining the
value of the property. In order to ensure uniformity in the
manner and mode of determining the value of the property, the
wealth-tax circular in question has been issued under s.10 of the
WT Act. In this regard, we may usefully refer to the decision of
the Supreme Court in K.P. Varghese vs. ITO (1981) 24 CTR
(SC) 358; (1981) 131 ITR 597 (SC), in which it has been held as
follows (at page 612)
"2. But the construction which is commending
itself to us does not vest merely on the principle of
contemporanea expositio. The two circulars of the CBDT
to which we have just referred are legally binding on the
revenue and this binding character attaches to the two
circulars even if they be found not in accordance with the
correct interpretation of sub-s. (2) and they depart or
deviate from such construction. It is now well-settled as a
result of two decisions of this Court, one in Navnit Lal C.
Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 and the other
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in Ellerman Lines Ltd. vs. CIT 1972 ctr (SC) 11; (1971)
WA No. 687 of 2012
82 ITR 913 (SC) that circulars issued by the CBDT under
s.119 of the Act are binding on all officers and persons
employed in the execution of the Act even if they deviate
from the provisions of the Act.
4. However, it is contended that as the circular
prescribed only the guidelines, the actual value of the property as
in the asst. yr. 1982-83 ought to have been determined. With
reference to this contention it is sufficient for us to observe that
the question is not framed in that fashion. Therefore, it need not
be considered. For the reasons stated we are of the view that no
referable question of law as raised by the petitioner arises in
these cases. Accordingly, the tax case petitions are rejected."
15. In this context, a decision of this Court in Commissioner of
Wealth Tax v. V.Vatsala reported in (1989) 177 ITR 120 cited on the side of
the assessee is also worth mentioning. In that case, the assessee submitted her
return of wealth for the assessment year 1973-74 on 22.06.1973 declaring the
value of her property at Rs.38,000/-, which according to the assessee was the
value as exist in the year 1968. The assessee also disclosed that she purchased
the property on 10.06.1971. Subsequent to the filing of the return, the assessee
entered into an agreement for sale on 06.10.1973 for Rs.75,000/-. The assessee
filed a revised return in which she had disclosed some of the jewelleries, which
she omitted to include. However, insofar as the property purchased by her on
10.06.1971, she did not disclose the sale agreement entered into in October,
1973. The Wealth Tax Officer was of the view that the value of the property
shown in the return as Rs.38,000/- cannot be accepted as the assessee had sold
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WA No. 687 of 2012
it for Rs.70,000/- during January 1974. Therefore, the Wealth Tax Officer
initiated penalty proceedings for the balance amount allegedly not declared by
the assessee to the tune of Rs.30,000/-. In such circumstances, the Division
Bench of this Court held as follows:-
"We have carefully considered the rival submissions. We
are of the view that it is unnecessary, on the facts and
circumstances of this case, to consider and decide the question
whether inaccuracy in the value declared would amount to
concealment of particulars or furnishing of inaccurate particulars
of an asset. It is seen that the property in question was a single
storeyed house in an area of 4,574 sq.ft. and had been purchased
by the assessee from the Bharathi Nagar Co-operative House
Construction Society for a sum of Rs.22,365/- under a document
dated 10th June 1971. The property was valued in 1968 at
Rs.38,000 and that really formed the basis of the value as
returned by the assessee for the assessment year in question as
well as for the prior years and that value had been accepted. It is
this value which was adopted by the assessee when she filed a
return of wealth for the assessment year in question on 22nd
June, 1973. At that time, there was absolutely no negotiation for
the sale of her property or any offer for the same and as matters
stood on the date on which she filed the return, it cannot be said
that the assessee had furnished inaccurate particulars regarding
the value of the property. The adoption of the value of
Rs.40,000/- with reference to this item of property as in the
previous years cannot but be bona fide when the return of wealth
was filed. It was later in October, 1973, that she entered into an
agreement for the sale of the property for Rs.75,000/-, though
the actual sale price was only Rs.70,000/-, after deducting stamp
and other related expenses. It is true that the assessee filed a
revised return on 24th Dec. 1973 adding the value of some
jewellery not included in the earlier return and retaining the
value of immovable properties as before. Though this was done
after the entering into the agreement for the sale of the property
by the assessee in October, 1973, we cannot project backwards
the value reflected in the agreement entered into in October 1973
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to the valuation date 31st March, 1973. In other words, the
value reflected in the agreement entered into in October, 1973,
cannot be considered to be the value as on 31st March, 1973. So
looked at, the assessee cannot be stated to have concealed any
particulars even with reference to the value of the property.
There is, therefore, no question of the assessee having concealed
particulars of any asset or furnished inaccurate particulars of any
asset attracting the levy of penalty under S.18 (1) (c) of the Act.
We hold that the Tribunal was right in the view it took that no
case is made out for the levy of penalty. We, therefore, answer
the questions referred in the affirmative and against the revenue.
The assessee will be entitled to the costs of this reference.
Counsel's fee Rs.500."
16. In the light of the aforesaid legal proposition, this court is of the
view that the reopening the assessment by the assessing officer, based on the
event of sale, which had taken place subsequently, to redetermine the value of
the property for the assessment years in question, is not legally sustainable.
Accordingly, the learned single judge rightly held so in the writ petitions filed
by the assessee challenging the reassessment proceedings.
17. That apart, in the present case, admittedly, the assessee had filed
her returns of wealth along with supportive documents; and there was no
allegation that she had withheld the material facts or that the facts placed
before the Officer are not truly and fully disclosed for assessment. Further, in
the notice issued under Section 17, there was no mention about the additional
material or document unearthed by the Assessing Officer, which the assessee
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WA No. 687 of 2012
failed to disclose; and the sub section, under which assessment was reopened.
Thus, one of the basic requirements to initiate the reassessment proceedings
under Section 17 of the Act, has not been satisfied by the Assessing Officer. In
such circumstances, we do not find any justification on the part of the
assessing officer to reopen the assessment and pass the reassessment orders
dated 26.03.2002.
18. In Commissioner of Income-Tax and another v. Foramer
France, [264 ITR 566] arising under Income Tax Act relating to Sections 147
and 148 of the Income Tax Act, the supreme court pointed out that 'when there
was no failure on the part of the assessee to disclose fully and truly all material
facts for assessment, the assessment could not be reopened on the basis of
change of opinion'. Placing reliance on the same, the learned single Judge has
concluded that on a mere change of opinion on the part of assessing officer,
there cannot be reopening of the assessment. We are in full agreement with
such a conclusion reached by the learned single Judge.
19. As regards the plea of alternative remedy, this court is of the
opinion that when the condition precedent for the invocation of reassessment
proceedings does not exist, the assessee is entitled to approach this court under
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WA No. 687 of 2012
Article 226 of the Constitution of India and hence, the question of invoking the
alternative remedy available to the assessee, does not arise. The learned single
Judge has also rightly rejected the said plea of the Revenue, besides
considering the fact of long pendency of the writ petitions.
20. Thus, we do not find any reason much less valid reason to
interfere with the order of the learned single Judge. Accordingly, we dismiss
the writ appeal filed by the revenue. No costs. Consequently, connected
miscellaneous petition is closed.
(R.M.D., J.) (M.S.Q., J.)
21.01.2022
Index : Yes/No
Internet : Yes/No
rsh
To
Income Tax Officer, Ward V (I)
Aayakar Bhavan
Nungambakkam High Road
Chennai - 600 034
https://www.mhc.tn.gov.in/judis
WA No. 687 of 2012
R. MAHADEVAN, J
and
MOHAMMED SHAFFIQ , J
rsh
WA No. 687 of 2012
21.01.2022
https://www.mhc.tn.gov.in/judis
