Commissioner of Wealth Tax vs Karan Thapar

Visheshwar Nath Khare, C.J.—By this reference at the instance of the Commissioner of Wealth-tax (Central-IX), Calcutta, the following questions have been referred by the Tribunal to this court for answer u/s 27(1) of the Wealth-tax Act, 1957 :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for computing the average book profits of the company in which the assessee held shares on the relevant valuation date, the profits of five completed years immediately preceding the valuation date, should be taken into account when the Tribunal itself in W. T. As. Nos. 554, 555 and 556/(Cal) of 1980, in the case of Manmohan Thapar, dated 28th February, 1992, held that the profit of the accounting period ending with the valuation date is to be included for finding out the average profit for this purpose ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the five year period as mentioned in the Central Board of Direct Taxes'' Circular No. 332A, dated 31st March, 1982, should be counted by excluding the accounting year ending with the relevant valuation date ?"

The facts leading to this reference are that the assessee in the present case is a resident individual and the assessment year involved in 1987-88 for which the relevant valuation date is March 31, 1987.

In this case while computing the book profits for five years preceding the relevant valuation date of the company, Karamchand Thapar and Bros, Ltd., in which the assessee held certain shares on the relevant valuation date, the Assessing Officer held that the profits of the accounting period ending with the valuation date and of four preceding years were to be taken into account. However, the assessee contended that five years preceding the assessment year were to be taken into account and not four years as has been considered by the Assessing Officer. The contention of the assessee was not accepted by the Assessing Officer. The matter was taken up in appeal before the Commissioner of Wealth-tax (Appeals) by the assessee.

The Commissioner of Wealth-tax (Appeals) upheld the order passed by the Assessing Officer. Thereafter, the assessee filed a second appeal before the Appellate Tribunal. The Tribunal disagreed with the views taken by the Assessing Officer and the Commissioner of Wealth-tax (Appeals) and held that the valuation date as per the Wealth-tax Act in relation to any year means the last day of the previous year as defined in Section 5 of the Income Tax Act, 1961, and, consequently, the Tribunal set aside the order of the Assessing Officer as well as the Commissioner of Wealth-tax (Appeals). In such circumstances, the Commissioner of Wealth-tax, (Central-II), Calcutta, sought reference and it is in this background that the Tribunal has referred the above quoted questions to this court for answer.

Learned counsel appearing for the assessee urged that in fact, questions Nos. 1 and 2 are overlapping questions and the question involved is the interpretation of paragraph 4(i) of the Central Board of Direct Taxes'' Circular No. 332A (see [1982] 135 ITR 11), dated March 31, 1982.

However, this has been disputed by learned counsel for the Revenue. According to him, these are two different questions which are required to be answered separately. We have considered the matter and find that, in fact, both the questions are overlapping questions and in both the questions the interpretation required is of the words "five years immediately preceding the valuation date" occurring in paragraph 4(i) of the Board''s circular dated March 31, 1982. We, therefore, answer the second question which has been referred to us by the Tribunal.

Learned counsel appearing for the Revenue urged that the correct interpretation of paragraph 4(i) of the Central Board of Direct Taxes'' Circular No. 332A (see [1982] 135 ITR 11), dated March 31, 1982, is that the expression five years preceding the valuation date as embodied in the circular should include the profit of the year ending on the relevant valuation date and the other four years will be the four years immediately preceding that year. On the other hand, the argument of learned counsel appearing for the assessee is that the year pertaining to the valuation date has to be excluded, From the arguments of learned counsel for the parties the question that arises for consideration is as to what is meant by the words "the valuation date" and "previous year".

Section 2(q) of the Wealth-tax Act defines "valuation date" as under :

" '' valuation date '', in relation to any year for which an assessment is to be made under this Act, means the last day of the previous year as defined in Section 3 of the Income Tax Act, if an assessment were to be made under that Act for that year. . . ."

Section 3 of the Income Tax Act defines "previous year" as under :

" Save as otherwise provided in this section, ''previous year'' for the purposes of this Act, means the financial year immediately preceding the assessment year. . . ."

From the above definitions, it is abundantly clear that the valuation date as per the Wealth-tax Act in relation to any year means the last day of the previous year as defined in Section 3 of the Income Tax Act. Therefore, the year cannot be taken as completed on the valuation date and thus where a reference is made to any year immediately preceding the valuation date, it is to be taken as a completed year. Therefore, while interpreting paragraph 4(i) of the Central Board of Direct Taxes circular, the year pertaining to the valuation date necessarily has to be excluded while computing five years. In view of this, we answer the question in the affirmative, in favour of the assessee and against the Revenue.

Let our opinion along with the answer be transmitted to the Tribunal.

In the facts and circumstances of the case, there will be no order as to costs.

Vinod Kumar Gupta, J.

I agree.