Commissioner of Wealth Tax vs Sardar Bahadur Sardar Indra Singh Trust

Sengupta, J.—In this reference u/s 27(1) of the Wealth-tax Act, 1957 (''the Act'') for the assessment years 1973-74 to 1977-78 the following common question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in setting aside the findings of the Commissioner (Appeals) and in holding that the initiation of the proceedings u/s 17 for the years was invalid ?

Shortly stated, the facts are that the assessee-trust did not file any return of wealth for the assessment years 1973-74 to 1977-78 under the plea that its wealth was exempt from the wealth-tax in view of section 5(1)(i) of the Act. However, the WTO called upon the assessee by serving notice dated 24-3-1980 u/s 17 of the Act who filed returns of wealth for these five years. The assessee filed returns under protest. The WTO held that there was breach of the provisions of section 13 of the income tax Act, 1961 and as such, the assessee was not entitled to the benefit of section 5(1)(i) of the Act by virtue of section 21A of the Act.

The assessee went in appeal before the Commissioner (Appeals) who held that there was no breach of section 13 of the income tax Act and the assessee was entitled to exemption u/s 5(1)(i) of the Act. In those appeals the assessee also raised an objection as to legality of initiation of proceedings u/s 17. The Commissioner (Appeals) did not decide that point since on merit he found that the assessee was entitled to exemption u/s 5(1)(i). The department then came in appeal before the Tribunal. In those appeals the assessee filed cross-objections. The Tribunal decided the appeals and the cross-objections by separate orders. The Tribunal held that there was no breach of section 13 of the income tax Act, and as such, the assessee was entitled to exemption u/s 5(1)(i) of the Act. The Tribunal held that the Commissioner (Appeals) should have considered the objection of the assessee as to legality of initiation of proceedings u/s 17. That is how the matter went back to the Commissioner (Appeals) for rendering the decision if the proceedings u/s 17 were validity initiated. The Commissioner (Appeals) by order dated 3-7-1987 held that the proceedings were validly initiated.

The assessee then came in appeal before the Tribunal. The Tribunal took notice of some more facts as stated hereinafter.

In the original assessments of income for the assessment years 1973-74 and 1974-75 the assessee was allowed benefit of section 11 of the income tax Act. However, the ITO was of the opinion that there was breach of section 13(2)(h) and, therefore, the assessee was not entitled to benefit of section 11. He, therefore, reopened the assessments for the assessment years 1973-74 and 1974-75 u/s 147(a) of the income tax Act and withdrew the benefit of section 11. The benefit of section 11 was further denied to the assessee in the assessment year 1975-76. The reassessment order for the assessment year 1973-74 was set aside in appeal by the Commissioner of income tax (Appeals). The department then came in appeal before the Tribunal and the Tribunal by order dated 20-6-1981 in IT Appeal No. 1404 (Cal.) of 1980 held that since the assessment was already completed and no new information came in possession of the ITO, it was only a change of opinion and, therefore, the proceeding u/s 147(a) for the assessment year 1973-74 was not valid. The Tribunal on merit also held in favour of the assessee that it was entitled to exemption u/s 11.

In the said appeals the stand of the assessee was that all the facts were before the ITO in the income tax proceedings who was assessing authority in the wealth-tax proceedings and, therefore, initiation of proceedings u/s 17 was actuated by mere change of opinion. The stand of the department, on the other hand, was that there was no question of any material being before the ITO sitting as WTO in the wealth-tax proceedings since no return of wealth was at all filed by the assessee for any of these five years and the WTO had no occasion to consider the claim of exemption u/s 5(1).

The Tribunal reached the conclusion that the source of information to the ITO for initiation of proceedings u/s 17 of the Act was his own change of opinion that the assessee was not entitled to benefit of section 11 of the income tax Act. This, in the opinion of the Tribunal could not be valid ground for initiation of proceedings u/s 17. The Tribunal, therefore, held that the initiation of proceedings u/s 17 was not valid.

We have narrated the facts in detail. Admittedly the assessee did not file wealth-tax returns for the assessment years in question. The WTO having regard to the findings in the income tax proceedings was of the view that the assessee-trust was not exempt under the Wealth-tax Act and, accordingly, it was assessable to wealth-tax. On this reasonable belief he initiated the proceedings and served notice u/s 17 of the Act asking the assessee to file the returns. He was of the view that where any property is held under Trust for any public purpose of charitable or religious nature in India and any part of such property or any income of such Trust is used or applied or ensured directly or indirectly for the benefit of any person referred to in section 13(3) of the income tax Act, wealth shall be taxable.

The Tribunal did not advert to the facts of this case properly. The question of change of opinion arises only when once the assessment has been made and such assessment is sought to be reopened on the same materials without there being any new or fresh information.

This is not the case here. As we have indicated that the assessee did not file any return at all and on the basis of the materials from the income tax proceedings the WTO came to the conclusion that the wealth-tax assessment proceedings were, therefore, to be initiated. We fail to appreciate how could the question of change of opinion arises in this case. Had the assessee filed any returns for those years and the WTO dropped the proceedings or made nil assessment holding that the assessee was exempt from wealth-tax, the question of change of opinion might have arisen. Had the Tribunal looked into the facts of the case properly, the Tribunal would not have come to the conclusion that there was no valid initiation of the proceedings u/s 17. The Commissioner (Appeals) has held that it is clear from the records that WTO has evaluated the law and came to the conclusion, that section 21A is applicable and based upon that issued notices to the assessee. He was also of the view that the officer informed himself on the basis of the balance sheet for the year ended 31-3-1972 that certain exemptions are not available to the trust.

It must, therefore, be held that the WTO has validly initiated the proceedings and the orders u/s 16(3) of the Act were passed in accordance with law.

Having regard to the facts and circumstances of this case, we are of the view that the Tribunal fell in error in holding that the initiation of the proceedings u/s 17 for the years in question was invalid. We, therefore, answer this question in this reference in the negative and in favour of the revenue.

There will be no order as to costs.

Sen, J.

I agree.