2003 (3) TMI 649 - AT - Income Tax

Summary

Issues Involved:
1. Appointment of the assessee as an agent under Section 22 of the Wealth-tax Act.
2. Assessment of assets and levy of wealth-tax.

Detailed Analysis:

1. Appointment of the Assessee as an Agent under Section 22 of the Wealth-tax Act:

The assessee, a proprietor of M/s. Radhika Jewellers, Rajkot, was subjected to a search and seizure operation on 16th November 1995, during which unaccounted gold was found. The assessee claimed that 10,255 grams of gold belonged to two non-resident Indians (NRIs), Haresh Kumar Mansukhlal Pala and Smt. Urmilaben H. Nanda. The Assessing Officer (AO) accepted this claim during the block assessment but initiated proceedings under Section 22 of the Wealth-tax Act to treat the assessee as an agent of the NRIs for wealth-tax purposes. The AO issued a show-cause notice to the assessee on 1st December 1997, holding that he was in possession of taxable assets in India and must be treated as the agent of the NRIs for wealth-tax purposes. The assessee argued against this on the grounds that he was merely engaged in a commercial transaction and was not in possession of the gold in a representative capacity. However, the AO concluded that the assessee was in possession of the gold on the valuation date and thus could be treated as an agent under Section 22. The first appellate authority upheld this decision, noting that the assessee had himself disclosed the ownership of the gold by the NRIs during the block assessment proceedings.

2. Assessment of Assets and Levy of Wealth-tax:

The AO levied wealth-tax on the value of the gold ornaments as per the Wealth-tax Act after appointing the assessee as an agent of the NRIs. The assessee contested this levy in seven appeals, arguing that the gold was received in the ordinary course of business for making ornaments and was returned to the NRIs before the order under Section 22 was passed. The first appellate authority dismissed these appeals, stating that the assessee's possession of the gold was not merely a commercial transaction but indicated a representative capacity. The Tribunal noted that the agreement between the assessee and Haresh Kumar Mansukhlal Pala allowed the latter to claim cash in lieu of gold, indicating that the assessee could use the gold according to his choice. The Tribunal also declined to accept additional evidence submitted by the assessee, considering it an afterthought to evade tax. The Tribunal upheld the AO's decision, stating that Section 22 of the Wealth-tax Act provides for treating a person in possession of an asset belonging to an NRI as an agent for tax purposes, regardless of the nature of the possession under the Contract Act. The Tribunal concluded that the AO rightly appointed the assessee as an agent of the NRIs and levied wealth-tax on the gold ornaments.

Conclusion:

The appeals were dismissed, and the Tribunal upheld the AO's decision to treat the assessee as an agent under Section 22 of the Wealth-tax Act and levy wealth-tax on the gold ornaments. The Tribunal emphasized that the assessee's possession of the gold indicated a representative capacity, and the provisions of Section 22 were correctly applied.