1997 (3) TMI 35 - HC - Wealth-tax

Summary

Issues Involved:
1. Exemption under Section 11 of the Income-tax Act.
2. Applicability of Section 5(1) of the Wealth-tax Act.
3. Validity of notices issued under Sections 14(2), 16(2), and 16(4) of the Wealth-tax Act.
4. Assessment orders for the years 1986-87, 1987-88, and 1988-89.
5. Compliance with principles of natural justice.

Detailed Analysis:

1. Exemption under Section 11 of the Income-tax Act:
The petitioner-trust claimed exemption under Section 11 of the Income-tax Act for the assessment years 1968-69 and 1969-70, which was initially denied but later upheld by the High Court, establishing the trust as a public charitable trust. This judgment is relevant for wealth-tax purposes, as Section 5(1) of the Wealth-tax Act exempts properties held under trust for charitable purposes from wealth-tax.

2. Applicability of Section 5(1) of the Wealth-tax Act:
For the assessment years 1977-78, 1978-79, and 1980-81, the Wealth-tax Officer held that the petitioner-trust was not liable for assessment. However, for subsequent years, notices were issued under Section 14(2) of the Wealth-tax Act, and the petitioner contended that it was not liable to pay wealth-tax as it was a public charitable trust. The court noted that Section 5(1) of the Wealth-tax Act exempts properties held under trust for charitable purposes, but this exemption is subject to verification of the application of funds every year.

3. Validity of Notices Issued under Sections 14(2), 16(2), and 16(4) of the Wealth-tax Act:
The court examined whether the notices issued under Sections 14(2), 16(2), and 16(4) of the Wealth-tax Act were justified. The court held that the Wealth-tax Officer is entitled to issue such notices to examine the application of funds and the nature of the trust. The court emphasized that the officer's opinion must be honest and genuine, and the petitioners must comply with the notices and provide the necessary documents for assessment.

4. Assessment Orders for the Years 1986-87, 1987-88, and 1988-89:
The assessment orders for these years were passed hastily on March 25, 1991, even though the stay petitions were pending. The court found that the principles of natural justice were not followed, as the petitioner had requested an adjournment, which was not granted. Consequently, the court quashed the assessment orders for these years and remitted the cases to the Wealth-tax Officer for reconsideration along with the assessments for the years 1982-83 to 1985-86.

5. Compliance with Principles of Natural Justice:
The court criticized the manner in which the assessment orders were passed on March 25, 1991, without granting the petitioner a fair opportunity to present its case. The court emphasized the need for compliance with the principles of natural justice and directed the Wealth-tax Officer to provide a fresh opportunity to the petitioner to present its objections.

Conclusion:
The court dismissed Writ Petitions Nos. 1576 and 1577 of 1987, 1509 of 1989, and 16230 of 1989, upholding the validity of the notices issued under Sections 14(2), 16(2), and 16(4) of the Wealth-tax Act. However, Writ Petitions Nos. 4154 to 4156 of 1991 were allowed, and the assessment orders dated March 25, 1991, were quashed. The cases were remitted to the Wealth-tax Officer for reconsideration in accordance with the law and the observations made in the judgment. There was no order as to costs.