2013 (2) TMI 514 - HC - Wealth-tax

Addition of Rs.23,59,461 made up to the AY 1971-72 as extra income of the appellant available for purposes of taxation under the Wealth Tax Act? - contention of the petitioner that the assessment of income of the petitioner was based on the assessment made by the ITO in the income tax assessment proceeding and, therefore, the assessment and increase are only assessment therefore, intangible property - Held that - It is true once a presumption is drawn, that can be rebutted by evidence by the person against such presumption goes and it is one of the well settled proposition of law, but there may be exception to it and one of that exception is that said presumption of existence of assets and it might have extinguished after passing of the long time, which is also sufficient rebuttal to the original presumption of existence of the assets in the hands of the assessee. Therefore, in view of the binding judgment of J.K.Cotton Manufacturers Ltd. 1994 (2) TMI 3 - SUPREME COURT the considered opinion that the question is required to be answered in favour of the assessee and it is held that in these cases, the addition of Rs.23,59,461/made from assessment years 1963-64 to 1970-71 cannot be held to be the assets in the hands of the assessee after the period of more than eight years and, therefore, in these cases no tax can be imposed on the basis of such addition of Rs.23,59,461/treating it to be wealth for the purpose of wealth tax for the years 1985-86 to 1988-89 and onwards.

Summary

Issues Involved:
1. Whether the addition of Rs.23,59,461 made up to the Assessment Year 1971-72 as extra income of the appellant was available for taxation under the Wealth Tax Act?

Analysis:

Issue 1: Addition of Rs.23,59,461 as extra income for taxation under the Wealth Tax Act

The case involved a question regarding the addition of Rs.23,59,461 as extra income of the appellant for the Assessment Year 1971-72 and whether it was available for taxation under the Wealth Tax Act. The Income Tax Officer had found a total surplus with the appellant, leading to an increase in wealth, which was considered income from an undisclosed source. The petitioner argued that such intangible additions should not be kept alive indefinitely for wealth taxation purposes, as they should be deemed to have exhausted within a reasonable period after assessment. The Tribunal rejected the petitioner's plea, leading to the filing of Tax Cases before the High Court.

The High Court analyzed precedents, including the judgment in Commissioner of Wealth Tax v. J.K. Cotton Manufacturers Ltd., which emphasized that after a sufficiently long period, no presumption can be made that a secret profit earned in the past continued to be held by the assessee. The court considered the judgment of Patna High Court in CWT v. Mishrilal Jain, which discussed the need for positive proof to rebut the presumption of existence of intangible assets. However, the High Court differentiated the facts of Mishrilal Jain's case from the present case and relied on the Supreme Court's ruling in J.K. Cotton Manufacturers Ltd., stating that a presumption of existence of assets can be rebutted by a counter presumption of their extinction over time.

Based on the Supreme Court's binding judgment, the High Court held that the addition of Rs.23,59,461 from the assessment years 1963-64 to 1970-71 could not be considered assets in the appellant's hands after more than eight years. Therefore, no tax could be imposed based on this addition for the years 1985-86 to 1988-89 and onwards. The High Court decided the issue without referring it back to the Tribunal, allowing the Tax Cases in favor of the assessee.

In conclusion, the High Court's decision was based on the interpretation of relevant legal principles and precedents, ultimately ruling in favor of the assessee regarding the taxation of the additional income under the Wealth Tax Act.