1986 (10) TMI 11 - HC - Income Tax

Summary

Issues Involved:
1. Vires of Rule 5(2) of the Wealth-tax (Exemption of Heirloom Jewellery of Rulers) Rules, 1958.
2. Legality of the order dated December 12, 1980, by the Central Board of Direct Taxes.
3. Validity of demand notices issued by the Wealth-tax Officer.

Detailed Analysis:

1. Vires of Rule 5(2) of the Wealth-tax (Exemption of Heirloom Jewellery of Rulers) Rules, 1958:
The petitioner challenged the constitutionality of Rule 5(2) on the grounds that it was beyond the rule-making power conferred on the Central Government by section 5(1)(xiv) of the Wealth-tax Act, 1957. The court examined the scope of section 5(1)(xiv), which allows the Central Government to make rules for the recognition of heirloom jewellery. The court held that while the Central Government could prescribe conditions for recognition and withdrawal of recognition, Rule 5(2) went beyond this by also prescribing the period for which wealth-tax would be payable and the manner of its determination, which was inconsistent with the provisions of the Act. The court concluded that Rule 5(2) was ultra vires, as it exceeded the powers conferred by section 5(1)(xiv).

2. Legality of the Order Dated December 12, 1980, by the Central Board of Direct Taxes:
The order dated December 12, 1980, withdrew the recognition of certain heirloom jewellery sold by the petitioner, retrospectively from the date of initial recognition. The petitioner contended that no restriction was imposed on the sale of the jewellery by the original recognition letter, and even if such a restriction existed, it would be illegal. The court found that the Central Board's order was based on Rule 5(2), which it had already held to be ultra vires. Consequently, the order dated December 12, 1980, was also quashed.

3. Validity of Demand Notices Issued by the Wealth-tax Officer:
Following the Central Board's order, the Wealth-tax Officer issued demand notices to the petitioner for additional wealth-tax. The petitioner argued that these demand notices were issued without following the due process of law and violated principles of natural justice. The court agreed, noting that the demand notices were issued based on the ultra vires Rule 5(2) and the invalid order of the Central Board. Therefore, the demand notices were quashed.

Conclusion:
The court allowed the petition, declaring Rule 5(2) of the Wealth-tax (Exemption of Heirloom Jewellery of Rulers) Rules, 1958, as ultra vires. Consequently, the order dated December 12, 1980, by the Central Board of Direct Taxes, and the subsequent demand notices issued by the Wealth-tax Officer were quashed. The parties were directed to bear their own costs, and any security amount deposited by the petitioner was ordered to be refunded.