1986 (12) TMI 22 - HC - Wealth-tax

Issues Involved:
1. Failure to disclose the true and correct value of the property for the assessment year 1972-73.
2. Validity of the initiation of proceedings under Section 17 of the Wealth-tax Act for the assessment year 1972-73.
3. Jurisdiction of the High Court to interfere and quash the notice under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Failure to Disclose the True and Correct Value of the Property for the Assessment Year 1972-73:

The petitioners, two brothers, had declared the value of their property at No. 12, Miller Road, Bangalore, at Rs. 1,80,000 in their wealth-tax statements for the assessment year 1971-72, with each brother's half share valued at Rs. 90,000. However, the Wealth-tax Officer did not accept this valuation and determined the property value at Rs. 4,27,625, attributing Rs. 2,13,812 to each petitioner. The property was later sold in 1973 for Rs. 8,00,998, a value not disclosed in the capital gains tax assessments for 1973-74 and 1974-75. The petitioners disclosed Rs. 6,50,000 under the Voluntary Disclosure Scheme in 1975, leading to a reopening of their assessments. The Wealth-tax Officer issued notices under Section 17 of the Wealth-tax Act on August 26, 1980, to reopen the 1972-73 assessments based on the voluntary disclosure.

2. Validity of the Initiation of Proceedings under Section 17 of the Wealth-tax Act for the Assessment Year 1972-73:

The petitioners contended that the notice under Section 17(1)(a) of the Act, based on the assumption that they failed to return the true value of the property, was unsustainable in law and fact. They argued that the Wealth-tax Officer had already determined the property value for the relevant year, rejecting their declared value. Additionally, they claimed that the sale of the property in 1973 could not imply a failure to disclose a higher value for the 1972-73 assessment. The Department was aware of the sale since the petitioners were assessed for capital gains in the relevant years, making the action to reopen the 1972-73 assessment barred under Sections 17(1)(a) and 17(1)(b) of the Act.

3. Jurisdiction of the High Court to Interfere and Quash the Notice under Article 226 of the Constitution:

The High Court examined whether the conditions for reopening the assessment were met. The Supreme Court's principles, as cited by the petitioners, established that the High Court could interfere under Article 226 to determine if the Income-tax Officer had jurisdiction to reopen an assessment based on the evidence in his possession. The Court could investigate whether the reasons for the belief had a rational connection to the formation of the belief. The Court found that the Wealth-tax Officer's action to reopen the 1972-73 assessment based on the voluntary disclosure in 1978 lacked a legal basis. The petitioners could not have known the property's future sale price in 1973 when filing their 1972-73 returns. The Wealth-tax Officer had already determined the property's value for 1972-73, and the voluntary disclosure in 1978 could not be used to reopen the earlier assessment. The petitioners also had immunity under Section 13 of the Voluntary Disclosure Scheme for previous assessment years.

Conclusion:

The High Court concluded that:
1. The petitioners had immunity under Section 13 of the Voluntary Disclosure Scheme for previous assessment years.
2. There was no failure on the petitioners' part to disclose the true and correct property value for 1972-73.
3. The Wealth-tax Officer lacked material to form an opinion that the petitioners failed to disclose the true property value for 1972-73.
4. The voluntary disclosure was "information" for reopening the 1972-73 assessment, but the proceedings were barred by limitation.

The writ petitions were allowed, and the notices under Section 17 of the Wealth-tax Act were quashed.

← Previous Next →