1986 (4) TMI 22 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity of action under section 17(1)(a) of the Wealth-tax Act, 1957.
2. Knowledge of the assessee about the existence of silver bars during the relevant assessment years.
3. Justification for including the value of silver bars in the net wealth of the assessee for the assessment years 1964-65 to 1967-68.

Issue-wise Detailed Analysis:

1. Validity of Action under Section 17(1)(a) of the Wealth-tax Act, 1957:
The main question referred to the court was whether the Tribunal was right in holding that action under section 17(1)(a) was validly initiated by the Wealth-tax Officer (WTO) for the assessment years 1964-65 to 1967-68. The court examined the conditions necessary for invoking section 17(1)(a), which requires the WTO to have "reason to believe" that wealth chargeable to tax has escaped assessment due to the omission or failure of the assessee to disclose fully and truly all material facts. The court referred to several Supreme Court judgments, including Calcutta Discount Co. Ltd. v. ITO and S. Narayanappa v. CIT, which establish that the belief must be based on reasonable grounds and not merely on suspicion. The court concluded that the WTO's belief was not reasonable as it was based on the assumption that the assessee had knowledge of the silver bars, which was not substantiated by the facts.

2. Knowledge of the Assessee about the Existence of Silver Bars:
The Tribunal had a split opinion on whether the assessee, Jabharmal, knew about the silver bars. The Accountant Member inferred that the family, including Jabharmal, should have known about the silver, while the Judicial Member believed that Jabharmal did not have such knowledge. The third Member agreed with the Judicial Member, finding that Jabharmal was not aware of the silver bars' existence at the time of filing the returns. The court supported this finding, emphasizing that a person cannot be said to have omitted or failed to disclose a fact of which they had no knowledge. This finding was crucial as it negated the WTO's basis for reopening the assessments under section 17(1)(a).

3. Justification for Including the Value of Silver Bars in the Net Wealth:
The Appellate Assistant Commissioner had included the value of the silver bars in the net wealth of the assessee, assuming that the family had knowledge of the silver. However, the Tribunal's Judicial Member and the third Member found that the assessee did not know about the silver bars until their discovery in 1968. The court agreed with this conclusion, stating that the inclusion of the silver's value in the net wealth was unjustified. The court held that the reassessment orders based on the alleged omission to disclose the silver bars were invalid, as the primary condition for invoking section 17(1)(a) was not met.

Conclusion:
The court concluded that the Tribunal erred in holding that the action under section 17(1)(a) was validly initiated. The reassessment orders for the years 1964-65 to 1967-68 were invalid as the WTO's belief that the assessee had omitted or failed to disclose material facts was unfounded. The court answered the referred question in the negative, favoring the assessee and against the Revenue, with no order as to costs.