1984 (11) TMI 10 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity of the second reassessment under section 17 of the Wealth-tax Act, 1957.
2. Legality of the penalty imposed under section 18(1)(a) of the Wealth-tax Act, 1957.
3. Allowance of tax liability for the assessment year 1965-66.

Issue-wise Detailed Analysis:

1. Validity of the second reassessment under section 17 of the Wealth-tax Act, 1957:

The assessee originally filed a return, and the Wealth-tax Officer made an initial assessment on October 28, 1965. Subsequently, the assessee disclosed unassessed income, leading to a first reassessment on March 25, 1966. However, the Wealth-tax Officer omitted Rs. 9,80,000 worth of Premium Prize Bonds in this reassessment. A second reassessment was initiated and completed on August 31, 1970, including the previously omitted amount.

The Tribunal held that the Wealth-tax Officer was aware of the Premium Prize Bonds during the first reassessment, and thus, the second reassessment was not justified. The Tribunal relied on the precedent set in Dunlop Rubber Co. Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal), concluding that the conditions for invoking section 17 were not met, rendering the second reassessment order invalid.

The Tribunal's decision was challenged, and the High Court was asked to determine if the Tribunal was justified in holding the second reassessment as bad in law. The High Court affirmed the Tribunal's decision, emphasizing that the Wealth-tax Officer had the necessary information during the first reassessment and thus could not initiate a second reassessment under section 17(1)(a) or 17(1)(b).

2. Legality of the penalty imposed under section 18(1)(a) of the Wealth-tax Act, 1957:

Following the second reassessment, the assessee was penalized for delayed filing of the return. The Wealth-tax Officer imposed a penalty of Rs. 14,607 for the delay from November 18, 1969, to February 18, 1970. The Appellate Assistant Commissioner canceled the penalty, citing reasonable cause for the delay.

The Tribunal upheld the cancellation of the penalty, noting that the second reassessment itself was invalid, thus nullifying the basis for the penalty. The High Court concurred, holding that the Tribunal was justified in upholding the cancellation of the penalty, as the second reassessment was deemed invalid.

3. Allowance of tax liability for the assessment year 1965-66:

In the second reassessment, the Wealth-tax Officer added Rs. 9,80,000 worth of Premium Prize Bonds and allowed a wealth-tax liability of Rs. 6,200 but disallowed an income-tax liability of Rs. 5,88,000. The assessee appealed, and the Appellate Assistant Commissioner allowed the income-tax liability as a deductible debt.

The Tribunal dismissed the departmental appeal, stating that the second reassessment was invalid, making the appeal infructuous. The High Court agreed, affirming that the Tribunal was justified in treating the departmental appeal as infructuous due to the invalidity of the second reassessment.

Conclusion:

The High Court held that the second reassessment under section 17 was invalid, the penalty imposed under section 18(1)(a) was unjustified, and the Tribunal was correct in treating the departmental appeal as infructuous. The judgments were in favor of the assessee and against the Revenue.