1979 (8) TMI 37 - HC - Wealth-tax

Summary

Issues Involved:
1. Jurisdiction of the WTO to issue notice under Section 17 of the Wealth-tax Act, 1957.
2. Alleged escape of wealth chargeable to tax.
3. Validity of the information and belief held by the WTO.
4. Full and true disclosure of material facts by the petitioner.
5. Reassessment based on new material or different valuation methods.
6. Alleged collateral purpose and fishing investigation.
7. Recording of reasons for issuing the notice.

Detailed Analysis:

Jurisdiction of the WTO to Issue Notice under Section 17 of the Wealth-tax Act, 1957:
The petitioner challenged the jurisdiction of the WTO to issue the notice dated 26th March 1974, under Section 17 of the Wealth-tax Act, 1957. The petitioner contended that the conditions precedent necessary to confer jurisdiction on the WTO to initiate proceedings under Section 17 were not in existence. Specifically, the petitioner argued that there was no wealth of the family chargeable to tax that had escaped assessment within the meaning of Section 17 of the Act.

Alleged Escape of Wealth Chargeable to Tax:
The WTO reopened the wealth-tax assessment for the year 1969-70 on the basis of information received that the original assessment had underassessed the wealth. The information was conveyed through a series of letters from various tax authorities, indicating that the shares of Maharaja Shree Umaid Mills Ltd. owned by the family were not regularly quoted and that the disclosed quotations were below the fair market value. The WTO concluded that wealth to the extent of Rs. 96,272 had escaped assessment.

Validity of the Information and Belief Held by the WTO:
The petitioner argued that the WTO had or could have no reason or material to believe that any wealth had escaped assessment. The petitioner contended that the WTO did not hold any belief as required under Section 17 of the Act and that all primary and material facts necessary for the assessment were fully and truly disclosed. The petitioner further argued that there was no new material or fact from any external source that had come into the possession of the WTO.

Full and True Disclosure of Material Facts by the Petitioner:
The petitioner maintained that there was no omission or failure to disclose fully and truly any primary or material fact necessary for the assessment. The shares in question had been regularly quoted in the stock exchange in Calcutta since 1960, and each assessment had been made according to the relevant market quotation.

Reassessment Based on New Material or Different Valuation Methods:
The petitioner contended that the reassessment was based on a mere change of opinion and a different method of valuation, which was not authorized in law. The original assessment had accepted the valuation of shares based on stock exchange quotations, and there was no error in that method. The petitioner cited the Supreme Court's decision in CIT v. Simon Carves Ltd., which held that the absence of an error in the original assessment would justify the inference that it was not a case of income escaping assessment.

Alleged Collateral Purpose and Fishing Investigation:
The petitioner argued that the impugned proceedings were initiated for a collateral purpose and to conduct a fishing and roving investigation, contrary to law. The letters from the tax authorities did not constitute "information" within the meaning of Section 17 of the W.T. Act, nor did they establish any failure or omission by the petitioner to disclose material facts.

Recording of Reasons for Issuing the Notice:
The petitioner contended that the WTO did not record any reasons for issuing the impugned notice as required by law. The reasons recorded on the same day as the letter from the ITO, Special Investigation Branch, were issued, indicating a lack of independent application of mind by the WTO. The Supreme Court's observation in Chintapalli Agency Taluk Arrack Sales Co-operative Society Ltd. v. Secretary (Food and Agriculture), Government of Andhra Pradesh, was cited, stating that any "request" of the Government to a subordinate authority is tantamount to a positive direction or order.

Conclusion:
The court concluded that the WTO initiated reassessment proceedings by mechanically following the directions in the letter dated 26th March 1974, without independently applying his mind. The court held that the reassessment proceedings were vitiated and issued a writ of certiorari setting aside the impugned notice and the proceedings and orders made pursuant thereto. A writ of mandamus was also issued, directing the respondents not to give any effect to the said notice and not to take any further steps in pursuance thereof. The rule was made absolute, and there was no order as to costs. The operation of the order was stayed for four weeks.