1978 (5) TMI 13 - HC - Wealth-tax

Assessment Notice Market Value Original Assessment Reassessment Notice Retrospective Effect Unquoted Shares Wealth Tax

Issues Involved:
1. Validity of the reassessment notice under Section 17 of the Wealth-tax Act, 1957.
2. Disclosure and valuation of unquoted shares.
3. Jurisdiction and application of mind by the Wealth-tax Officer (WTO).
4. Binding nature of circulars issued by the Central Board of Direct Taxes (CBDT).
5. Alleged change of opinion and its impact on reassessment.

Detailed Analysis:

1. Validity of the Reassessment Notice under Section 17 of the Wealth-tax Act, 1957:
The petitioner contended that the reassessment notice issued under Section 17 was invalid as there was no omission or failure on her part to disclose fully and truly all material facts necessary for the assessment. The court noted that the Wealth-tax Officer (WTO) must have a bona fide belief that wealth chargeable to tax has escaped assessment due to such omission or failure. The petitioner argued that the WTO had no reason to believe that her wealth had escaped assessment and that the notice was issued without jurisdiction, being arbitrary and illegal.

2. Disclosure and Valuation of Unquoted Shares:
The petitioner had disclosed the value of unquoted shares in Central India General Agency Ltd. at Rs. 12.54 per share. The WTO initially accepted this valuation but later, based on a report from the Directorate of Inspection (Inv.), believed that the shares were undervalued. The court examined whether the petitioner had fully and truly disclosed all material facts and whether the valuation method used was appropriate.

3. Jurisdiction and Application of Mind by the Wealth-tax Officer (WTO):
The court scrutinized whether the WTO had independently applied his mind or merely acted on the report from the Directorate of Inspection. It was found that the WTO had not formed an independent opinion and had mechanically followed the report, which led to the initiation of reassessment proceedings. The court emphasized that the WTO must have a rational connection between the reasons for belief and the formation of such belief.

4. Binding Nature of Circulars Issued by the Central Board of Direct Taxes (CBDT):
The petitioner argued that the valuation of unquoted shares was done according to the CBDT Circular No. 2 (WT) dated October 31, 1967, which was binding on the WTO. The court agreed that the circulars issued by the CBDT are binding on the tax authorities and that the petitioner had followed the correct procedure as per the circular in force at the relevant time. The subsequent circular issued on September 15, 1973, was not retrospective and hence not applicable to the petitioner's case.

5. Alleged Change of Opinion and Its Impact on Reassessment:
The court examined whether the reassessment was initiated based on a mere change of opinion, which is not permissible under Section 17. It was concluded that the reassessment was indeed based on a change of opinion, supported by new information from the Directorate of Inspection, which was not adequate to justify the reopening of the assessment. The court held that the initiation of reassessment proceedings was improper and without jurisdiction.

Conclusion:
The court ruled in favor of the petitioner, stating that the reassessment notice under Section 17 of the Wealth-tax Act, 1957, was invalid. The petitioner had fully and truly disclosed all material facts necessary for the assessment, and the valuation of unquoted shares was done according to the binding CBDT circular in force at the relevant time. The WTO had not independently applied his mind and had acted on a mere change of opinion, which is not permissible for reopening an assessment. The rule was made absolute, and appropriate writs were issued, with no order for costs. The respondents were allowed to proceed further in accordance with the law if they so intended.

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