1989 (12) TMI 20 - HC - Wealth-tax

Summary

Issues Involved:
1. Applicability of Rule 2B(2) of the Wealth-tax Rules.
2. Exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Applicability of Rule 2B(2) of the Wealth-tax Rules:

The Tribunal and the Appellate Assistant Commissioner held that Rule 2B(2) was not applicable based on earlier decisions for previous assessment years. The Tribunal referenced a similar issue in the case of Smt. S. K. Bader, where the Revenue's reference under Section 256(1) of the Income-tax Act was rejected by the court, stating it was based on a finding of fact and not a question of law.

The Wealth-tax Officer had added Rs. 5,78,657 to the assessee's wealth, asserting that the market value of the closing stock exceeded 20% of its book value, based on the firm's profits from 1977-78 to 1981-82. The Officer allowed a 10% margin for discounts, valuing the stock at Rs. 73,76,727, and thus, the assessee's share was Rs. 5,78,657.

The Tribunal declined to refer the question of Rule 2B(2) to the court, stating it was a factual determination. However, the court held that the principle of res judicata does not apply to tax matters, as established in M. M. Ipoh v. CIT and Karnani Properties Ltd. v. CIT. Findings from one year are not binding in subsequent years but can be considered as evidence.

The court noted that the Tribunal and the Appellate Assistant Commissioner did not examine the material considered by the Wealth-tax Officer, who had based his findings on substantial profits indicating higher market value. The court directed the Tribunal to refer the question of Rule 2B(2)'s applicability for consideration, as it involves a question of law regarding whether the Revenue discharged its burden.

2. Exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957:

The Tribunal held that the question of exemption under Section 5(1)(xxxii) did not arise for the relevant assessment year because the Wealth-tax Officer had allowed the exemption, and this was not contested by the Revenue before the Appellate Assistant Commissioner.

Shri V. K. Singhal, learned counsel for the Revenue, conceded that this question does not arise since the exemption granted by the Wealth-tax Officer was not challenged in appeal.

Conclusion:

The court directed the Tribunal to draw up a statement of case and refer the question regarding the applicability of Rule 2B(2) of the Wealth-tax Rules to the court for consideration. The court emphasized that the principle of res judicata does not apply to tax assessments across different years and that the Tribunal must examine whether the Revenue discharged its burden based on the material evidence. The application for exemption under Section 5(1)(xxxii) was not pursued further as it was conceded by the Revenue that it did not arise.