TMI Blog1996 (11) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... trust was declared in respect of 90 more items of Jewellery. In both the trust deeds, a representative of the Government was a trustee and at all material times the Additional Finance Secretary of the Union of India was a trustee. The Nizam died on July 24, 1967, and his son also died on October 9, 1970. Consequently, in July, 1972, the trust made an offer to the Government of India to sell the collection of 173 items of Jewellery to the Government, after handing over heirloom of 24 items to the beneficiaries directly. This was considered by two expert committees who inspected the Jewellery and classified the same. In the meanwhile, the Antiquities and Art Treasures Act, 1972, came into force. Sixty-five items of jewellery were declared to be not antiquities and 23 as antiquities and in respect of one item, Jacab diamond, no decision was taken. The trustees were told that they were free to sell the rest. But one of the beneficiaries filed an Original Petition No. 141 of 1978 in the City Civil Court, Hyderabad, for removal of the trustees and for an interim injunction against the sale. The matter went up to the Supreme Court along with two other appeals by a prospective buyer and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... numerous restrictions on the sale of the jewellery and the only purchaser available being the Union of India, the valuation made for the purpose of wealth-tax should be adopted as the fair market price. It was pointed out that the same jewellery was assessed by the Wealth-tax Officer on the basis of the valuation made under section 16A of the Wealth-tax Act and since that valuation had been accepted by both the parties, the fair price should not exceed the value adopted for wealth-tax purposes. The valuer, Sri Chowlera, filed an affidavit before the arbitrator and he was also cross-examined on behalf of the trust. The umpire, Sri Justice A. N. Sen, gave an award dated July 27, 1991, holding that the valuation made for wealth-tax purposes cannot determine the fair and just value for the purpose of acquisition, that valuation made by Sotheby's and Christie's was with reference to an international auction and the valuation made by Vithaldas was based on fancy prices. Therefore, he himself determined the value of the 173 items of jewellery at Rs. 225,37,33,959. The Union of India challenged this before the Supreme Court and by the decision reported in the case of Union of India v. Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment by reason of underassessment. The reasons for the belief that wealth had escaped assessment were recorded as follows : " A reference was made to the determination of the fair value of the jewellery at Rs. 171 crores in the proceedings before the Supreme Court and the admission of the valuer, Mr. Chowlera before the arbitrator that his valuation made was on the low side and that he had also committed certain errors with reference to the valuation. It was stated that such valuation suffers from several infirmities resulting in underassessment of the wealth considering the fact that the trustees had returned the value at Rs. 3.60 crores though according to them the value was near the amount of Rs. 1,000 crores, and, therefore, it was clear that the trustees had not disclosed fully and truly all material facts pertaining to the value of the jewellery necessary for the assessment of the net wealth in the cases of the beneficiaries of the jewellery Trust. " These petitions challenge the impugned notices on the ground that such a belief that there was underassessment could not be entertained by the Wealth-tax Officer from the material on record, that the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the compromise entered into in 1989 was significant and this compromise was not disclosed and the valuation reports obtained from Sotheby and Christie were not disclosed and hence it was a case of omission to disclose the material particulars. He further submitted that even though for the assessment year 1990-91 onwards those facts are mentioned, the vast difference between the claim for over Rs. 1,000 crores before the arbitrator and the returned value of less than Rs. 10 crores in the wealth-tax proceedings indicated that the assessee knew that the jewellery was valuable but had deliberately withheld the information. He also submitted that even though the assessment was made under section 16A(6), the Wealth-tax Officer was entitled to reopen the same when he had reason to believe that the wealth was underassessed. He argued that when section 17 provided for a reassessment of the escaped wealth, such a provision had to be applied to all assessments because excluding the assessments made under section 16A(6) from the scope of section 17 will lead to discrimination. According to the provisions of the Wealth-tax Act, when the assets are held by the trustee, a return has to be fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all short of the aggregate value of the interest of the beneficiaries. That is why in the present case, apart from making separate assessments in respect of about 180 beneficiaries, assessments have also been made under sub-section (1A) of section 21 in the hands of the trust. A brief reference to legislative history gives us the perspective. Prior to April 1, 1989, a return had to be filed by the assessee under section 14 and the Wealth-tax Officer could assess the net wealth on the basis of the return, if he found it to be correct and complete. Otherwise, he could call for evidence in support of the return and after an enquiry, complete the assessment under section 16(3). The charge is on the net wealth, which is defined under section 2(m) as the aggregate value of all the assets in excess of the aggregate value of all the debts owed by the assessee on the valuation date. Section 7 provided at that time, that the value of any asset shall be estimated to be the price which in the opinion of the Assessing Officer it would fetch if sold in the open market on the valuation date. Thus, the estimate of the value of the asset was one step in the assessment proceedings. With respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult to cope with all the cases which required proper valuation and the completion of the assessments in respect of big and revenue yielding cases were being unduly delayed. As pointed out above, the function of the cell was advisory only and the report was technically not binding even on the Wealth-tax Officer and if there were errors or omissions even he could differ from the report. The assessee had no opportunity in placing before the officer of the cell his view-point or any document or evidence in support of the value declared by him. In order to remove these difficulties, the Taxation Laws (Amendment) Act, 1972, has introduced the procedure for valuation by the Valuation Officers appointed under the Act with powers to call the assessee, call for documents, records and accounts and also vests him with powers vested in the civil court for the purpose of discovery, inspection, of enforcing attendance, etc., under section 37 and powers of entry and inspection of land and building under the newly inserted section 38A. The main object of the new procedure is minimising tax evasion on account of undervaluation of properties. It simultaneously provides the assessee with an opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule III now provides that in respect of the jewellery the value shall be estimated to be the price which it would fetch if sold in the open market on the valuation date. According to rule 18, in that Schedule the return has to be supported by a report of a registered valuer where the value exceeds rupees five lakhs and if the Assessing Officer was of the opinion that the value declared is less than the market value, he may refer the matter to the Valuation Officer under section 16A, and the value of such jewellery shall be the fair market value as estimated by the Valuation Officer. Rule 19 provides for adjustment of the value once estimated by the Valuation Officer for four subsequent assessment years without fresh valuation. Form O-8A requires only the following information : " Form 0-8A : (1) Serial No. (2) Description of item. (3) Gross weight. (4) Net weight of precious metal. (5) Description and weight of precious or semi-precious stones. (6) Value of each precious or semi-precious stone and decided value of such stones. (7) Total value of the item of jewellery. " Therefore, in spite of these amendments, the position remains the same as before. As explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under section 14 : Provided that where an assessment under sub-section (3) of section 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 14 or section 15 or in response to a notice issued under sub-section (4) of section 16 or this section or to disclose fully and truly all material facts ' necessary for his assessment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible " said Viscount Simon in the case of Gold Coast Selection Trust Ltd. v. Humphrey (Inspector of Taxes) [1949] 17 ITR (Supp.) 19 (HL). A notional value is contemplated and many imponderables are involved requiring application of different methods and approaches. This is perhaps the reason why even in Form Nos. O-8 and O-8A prescribed under the rules and Schedule III for jewellery, there is no column relating to the value. No doubt the value is given by the assessee in the return and is often supported by a valuer's report. But it cannot be said that any other valuation report obtained by the assessee, is a material fact required to be intimated to the Wealth-tax Officer. It is quite possible that an assessee may obtain several valuation reports for different purposes but such valuation reports still remain only opinions of various experts. Though they may be relevant for any person to come to his own opinion about the valuation of the asset, they do not constitute a primary fact which is required to be disclosed. Particularly in the case of jewellery, when the jewellery itself is produced for inspection and valuation, any other valuation, either by the assessee or any other qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of the assessment which was the valuation of the asset, which was being done by the Assessing Officer, was transferred to the exclusive jurisdiction of the Valuation Officer, because under sub-section (6) the assessment has to be completed in conformity with the valuation of the Valuation Officer. It may be noted that if he has made any mistake then the Valuation Officer alone has the power to rectify the mistake as can be seen by section 35(1)(aaa). A consequence of this pattern of assessment is that litigation in respect of valuation of an asset is intentionally restrained on the part of the Department, for, an appeal lies against such valuation only at the instance of the assessee and the appellate authorities have to decide the matter only after hearing the Valuation Officer. The purpose of this legislation appears to be to maintain a ceiling on the valuation of the asset by the Department reserving only the right of the assessee to seek adjustments if he feels aggrieved by the valuation. This is similar to the valuation of land acquired under the Land Acquisition Act where the value determined by the Land Acquisition Officer is the minimum below which the Government can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 16A will not, has only to be stated to be rejected. Obviously, it amounts to a reasonable classification between valuation by the Wealth-tax Officer without expertise and valuation by the Valuation Officer whose decision is clearly made final by section 16A(6). In the present case, the valuation was actually the subject of an appeal. The assessee had accepted the estimate made by the Valuation Officer and asked only for certain discount because of various depressing factors which the Commissioner of Wealth-tax had accepted and it was upheld by the Appellate Tribunal. The Tribunal also exempted seven items of jewellery declared as art treasures exempt under section 5(1)(xii) of the Act. Once the matter of valuation has merged with the appellate order, there is no further justification for the Wealth-tax Officer to attempt a reassessment of the same. Learned counsel for the Revenue submitted that the Wealth-tax Officer had reason to believe that the net wealth has been underassessed because the fact that the assessee was claiming a very large amount as compensation and had also obtained other valuers' reports in support of that claim, was not disclosed and, secondly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rators have been mentioned. Learned counsel submitted that for the assessment year 1989-90 the compromise dated February 14, 1989, was not disclosed. But the fact is that this compromise was recorded by the Supreme Court only on April 25, 1989, after the valuation date relevant to the assessment year 1989-90. Moreover, when the valuer gave evidence before the arbitrator, he was cross-examined on behalf of the trustees and he stated as follows : " This valuation was done for the purpose of wealth-tax and I have submitted my proposed valuation report also and invited objections or errors whatever it was from the assessee. They have never submitted any specific objection or document to the same jewellery about which all these questions are being asked, and I have been told that I have just to bring down the value all these errors are being made by me." Since this answer has been given in the cross-examination by the assessee, it appears to suggest that the Department did not want a higher value to be given so that the Government may be saved from paying more in case the jewellery was acquired. It must be remembered that the case with reference to the acquisition of the jewellery h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it is not suggested that there was anything mala fide in the matter. Firstly, there is a vital difference between the valuation for the purpose of an annual levy of tax and the valuation for the purpose of acquisition of the property. In the words of Justice Dixon in the case of Commissioner of Succession Duties v. Executor Trustee and Agency Co. of South Australia (74 CLR 358) " I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second, the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation, doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate. We find that the same approach was taken by the learned umpire in the arbitration proceedings where it was stated that : " T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid what the Government ultimately paid for acquiring the jewellery free from all encumbrances. The valuation reports obtained by the petitioner was with reference to the foreign markets with the added prestige of a sale of jewellery belonging to a former ruler, whereas the valuation for wealth-tax purposes was mostly confined to intrinsic worth with reference to the weight of the gold and gems and the market value thereof. A significant fact is that the same valuer has valued the same jewellery even after 1990 at figures less than that paid by the Government and curiously for the year 1994-95 he has taken a figure of Rs. 236 crores which is even more than what it fetched. The more startling fact is that in spite of the valuer having admitted in the cross-examination before the arbitrator in April, 1991, that he had committed certain mistakes, he was continued to be employed as a valuer in respect of the same jewellery for subsequent valuation dates. This indicates that he was willing to give evidence before the arbitrators to suit the interests of the Government in order to continue his employment. His evidence, cannot, therefore, be relied upon by the Revenue to contend that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was any underassessment based on the belief that the valuation made in the assessments was low compared to the claim made by the assessee in the arbitration proceedings only by reason of the failure of the assessee to give any particulars. The proviso to section 17 states that in such circumstances a reassessment can be initiated only within four years from the date of the assessment order. Since that period of limitation has admittedly expired in respect of all the five assessment years 1984-85 to 1989-90, the impugned notices are also barred by limitation. The Supreme Court has held in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 that : " The question whether the Income-tax Officer had reason to believe that underassessment had occurred by reason of non-disclosure of material facts was not a mere question of limitation only but was a question of jurisdiction which could be investigated under article 226 of the Constitution of India. The Supreme Court has also observed in Parashuram Pottery Works Co. Ltd. v. ITC [1977] 106 ITR 1, 10 : " It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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