1. The question referred to us by the Income-tax Appellate Tribunal, Hyderabad in this reference reads as follows:
Whether, in the facts and circumstances of the case, the Tribunal was correct in coming to the conclusion that conditions precedent for assuming jurisdiction under Section 25 (2) of the Wealth Tax Act are not satisfied in the case?
2. The facts giving rise to the question are briefly these: The assessee was an individual and the respective valuation dates are 31-3-1982, 31-3-1983 and 31-3-1984. The assessee submitted wealth tax returns disclosing negative wealth. He claimed exemption in respect of the value of annuity policies on the basis of the Appellate Assistant Commissioner's order dated 3-1-1983 for the assessment years 1976-77 and 1977-78 in his own case.
3. As on respective valuation dates, the assessee was stated to have held annuities of the value of Rs.38,09,898/-, Rs.39,09,562/- and Rs.36,89,575/-. The simple claim of the assessee was that the said amounts are not includible in his net wealth. The Wealth Tax Officer accepted the plea of the assessee and accordingly did not include the assessee's interest in the annuities in his net wealth.
4. The Commissioner of Income-tax, in purported exercise of the power conferred upon him to revise orders of subordinate authorities, called for and examined the records of the assessee's case for the said years and accordingly set the law in motion by issuing notice dated 28-9-1988. The Commissioner required the assessee to show cause as to why the assessments should not be revised by him in exercise of the power conferred upon him under Section 25 (2) of the Wealth-Tax Act, 1957 (for short "the Act"). The Commissioner, having taken the value of the annuities held by the assessee on the respective valuation dates, found that the Wealth Tax Officer failed in including the value of the annuities in the net wealth and accordingly committed error in determining the assessee's wealth resulting in computation of wealth as deficit. The Commissioner also came to the conclusion that the decision of the Supreme Court in the case of C.W.T. v YUVARAJ AMRINDER SINGH, upon which reliance was placed by the Wealth Tax Officer, is not applicable to the assessee's case.
5. The assessee filed objections to the show cause notice explaining that his claim for exemption was on the basis of the Appellate Assistant Commissioner's order dated 3-1-1983 for the assessment years 1976-77 and 1977-78. The departmental appeals preferred against the orders of the Appellate Assistant Commissioner were disposed of by the Tribunal by its order dated 23-1-1986 wherein the orders of the Appellate Assistant Commissioner were set aside and restored the appeals to his file with directions to dispose of the appeals afresh according to law.
6. It was mainly contended by the assessee that the Commissioner had not spelt out the errors in the assessment orders for the assessment years 1982-83, 1983-84 and 1984-85 and the prejudice caused thereby. Thus the very jurisdiction of the Commissioner was questioned.
7. The Commissioner having considered the objections came to the conclusion that only the annuities which do not preclude computation thereof will be exempted to the extent specified in Section 5 (1) (vi) of the Act. The Commissioner took the view that as per the provisions of Section 5 (1)(vi) of the Act, in a case where the amount of premium or other payment is payable during a period of less than 10 years, the amount that is not includible in the net wealth of the assessee is only that sum that bears to the value of the right or interest of the assessee in the policy the same proportion as the number of such years bears to 10. The assessee, thus, would be entitled to only 1/10th of the total value of the policies but not the total value of the policies as such. The Commissioner accordingly concluded that the wealth tax officer's orders were erroneous and prejudicial to the interest of the Revenue and accordingly set aside the orders of assessment and directed the wealth tax officer to recompute the net wealth of the assessee by treating the annuity policies as "assets" within the meaning of Section 2 (e) (2) (ii) of the Act and allow exemption under Section 5 (1)(vi) of the Act to the extent specified therein. Consequential directions were issued requiring the wealth tax officer to issue demand notices for additional demands raised for the said years.
8. The assessee preferred appeals against the orders of the Commissioner of Wealth Tax passed under Section 25 (2) of the Act. The Tribunal set aside the order of the Commissioner. The Tribunal observed that
"before invoking jurisdiction under Section 25(2) of the Act, it is for the learned Commissioner to indicate the error in the assessment orders which resulted in prejudice to the interest of the Revenue. In our opinion, this exercise has not been done"
. The Tribunal observed that without examining the terms and conditions of the annuity policies it is not possible to decide as to whether the assessee had any interest in present in such policies and if so what is the present value of the future annuities. The Tribunal found that the terms and conditions of the annuity policies unless examined, it cannot be held to what extent the assessee would be entitled to relief under the proviso to Section 5 (1) (vi) of the Act. The Tribunal noticed that on representation by the assessee's counsel before the wealth tax officer that the assessee is entitled to exemption, the officer had written in the order sheet that he was aware of the Tribunal's decisions in the assessee's case for the earlier years and accordingly passed orders in favour of the assessee. The Tribunal also took note of the fact that in the case of another film star A. Nageswara Rao the view of the wealth tax officer was accepted and accordingly it was decided not to prefer any second appeal in that case. The Tribunal, in the circumstances, came to the conclusion that the wealth tax officer had applied his mind and also had drawn support for his action from the case of another film actor where a similar view was taken in the same circumstances.
9. In the result, the Tribunal came to the conclusion that the order of the Commissioner does not satisfy the requirements and basic ingredients for invoking his jurisdiction under Section 25 (2) of the Act, that is to say, error and prejudice have not been established.
10. In order to consider and express our opinion in the matter it would be appropriate to have a look at sub-section (2) of Section 25 of the Act which is as follows:
Without prejudice to the provisions contained in sub-=section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by an Assessing Officer is erroneous in so far as it is prejudicial to the itn4erests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or canceling it and directing a fresh assessment.
11. A plain reading of the provision makes it abundantly clear that it confers suo motu jurisdiction upon the Commissioner to call for and examine re cords of any proceeding under this Act and if he considers that any order passed therein is erroneous in so far as it is prejudicial to the interest of Revenue, he may, after giving the assessee an opportunity of being heard, pass appropriate orders.
12. The Commissioner, in the present case, had purported to act in exercise of this power on the ground that the order of the Wealth Tax Officer was, in his view, erroneous and prejudicial to the interest of the Revenue. The Tribunal did not endorse the view of the Commissioner.
13. The question is whether the view expressed by the Tribunal is based on a correct understanding of enabling provisions of Section 25 (2) of the Act and the nature of the order passed by the Commissioner.
14. The Madras High Court in VENKATAKRISHNA RICE COMPANY v C.I.T., (1992) 198 ITR 611 (Ker), while considering the scope of Section 263 of the Income-tax Act, which is analogous to the provision on hand observed that "two things which must coexist in order to give jurisdiction to the Commissioner to interfere in revision. The order of the income-tax officer in question must not only be erroneous but also the error in the income-tax officer's order must be of such a kind that it can be said of it that it is prejudicial to the interest of the Revenue. In other words, merely because the officer's order is erroneous, the Commissioner cannot interfere. Again, merely because the order of the officer is prejudicial to the interest of the Revenue, then again, that is not enough to confer jurisdiction on the Commissioner to interfere in revision. These two elements must coexist". The proposition laid down is unexceptionable. However, the Court having said so, further observed that the jurisdiction of the Commissioner being a supervisory jurisdiction is intended for interference in special cases to counter-act orders "which are erroneous as well as prejudicial to the interests of Revenue". In this context, therefore, the expression "prejudicial to the interest of Revenue" must be regarded as involving a conception of acts or orders which are subversive of administration of Revenue. There must be some grievous error in the order passed by the income-tax officer, which might set a bad trend or pattern for similar assessments, which, on a broad reckoning, the Commissioner might have thought to be prejudicial to the interest of the Revenue administration.
15. We find it difficult to accept the view taken by the Madras High Court stating that the Commissioner can invoke his supervisory jurisdiction only in special cases to correct orders which are subversive of the administration of Revenue.
16. The plain language employed in Section 25 (2) of the Act, with which we are concerned for the present, does not admit of any such interpretation. It is fairly well settled that a taxing statute cannot be interpreted on any presumptions or assumptions. Equitable considerations are entirely out of place. In construing fiscal statutes one must have regard to the strict letters of the law.
17. What is an error? "A mistaken judgment or incorrect belief as to the existence or effect of matters and fact, or a false or mistaken conception or application of the law. Such a mistaken or false conception or application of the law to the facts of a cause as will furnish ground for a review of the proceedings upon a writ of error. A mistake of law, or false or irregular application of it, such as vitiates the proceedings and warrants the reversal of the judgment. An act involving a departure from truth or accuracy; a mistake; an inaccuracy; as, an error in calculation". (See Black's Law Dictionary at page 542). "Prejudice", according to the Black's Law Dictionary is nothing but "a leaning towards one side of a cause for some reason other than a conviction of its justice".
18. In our considered opinion, an erroneous order resulting in prejudice to the interest of Revenue need not be a motivated or mala fide one. Decisions/orders of subordinate authorities which are erroneous mean not only when erroneous in point of law but erroneous in any sense and if that error results in causing prejudice to the interest of Revenue it is susceptible to be corrected by the Commissioner in exercise of his jurisdiction under sub-section (2) of Section 25 of the Act. In MALABAR INDUSTRIAL COMPANY LTD v C.I.T., 23 ITR 83 (SC), Kerala High Court observed that the language used in Section 263 of the Income-tax Act has a very wide import. The Kerala High Court expressed its inability to concur with the observations and the decision of the Madras High Court in VENKATAKRISHNA RICE COMPANY v C.I.T., (1957) 31 ITR 872 (Cal) . It is held that the question whether an order is prejudicial to the interest of Revenue would depend upon the facts of each case and there can be no universal formula applicable to find out any such prejudicial error. The Kerala High Court further approvingly referred to the law laid down in one of the earliest decisions in DAWJEE DADABHOY AND CO v S.P.JAIN, (1987) 163 ITR 129 (Mad), which is to the following effect:
"The words 'prejudice to the interest of Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue to the State has not been realised or cannot be realized. It can mean nothing else"
.
19. With respect, we adopt the reasoning as of our own. In MALABAR INDUSTRIAL COMPANY LTD v C.I.T.1. The Supreme Court, while construing Section 263 of the Income-tax Act, observed that the said provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind". It is further observed, "the phrase 'prejudice to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Further, loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interest of the Revenue. For example, when an income-tax officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the income-tax officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the income-tax officer is unsustainable in law". The Supreme Court characterized the interpretation placed by the Madras High Court as "too narrow to merit acceptance" and held "if due to an erroneous order of the income-tax officer the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of Revenue". We need say nothing further in the matter.
20. In the instant case, the Commissioner noted that the wealth tax officer passed the order which was erroneous in so far as it is prejudicial to the interest of Revenue and
"the present exercise is only to remedy that definite error on the part of the wealth tax officer and to retrieve the loss of revenue caused on account of the error"
. The Commissioner came to the definite conclusion that on account of the erroneous order of the Wealth Tax Officer the Revenue lost tax lawfully payable by the assessee, and the same has resulted in causing prejudice to the interest of Revenue.
21. The Commissioner found that in this case the premium was paid in lumpsum at a time and as such the amount of the value of interest or right in policy is exempt, is only 1/10th of the total value of the policy but not the total value of the policy as such. The wealth tax officer has granted exemption in respect of the entire value of policy which, in the opinion of the Commissioner, is not in accordance with law. The view taken by the Commissioner that after the insertion of clause in Section 2 (e) (2) (ii) of the Act and insertion of the proviso under clause (vi) of section 5 (1) with effect from 1-4-1975 the exemption in respect of the annuities will be available only to the extent explained in proviso to Section 5(1)(vi) of the Act irrespective of the date on which the policies are taken or annuity contracts are entered into, is correct. The decision of the Commissioner that the proviso to Section 5 (1)(vi) of the Act would come into play and at the best the assessee would be entitled to only 1/10th of the total value of the policies but not to the full extent of the policies for the reason that the annuity policies were for less than 10 years, in our considered opinion, is absolutely correct.
22. The view taken by the Commissioner that the order passed by the wealth tax officer is not only erroneous but that error has resulted in causing prejudice to the interest of Revenue is not vitiated for any reason whatsoever.
23. For all the above reasons, we hold that the Commissioner of Wealth-Tax in this case was justified in interfering with the order of the wealth tax officer under Section 25 (2) of the Act. The Tribunal's order, reversing the Commissioner's decision, was based on a misconception of the provisions of Section 25 (2) of the Act. On this basis, we answer the question of law in favour of the Revenue. No order as to costs.
1 23 ITR 83 (SC)