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K.M Ramdas Prabhu v. K.M Vishnudas Prabhu
Structured Summary of the Opinion (K.S. Puttaswamy, J.)
Factual and Procedural Background
A Hindu undivided family (HUF) consisting of Sri K.M. Ramdas Prabhu and Sri K.M. Shankar Prabhu owned immovable property in Mangalore which had been leased to a partnership firm, K.M. Ananda Prabhu and Sons, that had constructed a building on the property. For the assessment years 1977-78 to 1979-80 (valuation dates: 31 December 1976, 31 December 1977 and 31 December 1978), the HUF and the three partners filed wealth-tax returns disclosing net wealth in the property.
On 10 February 1979 the Wealth-tax Officer completed assessments on the HUF and the partners, enhancing the value of the property; those assessments were affirmed by the appellate authority and thus were concluded. Subsequently, on 30 September 1981 and 15 October 1981 the Valuation Officer (Unit-III, Bangalore), at the instance of the Wealth-tax Officer, issued separate but identical notices calling upon the petitioners (the assessees) to file objections to proposed valuations of the property as on 31 December 1976 and 31 December 1977. The petitioners challenged these notices by writ petitions under Article 226 of the Constitution.
Legal Issues Presented
- Whether a reference under section 16A of the Wealth-tax Act, 1957 (by the Wealth-tax Officer to the Valuation Officer) may validly be made in respect of valuation dates for assessment years for which assessments have already been completed and have become final.
- Whether the term "assessment" in section 16A must be read in its extended statutory definition (section 2(ca), which includes reassessment) or be given a restricted meaning such that references under section 16A are limited to pending assessments.
Arguments of the Parties
Petitioners' Arguments
- The notices issued by the Valuation Officer related to valuation dates for assessment years in respect of which assessments had already been completed and had become final; therefore, neither the Wealth-tax Officer nor the Valuation Officer had jurisdiction to make or act on such references and the notices were illegal.
- Petitioners relied on prior High Court rulings (Calcutta, Madhya Pradesh and Rajasthan) and on the commentary of A.C. Sampath Iyengar to support the proposition that no valid reference can be made if the assessment for the year in question is not pending.
Respondents' (Revenue) Arguments
- The notices should not be construed as references exclusively for determination of valuation as on the specific dates; rather, they should be read as general references for assessing the valuation of the property to be used by the authorities in accordance with law.
- The Revenue disputed that the proposed determinations were directed only to assessment years already concluded (a point the court found to be untenable on the record).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Satyendra Chunder Ghose v. WTO, [1980] 126 ITR 102 (Calcutta) | Authority supporting the proposition that no valid reference can be made by the Wealth-tax Officer if the assessee's assessment for the year is not pending at the relevant time. | The court noted this case as one of the High Court rulings expressing the view that references under section 16A cannot be made in respect of closed assessments, and expressed respectful agreement with that view. |
| Smt. Uma Debi Jhawar v. WTO, [1982] 136 ITR 662 (Calcutta) | Same principle: support for the proposition that references are invalid once the assessment for the relevant year is no longer pending. | Accepted by the court as authority in point; the court stated it was in respectful agreement with the view expressed in this decision. |
| Onkarji Kasturchand (HUF) v. WTO, [1982] 135 ITR 188 (M.P.) | High Court ruling relied upon for the proposition that references under section 16A cannot validly be made after assessments have been concluded. | The court cited this case as consistent with the view it adopts and expressly agreed with the legal position taken therein. |
| Brig. B. Lull v. WTO, [1981] 127 ITR 308 (Rajasthan) | Ruling relied upon for the same proposition regarding the invalidity of references where the assessment is not pending. | The court included this decision among those on which petitioners relied and stated its respectful agreement with the view expressed by that High Court. |
Court's Reasoning and Analysis
The court examined the notices and the record and determined that the Valuation Officer had expressly indicated he proposed to determine the valuation of the property as on 31 December 1976 and 31 December 1977. Those valuation dates corresponded to assessment years 1977-78 and 1978-79 respectively, which — on the dates of the impugned notices — had already been completed and had become final. The court observed that the Revenue did not dispute that factual position and that the record confirmed the determination proposed was for the very assessment years already concluded.
The court then analyzed section 16A of the Wealth-tax Act, 1957. Section 16A permits the Wealth-tax Officer, "for the purpose of making an assessment," to refer the valuation of any asset to a Valuation Officer; the Valuation Officer may then require documents, estimate value, and send the estimate to the Wealth-tax Officer, who must proceed to complete assessment in conformity with the Valuation Officer's estimate. The court emphasized that the power to refer is tied to "making an assessment."
The court considered the statutory definition of "assessment" in section 2(ca), which includes reassessment, but held that the term "assessment" as it occurs in section 16A must be given a restricted meaning limited to an assessment that is pending and not the extended meaning under section 2(ca). The court explained that the extended definition in the definition section applies only where the context demands; in the context of section 16A the extended meaning is not appropriate.
The court relied on prior High Court decisions cited by petitioners and on the commentary in A.C. Sampath Iyengar's Three New Taxes (quoted in the opinion) that summarizes the position: no valid reference can be made by the Wealth-tax Officer if the assessee's assessment for the year in question is not pending, and any report submitted in an invalid reference is a nullity ab initio and cannot lead to reopening a closed assessment under section 17(1).
Applying these principles to the facts, the court concluded that the Valuation Officer's notices (which targeted valuation dates relating to assessment years already completed and concluded) were issued without jurisdiction and were illegal.
Holding and Implications
Holding: The court quashed the impugned notices. The rule was made absolute. Explicitly, the court quashed the notices issued by the Valuation Officer that related to valuation dates for assessment years already completed and concluded.
Implications: The direct consequence is that the specific notices dated 30 September 1981 and 15 October 1981 (relating to valuation dates 31 December 1976 and 31 December 1977) were invalidated as being without jurisdiction; they cannot be used to reopen or refix valuation for the concluded assessments. The court directed that the parties bear their own costs. The opinion does not set out any separate, broader legal or dispositive rule beyond declaring those notices void and aligning with existing High Court authorities and the cited treatise on the point.
K.S Puttaswamy, J.:— As the questions that arise for determination in these cases are common, I propose to dispose of them by a common order.
2. A Hindu undivided family consisting of Sri K.M Ramdas Prabhu and Sri K.M Shankar Prabhu as its coparceners, inter alia, owns an immovable property in the city of Mangalore and the same had been taken on lease by a partnership firm called K.M Ananda Prabhu and Sons of Mangalore (firm) consisting of three partners which had also constructed a building thereon. For the assessment years 1977-78 to 1979-80 relevant to the valuation dates of December 31, 1976, December 31, 1977, and December 31, 1978, respectively, the Hindu undivided family and the three partners of the firm filed their returns under the Wealth-tax Act, 1957 (Act No. 27 of 1957) (“the Act”), before the First Wealth-tax Officer, Mangalore, disclosing their net wealth in the aforesaid property. On February 10, 1979, the Wealth-tax Officer completed the assessments on the Hindu undivided family and the partners of the firm enhancing the value of the said property and those assessments have been affirmed by the appellate authority under the Act. But, notwithstanding these concluded assessments, at the instance of the Wealth-tax Officer, the Valuation Officer, Unit-III, Bangalore (Valuation Officer), on September 30, 1981, and October 15, 1981, as the case may be, by separate but identical notices has called upon the assessees who are the petitioners to file their objections to the proposed valuation of the property as on December 31, 1976, and December 31, 1977. In these petitions, under article 226 of the Constitution, the petitioners have challenged them (annexure-D in each writ petition).
3. The petitioners have urged that the impugned notices has been issued by the Valuation Officer for the assessment years for which assessments have been completed and concluded under the Act, that the Wealth-tax Officer can neither make a reference nor the Valuation Officer can make a determination of the valuation of the property and that they are, therefore, wholly without jurisdiction and illegal.
4. The respondents have resisted the writ petitions.
5. Learned counsel for the petitioners contends that the notices issued by the Valuation Officer at the instance of the Wealth-tax Officer proposing to refax the valuation of the property as on December 31, 1976, and December 31, 1977, in relation to which dates there was a determination of valuation in the assessments made which had become final are wholly without jurisdiction and illegal. In support of his contention, Sri Bhat strongly relies on the rulings of the High Courts of Calcutta, Madhya Pradesh and Rajasthan in Satyendra Chunder Ghose v. WTO, [1980] 126 ITR 102 (Cal), Smt. Uma Debi Jhawar v. WTO, [1982] 136 ITR 662 (Cal), Onkarji Kasturchand (HUF) v. WTO, [1982] 135 ITR 188 (MP) and Brig. B. Lull v. WTO, [1981] 127 ITR 308 (Raj) and the commentary of Sri A.C Sampath Iyengar Three New Taxes, VI edition, at page 683.
6. Learned standing counsel for the Revenue, refuting the contention urged for the petitioners, contends that the notices issued by the Valuation Officer cannot be construed as notices exclusively for determination of valuation as on December 31, 1976, and December 31, 1977, but must be construed as general references for assessing the valuation of the property to be used by the authorities in accordance with law.
7. Learned standing counsel for the Revenue had produced the records at the hearing.
8. In his notices, the Valuation Officer had expressly indicated that he proposes to determine the valuation of the property as on December 31, 1976, and December 31, 1977, which are the valuation dates that are relevant for the assessment years 1977-78 and 1978-79. On the very dates stated by the Valuation Officer, one can easily conclude that the valuation of the property relates to the very assessment years that have been concluded and had become final. Learned counsel for the Revenue does not dispute this position. Even otherwise, an examination of the records clearly indicates that the determination of the value is proposed to be made for the very assessment years completed and concluded earlier and not for other years or generally as contended before me for the Revenue, for the first time. I see no merit in this contention urged for the Revenue and reject the same.
9. Section 16A of the Act which empowers the Wealth-tax Officer to make a reference and the Valuation Officer to determine the value, is material and reads thus:
“16A. (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, the Wealth-tax Officer may refer the valuation of any asset to a Valuation Officer—
(a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value;
(b) in any other case, if the Wealth-tax Officer is of opinion—
(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.
(2) For the purpose of estimating the value of any asset in pursuance of a reference under sub-section (1), the Valuation Officer may serve on the assessee a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require.
(3) Where the Valuation Officer is of opinion that the value of the asset has been correctly declared in the return made by the assessee under section 14 or section 15, he shall pass an order in writing to that effect and send a copy of his order to the Wealth-tax Officer and to the assessee.
(4) Where the Valuation Officer is of opinion that the value of the asset is higher than the value declared in the return made by the assessee under section 14 or section 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimating the value which he proposes to estimate and giving the assessee an opportunity to state, on a date to be specified in the notice, his objections either in person or in writing before the Valuation Officer and to produce or cause to be produced on that date such evidence as the assessee may rely in support of his objections.
(5) On the date specified in the notice under sub-section (4), or as soon thereafter as may be, after hearing such evidence as the assessee may produce and after considering such evidence as the Valuation Officer may require on any specified points and after taking into account all relevant material which he has gathered, the Valuation Officer shall, by order in writing, estimate the value of the asset and send a copy of his order to the Wealth-tax Officer and to the assessee.
(6) On receipt of the order under sub-section (3) or sub-section (5) from the Valuation Officer, the Wealth-tax Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.”
10. When an assessment is pending before him, the section empowers the Wealth-tax Officer to make a reference on the valuation of the property involved in such an assessment. On such a reference, the Valuation Officer is competent to determine the valuation of such property and furnish the same to the Wealth-tax Officer which is made binding on him. Before making his assessment, the Wealth-tax Officer is not bound to accept the valuation furnished by the assessee in his return and is free to refer that question to the Valuation Officer, obtain his valuation and act on the same.
11. section 2(ca) of the Act which defines “assessment” includes reassessment also. But, the term “assessment” occurring in section 16A of the Act, in the context, can be given the restricted meaning of assessment only and cannot be given the extended meaning as defined in section 2(ca) of the Act. The extended meaning in the definition section must be applied only when the context demands and not otherwise. In my view, the context of section 16A of the Act demands that the extended meaning in section 2(ca) cannot be given to the term “assessment” occurring in section 16A of the Act.
12. In the cases relied on for the petitioners, the High Courts of Calcutta, Madhya Pradesh and Rajasthan, on similar facts, have also expressed this very view. I am in respectful agreement with the view expressed by their Lordships in all those cases.
13. On this aspect, Sampath Iyengar's treatise Three New Taxes sums up the position at page 683 neatly in these words:
“It is, however, noteworthy that no valid reference can be made by the Wealth-tax Officer, if the assessee's assessment for the the year in question is not pending at the relevant time. Evidently, the report submitted by the Valuation Officer in an invalid reference must be a nullity in the eye of law, ab initio, void, non est, it cannot lead to the reopening of a closed assessment under section 17(1).”
14. What is expressed here correctly sums the legal position. On the foregoing discussion, it follows that notices issued by the Valuation Officer for the assessment years 1977-78 to 1979-80 relevant to the valuation dates as on December 31, 1976, December 31, 1977, and December 31, 1978, completed and concluded, are wholly without jurisdiction and illegal and are liable to be quashed. I, therefore, quash the impugned notices.
15. Rule is made absolute. But, in the circumstances of the case, I direct the parties to bear their own costs.
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