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Noshirwan And Others v. Wealth-Tax Officer And Another.

Madhya Pradesh High Court

Dec 21, 1995

Judgment

Subsequent
References

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Structured Summary of the Opinion

Factual and Procedural Background

The petitioners (five siblings, Nos. 1–5, three sons and two daughters of the late Shri Manoharji Godrej) challenged notices issued under Section 17 of the Wealth-tax Act, 1957 (annexures "H", "H-1", "H-2", "H-3" and "J"), praying that those notices be quashed and the respondent be prohibited from proceeding in pursuance of them. The petitioners are assessees under the Wealth-tax Act and jointly own five properties together with their brother Shri Bomy Godrej, each holding a 1/6th share in those properties; they also have individual wealth.

The assessment years relevant to the petition are 1976-77, 1977-78 and 1978-79. The factual and procedural history set out in the opinion includes earlier assessments and appeals:

For assessment year 1972-73 the petitioners filed individual returns including their 1/6th shares.
For assessment years 1973-74 and 1974-75 returns were filed; assessing authority accepted the departmental valuer's valuation by orders dated 25 November 1978. The Appellate Assistant Commissioner rejected the petitioners' appeals on 11 December 1979. The petitioners appealed to the Income-tax Appellate Tribunal which, by order dated 31 December 1980, held that rented properties should be valued by the rental method, disagreed with the assessing officer's valuation and remanded the matter to respondent No.1. Fresh orders of assessment for 1973-74 and 1974-75 were passed on 28 April 1981.
For assessment year 1975-76 the assessing authority increased valuation; the Appellate Assistant Commissioner allowed the petitioners' appeals by separate orders dated 9 July 1981.
For the assessment years central to this petition (1976-77, 1977-78 and 1978-79), assessments were made on 28 March 1981, 5 September 1981 and 5 March 1985 respectively. Thereafter, on 29 June 1984 respondent No.1 issued notices under Section 17(1) to reopen those assessments — these are the notices challenged in the petition.

Legal Issues Presented

Whether the notices under Section 17(1) of the Wealth-tax Act (issued to reopen assessments for 1976-77, 1977-78 and 1978-79) can be quashed by the High Court in writ proceedings under Article 226 of the Constitution.
Whether reopening the assessments is impermissible because it constitutes merely a change of opinion, given that earlier valuations had been determined in accordance with Tribunal directions (i.e., whether Section 17(1)(a) applies where the assessee had already disclosed wealth and valuations were made pursuant to Tribunal directions).
Whether Section 17(1)(b) could be invoked to reopen the assessments, in light of the limitation period (the opinion refers to a four-year limitation for notices under Section 17(1)(b) as submitted by petitioners).
Whether the High Court should exercise its extraordinary jurisdiction under Article 226 to entertain the petition at the threshold, or whether the petitioners must first raise objections and seek remedies before the assessing authority and the appellate fora provided under the Act.

Arguments of the Parties

Petitioners' Arguments

The assessments were made in accordance with valuations determined by the Tribunal (for earlier years), and reopening an assessment simply because the assessing authority now takes a different view is impermissible — reopening cannot be done on account of a change of opinion.
The notices are beyond jurisdiction because the petitioners had already disclosed all their wealth; there was no concealment, and therefore Section 17(1)(a) does not apply.
As to Section 17(1)(b), the petitioners asserted that the assessing authority cannot reopen the assessments because four years had passed (the period of limitation for issuing notices under Section 17(1)(b) was pleaded to be four years).
Implicitly, the petitioners sought direct relief from the High Court to quash the reopening notices.

Respondent / Revenue's Arguments

The assessing authority received a departmental valuation report on 24 July 1980 which indicated that the assessee had undervalued the properties; that report was not available at the time the original assessments for the relevant years were made.
On the basis of that report the assessing authority had reason to believe there was failure on the part of the assessee to disclose fully and truly the value of the properties for 1976-77, 1977-78 and 1978-79; accordingly, notices under Section 17(1)(a) were issued for reopening.
The departmental valuer's report not being available at the time of the original assessments meant the assessing authority could validly exercise power to reopen under Section 17(1)(a), and the notices were within the period of limitation (as pleaded in the return).
Separately, Revenue counsel objected to the High Court's jurisdiction under Article 226 to entertain the petition directly and submitted that the proper course was for petitioners to file replies and pursue remedies under the statutory scheme rather than approach the writ jurisdiction at the threshold.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lalji Haridas v. R.H. Bhatt [1965] 55 ITR 415 (SC)	That writ jurisdiction under Article 226 should not ordinarily be used to challenge reassessment notices; such pleas (e.g., that a notice is time-barred) should ordinarily be taken before the income-tax authorities.	The court relied on this decision to support the proposition that petitioners should first raise objections and seek redress under the Act rather than have the High Court entertain the matter at the threshold.
Surya Restaurant v. Union of India [1995] 211 ITR 63 (MP)	Reiterated that reassessment notices challenged on grounds such as insufficiency of reasons should not be quashed in writ proceedings where the assessee is aware of the reasons and can pursue remedies under the statutory scheme.	The court cited this case (including the headnote) to reinforce the conclusion that the writ petition was not the appropriate route to challenge the reassessment notices.
Chandravadan A. Tahtawala v. CWT [1990] 182 ITR 103 (Guj)	Affirmed the view that matters of reopening assessments should not be directly entertained in writ jurisdiction.	The court noted this case as one that reiterates the same position applied here — that reopening matters are to be agitated before tax authorities rather than in writ proceedings.
Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC)	Recognized that where the court finds the action of the authority is without jurisdiction, a writ can be granted to prohibit the authority from proceeding.	The court observed that although Calcutta Discount did not decide the question of entertaining petitions directly before the High Court, it supports the proposition that writ relief is available where the authority acts without jurisdiction — but distinguished that principle from routine challenges to reassessment notices.
Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC)	Illustrates that the Supreme Court did not examine the propriety of entertaining writ petitions directly where the facts did not raise that preliminary question; the case was not an examination of writ-entertainment doctrine.	The court noted this decision and observed that it did not resolve whether courts should entertain such petitions directly, so it does not alter the court's conclusion in the present case.
ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)	Established the principle that reopening of an assessment must have a rational connection (i.e., be based on material that reasonably justifies reopening).	The court cited this as an authority on the limits of reassessment power, indicating that reopening must be rationally connected to the relevant materials, but did not decide the merits on this basis at this stage.

Court's Reasoning and Analysis

The court first considered whether it was appropriate to exercise extraordinary writ jurisdiction under Article 226 to entertain the petition. It reviewed precedent (notably Lalji Haridas and related authorities) holding that ordinarily reassessment and reopening issues should be raised before the tax authorities and not at the threshold in writ proceedings. The court observed that the High Court's writ jurisdiction is not intended to usurp the income-tax (or wealth-tax) authorities' jurisdiction to deal with the merits of contentions that assessees may raise.

The court recited authorities reiterating that reassessment notices should not generally be quashed in writ proceedings where the assessee has available statutory remedies (citing Surya Restaurant and Chandravadan Tahtawala). The court acknowledged the Calcutta Discount principle that writ relief is available where an authority acts without jurisdiction, but distinguished that as a different category from routine challenges to reassessment notices.

Turning to the facts, the court noted that at the time the assessments for 1976-77, 1977-78 and 1978-79 were passed, the departmental valuer's report (received on 24 July 1980) was not before the assessing authority. Because that material was not before the assessing authority originally, the court found that it could not conclusively say the assessing authority had failed to apply its mind in relation to reopening — but the court expressly declined to express any definitive opinion on the merits of the assessing authority's view.

Weighing the precedents and the available remedy under the statute, the court concluded that it would be improper to exercise its writ jurisdiction to interfere directly at this stage. Instead, the court directed that the petitioners should file proper replies and raise the objections (which they had presented in the writ) before the assessing authority, who would determine whether the reopening is sustainable. The court stated that the statutory machinery provides a proper remedy for redress.

Holding and Implications

Final Disposition: The petition is DISMISSED.

Implications and immediate consequences:

The High Court declined to quash the Section 17(1) notices in writ jurisdiction and did not grant the relief sought by the petitioners.
The petitioners were directed to pursue their objections before the assessing authority (and thereafter by the statutory appellate remedies) rather than seek direct interference by the High Court under Article 226.
The court did not decide the substantive merit of whether reopening under Section 17(1)(a) or (b) was justified; it expressly refrained from expressing a view on the merits and left that to the assessing authority to consider on the reply and evidence.
No order as to costs was made.
The opinion does not purport to lay down a new legal precedent beyond applying and following existing authorities; it applies established principles limiting the use of writ jurisdiction to challenge reassessment notices.

This summary is compiled exclusively from the provided opinion and does not add information not contained in that text.

Show all summary ...

1. The petitioners by this petition have prayed that the notices issued under Section 17 of the Wealth-tax Act, 1957, by the respondent annexures "H", "H-1", '"H-2", "H-3" and "J" may be quashed and the respondent be prohibited from further proceeding in pursuance of the abovementioned notices.

2. Petitioners Nos. 1, 2 and 3 are the sons of the late Shri Manoharji Godrej and petitioners Nos. 4 and 5 are his daughters. The petitioners are related as brothers and sisters belonging to the same family. The petitioners are Parsi by caste. Respondent No. 1 is the Wealth-tax Officer, A-Ward, Indore, and has jurisdiction to assess the petitioners under the Wealth-tax Act. The assessment years involved in the present petition are 1976-77, 1977-78 and 1978-79. The petitioners jointly own five properties-(1) Godrej Mansion, 110, Ushaganj, Indore, (2) Gul Mansion, 9, Maharani Road, Indore, (3) Flat No. 8, Mistry Court, Bombay, (4) Show Room at Imami Gate, Bhopal, and (5) a building situated on Bombay-Agra Road, Indore, All the aforesaid properties are being jointly owned by petitioners Nos. 1 to 5 along with their brother, Shri Bomy Godrej, as co-owners, so that each of the petitioners is owner to the extent of 1/6th share in the aforesaid properties. Besides 1/6th share in the aforesaid properties, petitioners Nos. 1 to 5 have their respective individual wealth. Petitioners Nos. 1 to 5 are assessees under the Wealth-tax Act and have been paying wealth-tax.

3. In the assessment year 1972-73, petitioners Nos. 1 to 5 filed their individual returns of wealth which included their 1/6th share in the aforesaid joint properties. For the assessment years 1973-74 and 1974-75, the petitioners filed their wealth-tax returns and certain valuation was shown for the joint properties. For the years 1973-74 and 1974-75, the assessing authority passed orders on November 25, 1978, accepting the valuation as made by the Department Valuer in his report. Aggrieved by the aforesaid orders of assessment, the petitioners filed separate appeals before the Appellate Assistant Commissioner of Wealth-tax, but these appeals were rejected by the Appellate Assistant Commissioner, vide order dated December 11, 1979, and the valuation made by respondent No. 1 was affirmed. The petitioners thereafter filed separate appeals before the Income-tax Appellate Tribunal. The Tribunal, by order dated December 31, 1980, held that in respect of the properties which are rented out, the valuation should be made on the basis of rental method and it was wrong on the part of the Departmental authorities to value these properties on the basis of land and building method. The Tribunal disagreed with the valuation made by respondent No. 1 and allowing the appeals remanded the case to respondent No. 1 to determine the valuation of the joint properties in accordance with the directions given by the Tribunal. Respondent No. 1 thereupon passed fresh orders of assessment in respect of all the petitioners for the assessment years 1973-74 and 1974-75 on April 28, 1981.

4. In the meantime, petitioners Nos. 1 to 5 had also filed their wealth-tax returns for the assessment year 1975-76. Respondent No. 1 passed separate orders of assessment in respect of each of the petitioners increasing the valuation of the joint properties on the basis of the valuer's report. Petitioners Nos. 1 to 5 thereupon filed separate appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his separate orders dated July 9, 1981, allowed the appeals. However, we are only concerned in the present case with the assessment years 1976-77, 1977-78 and 1978-79. In these cases, the assessments were made on March 28, 1981, September 5, 1981, and March 5, 1985, respectively. Thereafter respondent No. 1 issued notices under Section 17(1) of the Wealth-tax Act on June 29, 1984, for reopening the assessment made on the aforesaid assessment and it is these notices which are sought to be challenged by the petitioners in this petition.

5. The principal submission made by learned counsel for the petitioners is that the assessment has been made on the basis of the valuation which has been determined on the basis of the criteria laid down by the Tribunal. When earlier an assessment order has been passed, subsequently that assessment cannot be reopened on account of change of opinion and secondly it is submitted that the assessment notices also are beyond jurisdiction as the petitioners had already disclosed all their wealth. Therefore, there is no concealment on the part of the petitioners as they have disclosed facts truly and correctly, as such Section 17(1)(a) of the Wealth-tax Act will not come into play and so far as Section 17(1)(b) is concerned, on the basis of the information, the assessing authority cannot reopen because four years had passed. The period of limitation prescribed for issuing notice under Section 17(1)(b) is four years.

6. A reply has been filed by the respondent and it has been pointed out that on July 24, 1980, a report of the valuation of the property was received and in that it was found that the assessee has undervalued his property. Therefore, all these four notices were issued for reopening of the assessment. The notices have been issued because according to the assessing authority he has reason to believe that there was failure on the part of the assessee to disclose fully and truly the value of these properties for years 1976-77, 1977-78 and 1978-79. It is also pointed out in the return filed by the respondent that this valuation report was not available with the assessing authority when the assessment was made. It has also been clearly mentioned in paragraph 21 of the return filed by the respondent that this report made by the official valuer was not available to the Wealth-tax Officer at the time of making the assessment and, therefore, it escaped the notice and as such the assessing authority has power to reopen the assessment under section 17(1)(a) and it is within the period of limitation.

7. I have heard learned counsel for the parties. Shri D. D. Vyas for the Revenue has specifically raised the objection regarding jurisdiction of this court to entertain the petition under article 226 of the Constitution of India and submitted that such matters should not be entertained directly under the writ jurisdiction as the proper course for the petitioners is to file a reply and seek remedy according to the provisions contained in the Act. In support of this contention, learned counsel has invited my attention to the case of Lalji Haridas v. R.H. Bhatt [1965] 55 ITR 415 (SC) ; Surya Restaurant v. Union of India [1995] 211 ITR 63 (MP). As against this learned counsel for the petitioners has strenuously urged that this court can entertain such petition directly. Learned counsel has invited my attention to the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 {SC) and Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC).

8. Before appreciating the merits, it will be proper to examine the question whether it would be proper to exercise the extraordinary jurisdiction under article 226 of the Constitution of India for entertaining this petition or not. A similar question came up before their Lordships of the Supreme Court in Lalji Haridas v. R.H. Bhatt [1965] 55 ITR 415, wherein the provisions of the Saurashtra Income-tax Ordinance, 1949, was under consideration. There it was held that in the writ jurisdiction under Article 226 such questions should not be permitted to be raised. It has observed (at page 418) :

"Mr. Pathak for the appellant attempted to argue that the notice issued against the appellant is, on the face of it, invalid, because it is barred by time. We did not allow Mr. Pathak to develop this point, because we took the view that a plea of this kind must ordinarily be taken before respondent No. 1 himself. The jurisdiction conferred on the High Court under Article 226 is not intended to supersede the jurisdiction and authority of the Income-tax Officer to deal with the merits of all the contentions that the assessees may raise before them, and so it would be entirely inappropriate to permit an assessee to move the High Court under Article 226 and contend that a notice issued against him is barred by time. That is a matter which the income-tax authorities must consider on the merits in the light of the relevant evidence."

9. Similarly, the same view has been further reiterated by Chandravadan A. Tahtawala v. CWT [1990] 182 ITR 103 (Guj). This court also recently in the case of Surya Restaurant v. Union of India [19951 211 ITR 63 has taken the same view and has observed (headnote) :

"Held, dismissing the writ petition, that the reassessment notice was challenged on the ground that it did not furnish reasons and that the reasons which were furnished subsequently were irrelevant. Since the assessee was aware of the reasons for the issue of the notice and could appeal against it, the notice could not be quashed in writ proceedings,"

10. Therefore, this court recently has taken the view relying on earlier judgments of the Supreme Court that even such matters of reopening should not be entertained directly in writ jurisdiction and it is proper for the petitioners to agitate the matter before the authorities under the Act.

11. Shri Chaphekar has invited my attention to Calcutta Discount Co. Ltd. v. ITO [196]141 ITR 191 (SC). There, their Lordships did not have occasion to deal with the entertainment of the petition directly before the High Court. However, their Lordships had taken a view that if the court finds that the action of the authority is without jurisdiction, then a quick relief by writ can be given prohibiting the authority to proceed without jurisdiction. Learned counsel has also invited my attention to a recent decision of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC). In this case, the Allahabad High Court directly entertained a petition against a notice for reassessment under Section 147 read with Section 148 of the Income-tax Act. In this case, the question was not whether the writ jurisdiction should be directly exercised or not. Therefore, in this case, their Lordships did not examine whether it is proper to entertain the petition directly or not. Learned counsel also invited my attention to the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). In that case also their Lordships have held that the reopening of an assessment must have a rational connection.

12. Now, coming to the facts of the present case, it is apparent that when the assessment orders were passed for the assessment years 1976-77, 1977-78 and 1978-79, at that time the valuation report of the Department was not before the assessing authority, therefore, it cannot be said that the assessing authority has not applied his mind for reopening of the assessment. But I would not like to express any opinion at this stage, because I am of the opinion that looking to the facts, it will not be proper to exercise the jurisdiction of this court to directly interfere in such matters. It would be proper that the petitioners file a proper reply and take all the objections which the petitioners have taken here in this court, before the assessing authority who shall decide whether such reopening of assessment is sustainable or not. But, at this stage, I do not want to express any opinion. Suffice it to say that there is a proper remedy provided under the Act and the petitioners can successfully get their grievances redressed.

13. In this view of the matter, I am not inclined to interfere and uphold the objection that this petition should not be entertained under the extraordinary jurisdiction of article 226 of the Constitution of India. Hence, this petition is dismissed with no order as to costs.