Amiya Bala
Paul Vs. Commissioner of Income Tax, Shillong [2003] Insc 282 (7 July 2003)
Ruma
Pal & B.N. Srikrishna. Ruma Pal, J
The assessee
built a house in a suburb of Kolkata between the years 1981 to 1983. She filed
a return in respect of the assessment year 1982 1983 in which she disclosed
that she had invested an amount of Rs.1,75,000 in the construction of the
house. The return was accepted by the Income Tax Officer (now known as the
Assessing Officer). In respect of the subsequent assessment year, namely
1983-84, the assessee disclosed that she had invested a further amount of Rs
1,70,000 in the construction of the house. This was not accepted by the
Assessing Officer, who referred the question of the construction cost of the
house to the Valuation Officer under Section 55(A) of the Income Tax Act, 1961
(hereinafter referred to as the Act). The Valuation Officer submitted a report
to the Assessing Officer. On the basis of the report, the Assessing Officer
re-opened the assessment in respect of the assessment year 1982-83. The Income
Tax Officer then made an addition of Rs 2,79,000 in respect of the assessment
year 1982 - 83 and Rs 1,77,000 in respect of the assessment year 1983- 84 as
undisclosed investment in the construction of the house. The assessee's appeals
from the assessment orders were turned down by the Commissioner of Income Tax
(Appeals) Guahati. The Income Tax Appellate Tribunal, however, following an
earlier decision, allowed the assessee's appeal and held that the Assessing
Officer could not have referred the question of the cost of construction of the
assessee's house to the Valuation Officer. In this background the following
question was referred to the High Court under Section 256 (2) of the Act.
"Whether
on the facts and in the circumstances of the case, the Tribunal erred in law by
holding that the Assessing Officer cannot refer the matter to the Valuation
Cell(sic) for estimating the cost of construction of the house property".
The
Division Bench of the High Court held that although the Assessing Officer could
not have referred the question of the cost of construction of the assessee's
house to the Valuation Officer under Section 55 A of the Act, he had ample
power under Sections 131 (1), 133 (6) and 142 (2) of the Act to ask for a
Valuation Report from the Valuation Officer. It was held that each of these
sections were "enabling machinery provisions which invested ample powers
in the Assessing Authority", and that any wrong mention of the provision
on the requisition memo would not be material. Accordingly the question
referred was answered in the affirmative and against the assessee.
In the
appeal before us, it was contended on behalf of the assessee that a reference
to a Valuation Officer could only be made strictly in terms of section 55 A of
the Act and that if the circumstances justifying the reference under that
Section were not prevailing, the Assessing Officer did not have the
jurisdiction to otherwise refer the matter to the Valuation Officer.
It was
further pointed out that Section 55 A of the Act only allows for reference to
the Valuation Officer for the purposes of computing the market value of
property in connection with the computation of capital gains. It was also
submitted that reference to the Valuation Officer had been specifically
provided for under Section 55A and that this implied that a reference to the
Valuation Officer could not be made under any of the other provisions which
generally empowered the Assessing Officer to ascertain the income of the assessee.
The submission of the appellant was that if the power to refer the
determination of the cost of construction to the Valuation Officer was
otherwise available to the Assessing Officer under the other provisions of the
Act, it was not necessary to specifically empower the Assessing Officer under
Section 55A.
Finally,
it is submitted that the Valuation Officer is appointed under the Wealth Tax
Act and that he could exercise the power only in the manner prescribed by that
Act or by any other statutory provision like Section 55 A of the Act, and that
he could not be called upon to discharge functions not statutorily prescribed,
in his capacity as a Valuation Officer.
Learned
counsel appearing on behalf of the Revenue Authorities has submitted that under
Section 131 (1), the Assessing Officer has all the powers of the Civil Court including issuing of commissions
under Section 131(1)(d). Further, under Section 142 (2), an assessing officer
for the purpose of obtaining full information in respect of the income or loss
of any person, may make "such inquiry as he considers necessary".
While
conceding that Section 55-A would not in terms apply to the assessee's case,
the respondents' contention was that the Assessing Officer was otherwise
empowered under the other provisions of the Act to refer the matter to the
Valuation Officer.
According
to the respondents the powers of enquiry invested in the Assessing Officer
under Secs.131(1),133(6)and142(2) were wide and that this Court should not read
in any limitation to this power. It was further submitted that there was
nothing in the Wealth Tax Act, 1957 which precluded the Valuation Officer from
giving a valuation report in respect of any matter not covered by the
provisions of that Act. Therefore, it was submitted, the Assessing Officer's
reference to a Valuation Officer was correct and could not be held to be
without jurisdiction.
The
Valuation Officer to whom a requisition was sent by the Assessing Officer in
this case, is an officer appointed under the Wealth Tax Act 1957. Section 2
sub-section (r) of the Wealth Tax Act ,1957, defines "Valuation
Officer" as meaning a person appointed as a Valuation Officer under
Section 12 A of the Wealth Tax Act and includes a Regional Valuation Officer, a
District Valuation Officer and an Assistant Valuation Officer.
Under
section 8 of the Wealth Tax Act, it has been provided that the Income Tax
Authorities specified in Section 116 of the Income Tax Act shall be the Wealth
Tax Authorities for the purposes of the Wealth Tax Act, and "every such
authority shall exercise the powers and perform the functions of Wealth Tax
Authorities under this Act in respect of any individual, Hindu undivided family
or company and for this purpose his jurisdiction under this Act shall be the
same as he has under the Income Tax Act by virtue of orders or directions
issued under Section 120 of that Act or under any other provision of that
Act". A brief look at the powers and functions of a Valuation Officer
under the Wealth Tax Act would be apposite at this stage. Under section 16 A of
the Wealth Tax Act for the purpose of making an assessment under the Wealth Tax
Act and in specified circumstances, the Assessing Officer may refer the
valuation of any asset to a Valuation Officer when, broadly speaking, the Assessing
Officer is of the opinion that the value of the asset had not been correctly
disclosed by the assessee.
Sub
section (2) of Section 16 A of the Wealth Tax Act provides for the Valuation
Officer to give a notice to the assessee for production of various accounts
,records or other documents as the Valuation Officer may require. If the
Valuation Officer is of the opinion that the value of the asset had been
correctly declared in the return made by the assessee, he shall, under
sub-section (3) of section 16 A, pass an order in writing to that effect and
send a copy of his order to the Assessing Officer and to the assessee. When,
however, the Valuation Officer is of the opinion that the value of the asset is
higher than the value declared in the return made by the assessee, and in
certain other specified circumstances, the Valuation Officer is required under
sub-section (4) of section 16 A to serve notice on the assessee intimating the
value at which he proposes to estimate the asset giving the assessee an opportunity
to state his objections either in person or in writing before the Valuation
Officer and to produce or cause to be produced, such evidence as the assessee
may rely in support of his objections. Under sub-section (5), the Valuation
Officer may pass an order in writing estimating the value of the asset after
hearing such evidence as the assessee may produce and after considering such
evidence as the Valuation Officer may require and after taking into account all
relevant material which he has gathered, the Assessing Officer is required to
complete the assessment in conformity with the estimate of the Valuation
Officer as far as the valuation of the particular asset in question is
concerned in terms of sub-section (6) of section 16 A.
The
decision of the Valuation Officer is amendable by him under section 35 (aaa) of
the Wealth Tax Act. The decision may also be the subject matter of appeal under
Section 23 (ha) in which event the Appellate Authority is required, under
section 23 (3A), to give the Valuation Officer an opportunity of being heard or
if necessary direct the Valuation Officer to hold a fresh inquiry. There is a
similar provision in respect of appeals before the Commissioner (Appeals). It
is thus seen that the Assessing Officer, under Section 16 A does not retain the
power of enquiry. There is a similar provision in respect of the particular
asset in respect of which the requisition is made to the Valuation Officer. The
entire process of inquiry is solely conducted by the Valuation Officer alone
whose responsibility it is to arrive at a correct valuation of the asset.
The
inquiry by the Valuation Officer is distinct from the power of the Assessing
Officer who is otherwise invested with the power to enquire into the actual
wealth of an assessee under the Wealth Tax Act. For this purpose, under section
37(1) of the Wealth Tax Act, the Assessing Officer is given, the powers of a
Court under the Code of Civil Procedure, 1908 when trying a suit in respect of:
(a) discovery
and inspection
(b) enforcing
the attendance of any person, including any officer of a banking company and
examining him on oath;
(c) compelling
the production of books of account and other documents; and
(d) issuing
commissions.
Under
section 38 of the Wealth Tax Act, the Wealth Tax Authority is also given the
power to obtain any statement or information from any individual,
company,(including a banking company) firm, Hindu undivided family or other
person and to "serve a notice requiring such individual, company, firm,
Hindu undivided family or other person, on or before a date to be therein
specified, to furnish such statement or information on the points specified in
the notice, and the individual or the principal officer concerned or the
manager of the Hindu undivided family, as the case may be, shall,
notwithstanding anything in any law to the contrary, be bound to furnish such
statement or information to such wealth-tax authority". Thus it is
apparent that the Assessing Officer's power to enquire under sections 37(1) and
38 of the Wealth Tax Act is distinct from his power to refer to the Valuation
Officer under Section 16A.
There
is no overlapping.
Section
55 A of the Income Tax Act occurs in Chapter IV, Part E which deals with
capital gains. For the purpose of assessing the fair market value of a capital
asset in connection with the computation of capital gains it incorporates
several provisions relating to a Valuation Officer in the Wealth Tax Act and
reads as follows "55A. With a view to ascertaining the fair market value
of a capital asset for the purposes of this Chapter, the Assessing Officer may
refer the valuation of capital asset to a Valuation Officer
(a) in
a case where the value of the asset as claimed by the assessee is in accordance
with the estimate made by a registered valuer, if the Assessing Officer is of
opinion that the value so claimed is less than its fair market value;
(b) in
any other case, if the Assessing Officer is of opinion
(i)
that the fair market value of the asset exceeds the value of the asset as
claimed by the assessee by more than such percentage of the value of the asset
as so claimed 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, and where any such reference is made, the provisions
of sub-section (2), (3), (4), 5) and (6) of section 16A, clauses (ha) and (i)
of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5)
of Section 24, section 34AA, section 35 and section 37 of the Wealth tax Act,
1957 (27 of 1957), shall with the necessary modifications, apply in relation to
such reference as they apply in relation to a reference made by the Assessing
Officer under sub-section (1) of section 16A of that Act.
Explanation In this section, "Valuation
Officer" has the same meaning, as in clause ( r) of section 2 of the
Wealth-tax Act, 1957 (27 of 1957)." Clearly this section in terms can have
no application to the assessee's case. But can the Assessing Officer otherwise
make a reference to a Valuation Officer for generally computing the assessee's
taxable income? The respondents say he can, and have referred us to Sections
131(1) and 133(6) of the Act.
Section
131 (1) of the Act is in pari materia with Section 37(1) of Wealth Tax Act and
Section 133 (6) of the Act is substantially similar to section 38 of the Wealth
Tax Act. On a parity of our earlier reasoning, the power of the Assessing
Officer under the Sections 131 (1) and 133 (6) of the Income Tax Act is
distinct from and does not include the power to refer a matter to the Valuation
Officer under Section 55A. Nor does the third section viz., S.142(2) on which
reliance has been placed by the respondents allow him to do so. Section 142 (2)
of the Act provides:
"For
the purpose of obtaining full information in respect of the income or loss of
any person, the Assessing Officer may make such inquiry as he considers
necessary".
The
common feature of Sections 133 (6) and 142 (2) is that the Assessing Officer is
the fact-finding authority. It is his opinion on the basis of the facts as
found on an enquiry conducted by himself which results in the assessment order.
A report by the Valuation Officer under Section 55 A is on the other hand the
outcome of an inquiry held by the Valuation Officer himself and reflects his
opinion on the evidence before him. Such a report would not be the result of an
inquiry by the Assessing Officer under the provisions of Section 133 (6) or
Section 142 (2). It is true that the Assessing Officer is not bound by strict
rules of evidence and a report of a Valuation Officer under Section 55A may be
considered by the Assessing Officer as a piece of evidence if it is relevant.
(See CIT V. East Commercial Co. Ltd : 1967 LXIII ITR 449, 457) However, the
power of inquiry granted to an Assessing Officer under Sections 133 (6) and 142
(2) does not include the power to refer the matter to the Valuation Officer for
an enquiry by him.
Learned
counsel for the respondents has however particularly drawn our attention to
clause (d) of sub section (1) of section 131 which provides inter alia that the
assessing officer shall, "for the purposes of this Act, have the same
powers as are vested in a court under a Code of Civil Procedure, 1908,
(referred to as 'the Code') when trying a suit in respect of the following
matters, namely: -- "(d) issuing commissions." The Court's power to
issue commissions is contained in sections 75 to 78 of the body of the Code and
Order XXVI of the Schedule to the Code. Sections 76 to 78 are not relevant for
our purposes. Section 75 which delineates the power of Court to issue
commissions says:
"Power
of court to issue commissions. Subject to such conditions and limitations as
may be prescribed, the court may issue a commission
(a) to
examine any person;
(b) to
make a local investigation;
(c) to
examine or adjust accounts; or (d) to make a partition;
(e) to
hold a scientific, technical, or expert investigation;
(f) to
conduct sale of property which is subject to speedy and natural decay and which
is in the custody of the court pending the determination of the suit;
(g) to
perform any ministerial act." Order XXVI provides for the procedure for
issuing commissions in respect of each of the purposes mentioned in sections
75. Thus Rules 1 to 8 are in respect of commissions to examine witnesses, Rules
9 to 10 C are in respect of commissions for local investigations; Rules 11 and
12 relate to commissions to examine accounts and Rules 13 and 14 pertain to
commissions to make partitions. If at all the Assessing Officer could have
issued a commission to a Valuation Officer it could only be under Rule 9 which
lays down that:
"Commissions
to make local investigations.In any suit in which the Court deems a local investigation
to be requisite or proper for the purpose of elucidating any matter in dispute,
or of ascertaining the market-value of any property, or the amount of any mesne
profits or damages or annual net profits, the Court may issue a commission to
such person as it thinks fit directing him to make such investigation and to
report thereon to the Court.
Provided
that, where the State Government has made rules as to the persons to whom such
commission shall be issued, the Court shall be bound by such rules." Assuming
that the Valuation Officer was appointed in terms of Order XXVI Rule 9, it is
not clear whether the report submitted by the Valuation Officer was in keeping
with Rule 10 sub-section 1 which requires the Commissioner not only to hold
"such local inspection as he deems necessary" but also to reduce in
writing the evidence taken by him and to return such evidence together with his
report in writing signed by him to the court. If this were done then the report
of the Commissioner and the evidence taken by him "shall be evidence in
the suit and shall form part of the record" ". However the Court and
any of the parties to the suit, with the permission of the Court, may examine
the Commissioner personally "touching any of the matters referred to him
or mentioned in his report, or as to his report, or as to the manner in which
he has made the investigation".
The
Assessing Officer in this case had made a reference under section 55 A of the
Act. This action cannot be supported by reference to Section 131(1) of the Act
read with Order XXVI Rule 9 of the Code since the consequences of reference to
a Valuation Officer under Section 55A of the Act and of a commission issued
under Section 75 read with Order XXVI Rule 9 of the Code are different. It is
not, therefore, a case of correction of an error in mentioning the section by
the Assessing Officer, an error which could be ignored by referring the action
to the appropriate source of power.
Besides
section 55 A having expressly set out the circumstances under and the purposes
for which a reference could be made to a Valuation Officer, there is no
question of the Assessing Officer invoking the general powers of enquiry to
make a reference in different circumstances and for other purposes. [ See Padam
Sen v. State of U.P: AIR 1961 SC 218 para 8; Arjun Singh v. Mohindra Kumar :
AIR 1964 SC 993 (para 19) ]. It is noteworthy that Section 55 A was introduced
in the Act by the Taxation Laws (Amendment) Act, 1972 when Sections 131 (1),
133 (6) and 142 (2) were already on the statute book. Learned counsel for the
appellant has correctly submitted that if the power to refer any dispute to a
Valuation Officer were already available in Sections 131 (1), 133 (6) and 142
(2), there was no need to specifically empower the Assessing Officer to do so
in certain circumstances under Section 55 A.
We may
also note Section 269L of the Act which enables the competent authority
appointed under Section 269B:
(1)
(a) "for the purpose of initiating proceedings for the acquisition of any
immovable property under section 269C or for the purpose of making an order
under section 269F in respect of any immovable property require a Valuation
Officer to determine the fair market value of such property and report the same
to him;
(b)
for the purpose of estimating the amount by which the compensation payable
under sub-section (1) of section 269J in respect of any immovable property may
be reduced or, as the case may be, increased under clause (a) or clause (b) of
sub-section (2) of that section, require the Valuation Officer to make such
estimate and report the same to him.
The
Valuation Officer referred to has, according to the Explanation to the Section,
the same meaning as in clause ( r) of Section 2 of the Wealth Tax Act, 1957.
Under sub-section (2) of Section 269L, the Valuation Officer to whom a
reference is made under clause (a) or clause (b) of sub-section (1) is given
all the powers he has under Section 38 of the Wealth Tax Act, 1957. And if in
an appeal under Section 269G against the order for acquisition of any immovable
property, the fair market value of such property is in dispute, the Appellate
Tribunal shall, on a request being made in this behalf by the competent
authority, give an opportunity of being heard to any Valuation Officer nominated
for the purpose by the competent authority.
From
this it is clear that whenever reference to a Valuation Officer appointed under
the Wealth Tax Act is permissible under the Income Tax Act, it has been
statutorily so provided.
Apart
from the aforesaid, a Valuation Officer is appointed under the Wealth Tax Act
and can discharge functions within the statutory limits under which he is
appointed. It is not open to a Valuation Officer to act in his capacity as
Valuation Officer otherwise than in discharge of his statutory functions. He
cannot be called upon nor would he have the jurisdiction to give a report to
the Assessing Officer under the Income Tax Act except when a reference is made
under and in terms of Section 55 A or to a competent authority except under
section 269L.
We are
therefore of the view that the High Court incorrectly answered the question
referred to it in the affirmative. The Tribunal had not erred in holding that
the Assessing Officer cannot refer the matter to the Valuation Officer for
estimating the cost of construction of the house property. The appeal is
accordingly allowed and the decision of the High Court set aside. There will be
no order as to costs.
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