1998 (2) TMI 73 - HC - Wealth-tax

Invalid Wealth-tax Act reassessments for 1970-1972 ruled by Madras High Court

The High Court of MADRAS ruled that reassessments under the Wealth-tax Act for the years 1970-71 to 1972-73 were invalid. The reassessments, based on the ... Wealth Tax, Reassessment Issues: Validity of reassessments under the Wealth-tax Act for the assessment years 1970-71 to 1972-73 based on the interpretation of rule 1D of the Wealth-tax Rules, 1957 by the audit party.Analysis:The judgment by the High Court of MADRAS addressed the question of the validity of reassessments made under the Wealth-tax Act for the assessment years 1970-71 to 1972-73. The reassessments were based on a report by the audit party pointing out inadequacy in the intrinsic value of unquoted shares due to the incorrect application of rule 1D of the Wealth-tax Rules. The Wealth-tax Officer had initially made the reassessment but later, the Tribunal allowed an appeal relying on the decision of the Supreme Court in Indian and Eastern Newspapers Society v. CIT [1979] 119 ITR 996, emphasizing that the audit party's role is to draw attention to the law, not interpret it. The Tribunal held that the audit party's communication did not constitute 'information' for reopening the assessment. The court highlighted that the Assessing Officer must determine the effect of the law mentioned in the audit note independently. The Tribunal concluded that the reassessment was invalid as it was based on the audit party's interpretation of the rule, rather than a mere notification of its existence.The Revenue argued that the reassessments were valid as the audit party correctly pointed out the application of rule 1D, which was later affirmed by the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1. However, the court noted that at the time of the original assessment, there was no clear guidance on the interpretation of rule 1D, leading to different views by various High Courts. The Wealth-tax Officer had initially interpreted the rule in a certain manner, and the reassessment based on the audit party's interpretation did not provide a legal basis for reopening the assessment. The court held that the reassessment, although in line with the later apex court ruling, was invalid as it relied on the audit party's interpretation rather than a mere notification of the rule's existence.In conclusion, the High Court held that the reassessment made for the years in question was invalid in law and should be cancelled. Despite the subsequent clarification by the apex court, the reassessment was deemed improper as it was based on the audit party's interpretation of the rule, exceeding the permissible scope of providing information to the Assessing Officer. The court upheld the Tribunal's decision and did not award any costs considering the circumstances of the case.