1998 (12) TMI 621 - HC - Income Tax

Dispute over Wealth-tax assessment validity hinges on limitation period for assessment completion.

The case involved a dispute over the validity of assessment orders for the assessment years 1971-72 to 1974-75 under the Wealth-tax Act. The key issue was ... - Issues:1. Validity of assessment orders for the years under consideration.2. Computation of tax liability in the assessment orders.Issue 1: Validity of assessment orders for the years under considerationThe case involved a reference regarding the validity of assessment orders for the assessment years 1971-72 to 1974-75 under the Wealth-tax Act. The key question was whether the assessment orders were passed within the period of limitation. The Tribunal noted that prior to April 1, 1975, there was no limitation for completing assessments under the Wealth-tax Act. However, with the insertion of section 17A in 1975, a period of limitation was introduced. The assessment orders for the years in question were made on March 31, 1979, and notices of demand were issued in May 1979. The Appellate Assistant Commissioner and the Tribunal differed on whether the demand notices should also be within the period of limitation.The Tribunal observed that the process of assessment involves three stages: computation of net wealth, computation of tax liability, and communication of the tax liability. It concluded that the communication of tax liability is not part of the assessment process. Referring to relevant case law, the Tribunal emphasized that assessment includes both the determination of total income/net wealth and the tax payable on it. It was established that assessment is complete only when both processes are concluded before the expiry of the limitation period.Issue 2: Computation of tax liability in the assessment ordersThe Court highlighted that the determination of tax liability is a critical part of the assessment process, which must be completed within the limitation period. It was noted that the assessment orders in question did not show the computation of tax payable on the net wealth assessed. The demand notices issued after the limitation period were considered as a subsequent act and not the computation of tax payable. The Court emphasized that both the determination of net wealth and the tax payable must occur before the limitation period expires for the assessment to be valid.The Court pointed out that the Appellate Assistant Commissioner and the Tribunal did not investigate whether the computation of tax payable occurred before or after March 31, 1979. Without this crucial finding, it was impossible to determine if the assessments were completed within the limitation period. The Court directed the Tribunal to reexamine this aspect and make a decision based on the clarification provided by the Court on the legal questions referred to it.In conclusion, the judgment addressed the issues of validity of assessment orders and the computation of tax liability within the limitation period. It emphasized the importance of completing both aspects of assessment before the limitation period expires for the assessment to be considered valid. The case was remanded to the Tribunal for further examination in light of the legal principles clarified by the Court.