B. B. Pande and Sons (HUF) v Union of India and Others. (and Others Writ Petitions.)

Madhya Pradesh High Court

INDORE BENCH

5 May 1994

MP No. 79 of 1994

The Judgment was delivered by U. L. BHAT C. J.

U. L. BHAT C. J.

1. The petitioner is a Hindu undivided family represented by its karta. The wealth-tax assessment in regard to the Hindu undivided family has been completed for the year 1991-92. The total wealth was valued at Rs. 6, 15, 000 and the taxable wealth at Rs. 4.15 lakhs. The assessment for the year 1992-93 is pending. For the year 1993-94, the exemption limit is Rs. 15 lakhs. For the assessment year 1993-94, the petitioner did not submit a return u/s. 14 of the Wealth-tax Act, 1957 (hereinafter “the Act”, for short). The Assessing Officer, respondent No. 2, issued annexure ‘A’ notice to the petitioner u/s. 14(4)(i) of the Act requiring him to submit a return. By the Taxation Laws (Amendment) Act, 1972, section 16A has been inserted which provides for reference of the valuation of an asset to a Valuation Officer. The Assessing Officer referred the valuation in this case to the third respondent, Valuation Officer. The third respondent issued annexure ‘C’ notice to the petitioner requiring him to furnish necessary records and to allow inspection of property. The petitioner, therefore, filed the writ petition challenging the constitutionality of section 16A and praying that annexures ‘A’ and ‘C’ may be quashed. We have heard learned counsel for the petitioner and learned counsel for the respondents S. 3 of the Act which is the charging section requires every individual, Hindu undivided family and company to pay wealth-tax at the rates specified in Schedule I in respect of the net wealth possessed by it. No tax is payable on net wealth up to the value of Rs. 15 lakhs. Certain assets are exempt from payment of wealth-tax. Certain assets are excluded from computation. S. 7 of the Act deals with determination of the value of assets. The value for the purpose of the Act shall be its value as on the valuation date determined in the manner laid down in Schedule III. According to s. 8 the income-tax authority shall be the wealth-tax authority for the purpose of the Act. Schedule III contains rules for determining the value of assets. According to rule 1, the value of assets other than cash, would be determined in the manner laid down in the rules. The valuation of immovable property, being a building or land appurtenant thereto or part thereof, is regulated by rules 3 to 6 and 8. Adjustment for unearned increase in the value of land is dealt with in rule 7. The rules also prescribe the manner of determination of the value of quoted shares and debentures of companies, unquoted preference shares, assets of business, interest in firms or association of persons, life interest, jewellery, etc. Rule 20 states that the value of any asset other than cash, being an asset which is not covered by rules 3 to 19, shall be estimated to be the price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date. Various decisions of the Supreme Court and the High Courts have thrown further light on the manner and method of valuation of assets under the rulesSub-s. (1) of section 16A 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, where under the provisions of s. 7 read with the rules made under this Act or, as the case may be, the rules in Schedule III, the market value of any asset is to be taken into account in such assessment, the Assessing 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 Assessing Officer is of opinion that the value so returned 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 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. Sub-s. (2) of section 16A requires the Valuation Officer to serve a notice on the assessee requiring him to produce accounts, records or other documents required for the purpose of valuation. Sub-s. (3) contemplates an appointment order being passed by the Valuation Officer where he is of the opinion that the value of the asset has been correctly declared in the return. Where his opinion is contra, under sub-section (4), he is required to serve a notice on the assessee giving particulars and calling for objections. Under sub-section (5), after hearing the evidence produced by the assessee and after taking into consideration all relevant material gathered, the Valuation Officer is required to pass an order estimating the value of the asset and send a copy of the order to the Assessing Officer and to the assessee. Sub-s. (6) requires the Assessing Officer to complete the assessment in conformity with the estimate of the Valuation OfficerLearned counsel for the petitioner has invited our attention to Chapter VII-B of the Act dealing with registered valuers. Any assessee who is entitled to or required to attend before any wealth-tax authority or the Appellate Tribunal in connection with any matter relating to valuation of any asset, except where he is required under the Act to attend in person, may attend by a registered valuer. That is to say, the Act provides for the registered valuer to assist the assessee. There was no provision in the Act enabling the Assessing Officer to seek the assistance of an expert. This lacuna has been sought to be remedied by inserting section 16A in the Act. According to this provision, where the market value of any asset is to be taken into account in the assessment, the Assessing Officer may refer the valuation of the asset to a Valuation Officer in certain circumstances, namely, where the value of the asset as returned is in accordance with the estimate made by a registered valuer but the Assessing Officer is of the opinion that the value so returned is less than its fair market value, or in any other case if he is of the opinion that the fair market value of the asset exceeds the value of the asset as returned by more than the prescribed percentage or having regard to the nature of the asset and other relevant circumstances, it is necessary to do so

3. Section 16A is intended to enable the Assessing Officer to seek the help of a Valuation Officer. The Valuation Officer is a person appointed under section 12A. In appropriate cases, the Assessing Officer is enabled to make a reference to the Valuation Officer. The only submission made by learned counsel in support of the challenge against the provision is that it does not contain any norms which will guide the Valuation Officer in assessing the market value. We do not think that this submission is correct. A Valuation Officer to whom reference is made under section 16A is also guided by the provisions of the Act and the Rules in Schedule III. Rule 1 states that the value of any asset shall be determined in the manner laid down by the rules. Rules 3 to 20 lay down the manner of valuation. The Valuation Officer who is required to discharge functions under section 16A should necessarily follow the rules in Schedule III. Therefore, the contention that there are no norms to guide the Valuation Officer is unsustainable. The provision is not challenged on any other ground. We hold that section 16A is not ultra vires the ConstitutionThe next submission made on behalf of the petitioner relates to annexure “A” notice issued by the Assessing Officer and annexure ‘C’ notice issued by the Valuation Officer. By annexure ‘A’, the Assessing Officer has required the petitioner to submit a return of his net wealth for the assessment year 1993-94 within one month from the date of receipt of the notice. The Assessing Officer also referred the valuation to the Valuation Officer who issued annexure ‘C’ notice to the petitioner requiring him to produce records and allow inspection of the assets. The petitioner contends that annexure ‘C’ notice is without jurisdiction since section 16A is unconstitutional. We have already sustained the constitutionality of section 16A of the Act. Therefore, the challenge against annexure ‘C’ notice fails

4. The assessment, for the purpose of the Act, for the assessment year 1991-92 has been completed. The total wealth was valued at Rs. 6.15 lakhs and the taxable wealth was valued at Rs. 4.15 lakhs. The petitioner has submitted a return for the year 1992-93 more or less adopting the order passed for the preceding year. For the assessment year 1993-94, the exemption limit for the purpose of taxation has been fixed at Rs. 15 lakhs. The petitioner contends that going by the assessment completed for the year 1991-92 and the fact that the return filed for the year 1992-93 would not exceed Rs. 15 lakhs, therefore, the Assessing Officer has no jurisdiction to require him to submit a return. This is also stated as the justification for not filing the return for that year

5. S. 14 deals with the return of wealth. The substance of sub-s. (1) is that every person the value of whose net wealth on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax, shall, on or before the due date, furnish a return of his net wealth in the prescribed form and verified in the prescribed manner. S. 15 deals with return after due date and amendment of return. S. 16(4)(i) reads as under

“16(4). For the purposes of making an assessment under this Act, the Assessing Officer may serve, on any person who has made a return u/s. 14 or s. 15 or in whose case the time allowed under sub-s. (1) of s. 14 for furnishing the return has expired, a notice requiring him, on a date to be specified therein–

(i) where such person has not made a return within the time allowed under sub-s. (1) of s. 14 to furnish a return of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date, in the prescribed form and verified in the prescribed manner, setting forth the particulars of such net wealth and such other particulars as may be prescribed.”

6. Under the above provision, the Assessing Officer is competent, under certain circumstances contemplated therein, to serve on any person a notice requiring him to furnish a return of his net wealth on the valuation date in the prescribed form and verified in the prescribed manner setting forth the necessary particulars

7. By annexure ‘A’ notice, the Assessing Officer required the petitioner to submit a return. The petitioner takes the stand that he does not have taxable net wealth for the assessment year 1993-94 and, therefore, he has not submitted the return. Whether he has taxable net wealth or not is a matter for decision by the Assessing Officer. The petitioner has been assessed for 1991-92. His assessment for the assessment year 1992-93 is pending. There can be no prejudice caused to him by filing a return. If he thinks that the value of his net wealth is below the exemption limit, he may indicate so in his return so that the Assessing Officer may examine the same. Annexure ‘A’ notice is not illegal or beyond the jurisdiction of the Assessing OfficerThe petition is dismissed. No costs