Commissioner of Income Tax v Dr. C. Ashokan Nambniar

Kerala High Court

ERNAKULAM

29 March 2000

IT Ref. No. 125 of 1997

The Judgment was delivered by ARIJIT PASAYAT, C.J.

ARIJIT PASAYAT, C.J.

At the instance of Revenue, following questions have been referred under s. 256(1) of the IT Act, 1961 (in short, ‘the Act’), by Tribunal, Cochin Bench for opinion of this Court

“(1) Whether, on the facts and in the circumstances of the case, should not the CIT(A) has under law given an opportunity of being heard to the valuation cell, and the Tribunal is right in law in rejecting such a contention ?

(2) Whether, on the facts and in the circumstances of the case and also in view of the disagreement of the CIT(A) with the cost fixed by the valuation cell, should not the CIT(A) who has a ‘duty to act judicially’ a duty to accord a hearing to the valuation cell before rejecting their report and is not such compliance of natural justice ‘implicit in the exercise of such power’ as opined by the Supreme Court in Binapani Dei1967 Indlaw SC 144 ?

(3) Whether, on the facts and in the circumstances of the case and in view of the contents of the sworn statement and the finding of the officer that the assessee is having unaccounted professional income and in the absence of a contrary finding by the Tribunal should not the Tribunal have under law sustained the addition to that extent under the head ‘professional income’ ?”

Learned counsel for the parties agreed that while the third question needs no change, the first and second questions may be clubbed together and reframed. The questions are consolidated and reframed as follows

“Whether, on the facts and in the circumstances of the case, principles of natural justice warranted hearing of Valuation Officer, even if it is held that such a prescription has not been statutorily made ?”

Factual position, as set out in the statement of case, is as follows : Assessee is an Associate Professor of Cardiology in Calicut Medical College. He had not maintained accounts for his professional income. Search was conducted in his residential premises under s. 132 of the Act on 26th June, 1985, and certain documents were seized. During the search, a statement was recorded from him. Therein he had stated that he was engaged in private practice for 22 days in a month, and consulting fees received by him was Rs. 200 to 250 per day. AO was of the view that considering his professional reputation and also investments made by him and expenditure incurred during the year, his statement that he was receiving consulting fees at the aforesaid rates was not acceptable. During the previous year corresponding to assessment year in question, i.e., 1984-85, assessee had completed construction of a residential building. Cost of the construction, according to assessee, was Rs. 4, 35, 000. A reference was made to the valuation cell, which determined the cost of construction at Rs. 5, 40, 550. The AO determined the ‘unexplained investment’ and expenses at Rs. 1, 02, 640. Considering the variation between cost of construction disclosed and determined by valuation cell, AO determined income from profession at Rs. 1, 05, 000 as against Rs. 45, 000 admitted by assessee. Matter was carried in appeal before Commissioner of Income-tax (Appeals), Calicut [in short, CIT(A)], who held that cost of construction would be Rs. 4, 44, 673 and since it was marginally higher than the cost of Rs. 4, 35, 000 declared by assessee, addition was deleted. So far as addition towards drawings is concerned, a sum of Rs. 11, 100 was sustained. Revenue preferred appeal before the Tribunal. It was contended that CIT(A) should have given an opportunity to Valuation Officer before accepting the cost of construction as admitted by assessee. An additional ground was taken to the effect that CIT(A) should have determined professional income on the basis of assessee’s statement made during search. Tribunal did not find substance in either of these stands. In regard to the grant of opportunity, it was observed that reference was not under s. 16A of the Wealth-tax Act, 1957, (in short ‘the WT Act’) and, therefore, there was no requirement to grant opportunity to Valuation Officer. So far as professional income is concerned, Tribunal observed that in the absence of any specific addition by AO on the basis of assessee’s statement, though referred to for a minor variation of Rs. 2, 500, no interference with CIT(A)’s order was warrantedLearned counsel for Revenue, with reference to s. 55A of the Act, submitted that provisions of s. 23(3A) of the WT Act were ipso facto applicable and Tribunal has not considered it in the proper perspective. Learned counsel for assessee submitted that reference under s. 55A has no application to the facts of the case. By way of reply to the said contention, it is submitted by learned counsel for Revenue that even if it is accepted that provisions of s. 55A of the Act are not applicable, principles of natural justice mandated grant of such opportunity of hearing

Since much stress has been laid by learned counsel in regard to applicability of s. 55A, it is necessary to refer to said provision, which reads as follows

“55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the 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 the registered valuer, if the AO is of opinion that the value so claimed is less than its market value;

(b) in any other case, if the AO 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-ss. (2), (3), (4), (5) and (6) of s. 16A, cls. (ha) and (i) of sub-s. (1) and sub-ss. (3A) and (4) of s. 23, sub-s. (5) of s. 24, s. 34AA, s. 35 and s. 37 of the WT 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 AO under sub-s. (1) of s. 16A of that ActExplanation : In this section, ‘Valuation Officer’ has the same meaning, as in cl. (r) of s. 2 of the WT Act, 1957 (27 of 1957)”

Sec. 55A appears in Chapter IV of the Act. Sec. 14 appearing in said Chapter deals with ‘heads of income’. For the purpose of charge of income-tax and computation of total income, all income has been classified under six heads. But the head ‘interest on securities’ has been omitted by the Finance Act, 1988. Heads of income have been dealt with in this chapter under various sections. Head ‘salaries’ is dealt with in ss. 15 to 17. Head ‘income from house property’ is dealt with in ss. 22 to 27. Head ‘profits and gains of business of profession’ is dealt with in ss. 28 to 44D, and head ‘capital gains’ is dealt with in ss. 45 to 55A. Head ‘income from other sources’ is dealt with in ss. 56 to 59. Sec. 55A is a part of the cluster of sections relating to ‘capital gains’

According to learned counsel for Revenue, the words used in s. 55A being ‘for the purposes of this Chapter’, it cannot have application only to Part E of s. 14 dealing with ‘capital gains’. On the contrary, learned counsel for assessee submitted that it is exclusively meant for income from ‘capital gains’. In order to appreciate these rival submissions, apart from s. 55A, some other provisions of the Act having bearing need to be noted. Sec. 2(14) of the Act deals with ‘capital asset’, which has been referred to in s. 55A. Same reads as follows

“(14) ‘capital asset’ means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include :-

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him

Explanation : For the purposes of this sub-clause ‘jewellery’ includes –

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

xxxxx xxxxx xxxxx”

‘Fair market value’ is dealt with in s. 2(22B) in relation to capital asset and is defined as follows

“(22B) ‘fair market value’, in relation to a capital asset, means –

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and

(ii) where the price referred to in sub-cl. (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act.”

Part E of Chapter IV of the Act deals with ‘capital gains’ and, as indicated, pertains to ss. 45 to 55A. Sec. 45 deals with ‘any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H. It is deemed to be the income in the previous year in which distribution of assets by companies in liquidation. Sec. 47 categorises transactions not falling within the purview of s. 45. Mode of computation relating to income chargeable under ‘capital gains’ in dealt with in s. 48. Acquisition of capital asset, computing the cost of acquisition in the case of depreciable assets, advance money received, consideration for transfer in cases of understatement, capital gains exempt tax, profit on sale of property used for residence, etc. are dealt with in ss. 49 to 54. It, therefore, stands to reason and logic that scope of s. 55A is confined to ascertaining fair market value of capital asset, which has been the subject-matter of transfer. Though the expression ‘under this Chapter’ has been referred to in s. 55A, it could not be shown as to how s. 55A has relevance to any transaction other than ‘capital gains’.

Therefore, s. 55A has application only to transactions involving capital gainsIt is to be noted that first appellate authority is not required statutorily to give notice under s. 246 and/or s. 250 or 251 of the Act to the Valuation Officer. When an appeal is heard by the CWT(A) under s. 23 of the WT Act and one of the questions involved relates to valuation of any asset, appellate authority is required to give notice to the Valuation Officer under sub-s. (3A) of s. 23 of the said Act. Similarly, Tribunal is required to give notice before disposing of an appeal under proviso to sub-s. (5) of s. 24 of the WT Act. Sec. 16A deals with reference to Valuation Officer, and his order thereunder. Sub-s. (6) thereof provides that AO shall make the valuation in conformity with the estimate of the Valuation Officer. Said provision was introduced by Taxation Laws (Amendment) Act, 1972 w.e.f. 1st January, 1973. Sub-s. (3A) of s. 23 and proviso to sub-s. (5) of s. 24 dealing with appeals before first appellate authority and Tribunal were simultaneously introduced. They specifically provide for opportunity for hearing to Valuation Officer. There are no corresponding provisions in ss. 250 and 254 of the Act. Mutatis mutandis application of certain provisions of ss. 16A, 23 and 24 of the WT Act, vis-a-vis s. 55A of the Act shall not change the position, so far as this case is concerned. Above being the position, there was no requirement of giving any notice or opportunity of hearing to Valuation Officer

Alternatively, it is submitted by counsel for Revenue that by application of principles of natural justice, such requirement is inbuilt. Where a statutory provision does not exclude principles of natural justice, an opportunity of being heard can be given, particularly when proceedings are quasi-judicial. Exclusion can either be by a clear provision or by inference from the scheme of the statute; as also, the nature of power which is being exercised. Principles of natural justice must be read into unoccupied interstices of the statute, unless there is a clear mandate to the contrary. In the scheme of the statute whenever observance of principles of natural justice is thought necessary, specific provision has been made. If the plea of learned counsel for Revenue that even if there is no statutory requirement of observing principles of natural justice, granting of opportunity is to be accepted, then s. 23(3A), proviso to sub-s. (5) of s. 24 of the WT Act were not necessarily to be inserted. Same cannot be said to be meaningless or purposeless prescription. It is a well known principle of statutory interpretation that no provision of a statute can be said to be without any purpose or superfluous. Inevitable conclusion, therefore, is that whenever there is a requirement for observance of principles of natural justice, same has been specifically provided for in the statute and in other cases, by necessary implication excludedIt is relevant to note that as per s. 250 of the Act, right to be heard at the hearing of the appeal has been conferred on the appellant to appear either in person or by an authorised representative, and on the AO to appear either in person or by a representative. It is pertinent to note that the WT Act has no provision giving right of hearing to the AO or the WTO, as the case may be, in the appeal filed by assessee before first appellate authority. In that context, it was held that AO/WTO has no right to be heard and non-grant of opportunity to him would not render the order of the first appellate authority bad in law. No doubt, nothing prevents such officer from appearing at the hearing of the appeal or the first appellate authority calling upon him for hearing [see CWT vs. Shrenik Kasturbai1987 Indlaw SC 1115 :1987 Indlaw SC 1115 (SC) : TC 67R.621]. There is no fetter on the AO/ITO appearing, if so required, before the first appellate authority. By the Amendment Act of 1972, special provisions have been made in the WT Act relating to references to Valuation Officers by WTO and appearance by registered valuers. These provisions relate to valuation of assets for the purpose of capital gains. The following provisions of the WT Act applicable in relation to a reference made by WTO under s. 16A of that Act apply mutatis mutandis to a reference made by ITO under s. 55A

(i) Sub-ss. (2), (3), (4), (5) and (6) of s. 16A relating to a reference to a Valuation Officer

(ii) Cls. (ha) and (i) of sub-s. (1) and sub-ss. (3A) and (4) of s. 23 (relating to appeal to the AAC from orders of WTO)

(iii) Sub-s. (5) of s. 24 (relating to appeal to the Tribunal from orders of the AAC)

(iv) Sec. 34AA (relating to appearance by registered valuers)

(v) Sec. 35 (relating to rectification of mistakes) and s. 37 (relating to power to take evidence on oath, etc.)As indicated above, first appellate authority was not required to grant an opportunity of hearing to the Valuation Officer. Similar view was taken by Gujarat High Court in ITA. 49/1982 by order dt. 1st April, 1982. Special leave petition filed before apex Court against this order was rejected in CIT vs. Anupama Theatre1984 (150) ITR 79 (St)

Under the provisions of s. 254(1A) of the Act, Tribunal was empowered to refer to question under dispute to arbitration of valuers, one of whom nominated by appellant and the other by respondent. The section was omitted with the Amending Act of 1972 w.e.f. 1st January, 1973. Tribunal has no power to refer the question for arbitration. A new s. 287A has been introduced in the Act providing for appearance by registered valuers in certain matters and any assessee who is entitled to require to appear before IT authority or Tribunal in connection with any proceeding relating to valuation of any asset. It is operative w.e.f. 1st January, 1973

The other question relates to assessment of professional income. Tribunal found that deletion of the addition towards cost of construction, as done by CIT(A), was in order. It was found that the difference involved was a very petty amount. Learned counsel for the Revenue submitted that the approach of CIT(A) was wrong and an additional ground was permitted to be raised by the Tribunal. Same should have been considered by the Tribunal irrespective of what was considered by CIT(A). Assessee’s own admission was not taken into account. We find that the Tribunal has proceeded on the basis that AO himself did not place reliance on said statement while determining the professional income. CIT(A) considered that the difference involved was too small. Tribunal affirmed the conclusion. We are of the view that the conclusions are essentially factual, giving rise to no question of lawThe questions referred as reframed are answered in the negative, in favour of the assessee and against the Revenue