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PETITIONER: M/S. LOK NATH AND COMPANY, THE MALL, SHIMLA.

       Vs.

RESPONDENT: COMMISSIONER OF WEALTH TAX, PATIALA.

DATE OF JUDGMENT31/10/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) MAJMUDAR S.B. (J)

CITATION:  1995 SCC  Supl.  (4) 610 JT 1995 (7)   598  1995 SCALE  (6)184

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P. JEEVAN REDDY, J.      Leave granted. Heard counsel for both the parties.      This appeal  arises from  the judgment  of the Himachal Pradesh High Court answering the question referred to it, at the instance  of the  Revenue, in favour of the Revenue. The question stated  under Section  27(1) of the Wealth Tax Act, 1957 reads:      "Whether the Income Tax Appellate      Tribunal has been right in law in      vacating the orders passed by the      Commissioner of Wealth Tax under Sec.      25(2) of the Wealth-Tax Act, 1957, for      the assessment  years 1959-60 to 1967-68      on the ground that on his own recorded      findings, the Commissioner wrongly      assumed jurisdiction."      For  the  Assessment  Years  1959-60  to  1967-68,  the appellant-assessee  filed   returns  on   August  30,   1969 declaring the  value of his house property at Rs.5,02,762/-. Since the  returns were  filed beyond the prescribed period, the Wealth  Tax Officer  issued notices  under Section 18(1) (a)  of   the  Act.   The  assessee  filed  revised  returns disclosing higher  valuation  which  were  accepted  by  the Wealth Tax Officer. He made an assessment order accordingly, stating, inter  alia, that  the assessment  was  made  under Section 16(3).  When these  orders came to the notice of the Commissioner of Wealth Tax, he proposed to revise them under Section 25(2) of the Act. He issued notices calling upon the assessee to  show cause why the said orders of assessment be not revised  for two  reasons,  viz.,  (i)  the  Wealth  Tax Officer did  not apply his mind to the valuation, etc. as he did not give a notice under Section 16(2) of the Act and yet completed the  assessment under  Section 16(3)  which is  as such invalid  and (ii)  the  Wealth  Tax  Officer  erred  in

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accepting the  value of  the house property for all the said assessment years at a lower figure, even though value of the very same house property was declared by the assessee in the return relating  to assessment year 1968-69 at a much higher figure. The  assessee submitted explanation to the said show cause notice  stating  that  non-issuance  of  notice  under Section 16(2)  of the  Act is a mere irregularity and not an illegality and  that inasmuch  as his  revised returns  have been accepted by the Wealth Tax Officer, the non-issuance of the notice  under Section  16(2) is  neither  erroneous  nor prejudicial to  the interests  of the Revenue. After hearing the  assessee,   the  Commissioner   revised  the  aforesaid assessment orders.  The main reason assigned by him is to be found in Para 3 of his order, which reads:      "I have carefully considered the various      points made  by the assessee in its note      dated 27.9.74 as well as those made      during the course of hearings. According      to me there is no force in the      submissions of the assessee. No      assessment can validly be made u/s      16(2). Such  an assessment can always be      challenged by  the assessee legally even      after the period for re-opening the      assessment under section 17 of the      wealth-tax Act, is over. And if this      happens, the Department would have no      remedy for collecting the wealth-tax      dues from  the assessee for this year as      it will be outside its purview.    There      fore, the assessment order made by the      Wealth-tax officer is not only erroneous      but also prejudicial to the interests of      the revenue."      The assessee  appealed  to  the  Tribunal  against  the orders of  the Commissioner. The Tribunal allowed the appeal on reasoning, which being rather involved, be better set out in their own words. The Tribunal held:      "On the preliminary objection, we only      have to adjudicate whether when the      Commissioner invoked the provisions of      section 25(2),  he had any justification      for doing so and here we have the  recor      ded findings of the Commissioner himself      in the impugned orders that he was      taking recourse to vacating the      assessments because without issue of      notices under section 16(2), section      16(3) assessments could not be validly      and legally  framed and such assessments      can be got vacated by the assessee at      any time. The facts of this case leave      us in  not doubt that while resorting to      the provisions of section 25(2), the      learned Commissioner of Wealth-tax      assumed jurisdiction  on the ground that      the assessments framed by the Wealth-tax      Officer under  section 16(3) for all the      nine years  were invalid. We do not feel      any necessity of giving a finding  wheth      section 16(3) assessments in this case      were in  fact invalid, as argued by Shri      B.R. Gupta.  What we are keeping in mind      is that the Commissioner of Wealth-tax      while taking recount (recourse?) to

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    section 25(2) provisions thought those      assessments to  be invalid and once such      was the case, his aplication of mind for      vacating the assessments which he  himse      lf thought to be invalid and void ab-      initio could not clothe him with power      or authority of ordering fresh      assessments." The Tribunal  also characterised  the reason  given  by  the Commissioner for revising as imaginary and unreal.      The High  Court  answered  the  question  aforesaid  in favour of  Revenue on three grounds, viz., [1] the orders of the Wealth  Tax Officer  though purporting  to be under sub- section (3)  are in  substance and  effect under sub-section (1) of  Section 16  of the  Act, since  he had  accepted the revised  returns  submitted  by  the  assessee.  It  cannot, therefore,  be  said  that  the  orders  of  assessment  are defective for violation of Section 16(2) of the Act, [2] the Commissioner was  well within  his jurisdiction  when he was satisfied  that   all  material   facts  necessary  for  the assessment had not been disclosed and that there had been an under-assessment.  In   such  cases,   the  Commissioner  is empowered to  exercise his  jurisdiction under Section 25(2) and [3]  even if  it is held that the assessment orders were made under sub-section (3) of Section 16, yet the failure to issue a notice under sub-section (2) of Section 16, does not affect the  jurisdiction of  the Wealth  Tax Officer  and it cannot be  said that  the orders  of assessment  are without jurisdiction.      As would be evident from the order of the Commissioner, the main  ground upon  which he  exercised his  power  under Section 25(2)  is that  the assessment  orders made  by  the Wealth Tax  Officer purporting  to act under sub-section (3) of Section  16 were  bad since  no order of assessment could have been  made under  sub-section (3) unless a notice under sub-section (2)  was given.  In  this  case,  admittedly  no notice under Section 16(2) was issued. Sub-sections (1), (2) and (3)  of Section  16, as  they stood at the relevant time read as follows:      "16.(1)   If the Wealth-tax Officer is satisfied      without requiring the presence of the assessee or      production by him of any evidence that a return made      under section 14 or 15 is correct and complete, he      shall assess the net wealth of the assessee and      determine the amount of wealth-tax payable by him or      the amount refundable to him on the basis of such      return.      (2). If the  Wealth-tax Officer is not so satisfied, he      shall serve a notice on the assessee either to attend      in person at his office on a date to be specified in      the notice or to produce or cause to be produced on      that date any evidence on which the assessed may rely      in isupport of his return.      (3)  The Wealth-tax Officer, after hearing such      evidence as the person may produce and such other      evidence as he may require on any specified points, and      after taking into account all relevant material which      the Wealth-tax Officer has gathered, shall, by order in      writing, assess the net wealth of the assessee and      determine the amount of wealth-tax payable by him or      the amount refundable to him on the basis of such      assessment." The Commissioner  then expressed the following apprehension, which forms  the basis of his order; "Such an assessment can always be  challenged by the assessee legally even after the

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period for re-opening the assessment under Section 17 of the Wealth-tax Act, is over. And if this happens, the Department would have no remedy for collecting the wealth-tax dues from the assessee  for this  year  as  it  will  be  outside  its purview. Therefore, the assessment order made by the Wealth- tax Officer  is not  only erroneous  but also prejudicial to the interests of the revenue."      We are  of the opinion that once the High Court opined, and in  our opinion rightly, that quoting of sub-section (3) in the  assessment orders  was really  a case of quoting the wrong provision  of law  and does  not affect  its legality, question of  setting aside  the assessment  orders  did  not arise. The  revised returns  filed by the assessee-appellant were accepted  by the  Wealth Tax Officer and the assessment made. The  assessment order for the Assessment Year 1959-60, which is in identical words as all the assessment orders, is a brief one. It reads:           "Assessment order.           Return declaring total Wealth of      Rs.NIL was filed on 30.8.1968 which is      late.     Consequently notice under      section 18(1) (a) has been issued      separately. A revised return declaring      total wealth of Rs.706077/- has been      filed by  the assessee which is accepted      as declared.           Assessed. Issue demand notice and      challan."      (Under the  Column "Section and sub-section under which the assessment  is made",  in the Preamble to the order, the Wealth Tax Officer mentioned "16(3).)      The assessment  order is  obviously the  one made under sub-section (1)  though wrongly  mentioning  Section  16(3). Indeed, the  High Court  has held  further that  even if the said assessments are deemed to be under sub-section (3), yet they cannot  be  held  to  be  without  jurisdiction  merely because notice under sub-section (2) was not issued.      Now,  coming  to  the  apprehension  expressed  by  the Commissioner, which  constitutes the  basis of his order, it is, in  our opinion,  a remote  one at best. The counsel for the Revenue  could not  also explain  the observation of the Commissioner that if an assessment is made under sub-section (3) without  issuing  a  notice  under  sub-section  (2)  of Section 16,  such an  assessment can always be challenged by the assessee legally even after the period of re-opening the assessment under  Section 17  is over and in which case, the Revenue will  be  totally  helpless.  In  our  opinion,  the Commissioner has  acted on certain assumptions which are, at best, too remote, besides being difficult to appreciate.      For the above reasons, we are of the opinion that there was no  sufficient ground  for the  Commissioner to exercise his  jurisdiction   under  Section  25(2).  This  appeal  is accordingly allowed  and the  judgment of  the High Court is set aside.  The question  referred  to  the  High  Court  is answered  din  the  affirmative,  i.e.,  in  favour  of  the assessee and against the Revenue. No costs.