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Petitioner: H.E.H. NIZAM'S JEWELLERY TRUST VS Respondent: ASSISTANT COMMISSIONER OF WEALTH JUDGMENT
Court Name: Andhra Paradesh High Court Judge(s): M. N. Rao, T. N. C. Rangarajan Title:H.E.H. NIZAM'S JEWELLERY TRUST vs ASSISTANT COMMISSIONER OF WEALTH
JUDGMENT
Reported As: 1998 PTD 1504 Result: Leave refused Judgment JUDGMENT ' T. N. C. RANGARAJAN, J.-These two writ petitions have been filed by the Secretary of H.E.H. The Nizam's Jewellery Trust challenging the validity of the notices issued under section 17 of the Indian Wealth Tax Act, 1957, in respect of the assessment years 1984-85 to 1989-90. ' H.E.H. The Nizam's Jewellery Trust was declared on March 29, 1951, in respect of 107 items of jewellery for the benefit of various beneficiaries mentioned in the deed. According to this trust, 24 items were directly given to the beneficiaries and out of the balance of 83 items, 40 items were to be disposed of either in India or abroad within three years after the death of the Nizam and his son, while the balance of 43 items were not to be sold except in grave financial emergency. Subsequently, on January 27, 1952, a supplementary trust was declared in respect of 90 more items of jewellery. In both the trust deeds, a representative of the Government was a trustee and at all material times the Additional Finance Secretary of the Union of India was a trustee. The Nizam died on July 24, 1967, and his son also died on October 9, 1970 Consequently, in July, 1972, the trust made an offer to the Government of India to sell the collection of 173 items of jewellery to the Government, after handing over heirloom of 24 items to the beneficiaries directly. This was considered by two' expert committees who inspected the jewellery and classified the same. In the meanwhile, the Antiquities and Art Treasures Act, 1972, came into force. Sixty-five items of jewellery were declared to be not antiquities and 23 as antiquities and in respect of one item, Jacob diamond, no decision was taken. The trustees were told that they were free to sell the rest. But one of the beneficiaries filed an Original Petition No,141 of 1978 in the City Civil Court, Hyderabad, for removal of the trustees and for an interim injunction against the sale. The matter went up to the Supreme Court along with
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two other appeals by a prospective buyer and on August 31, 1979, the Supreme Court directed that the jewellery be sold in public auction by the Finance Secretary to act as the officer of the Court for the same. On September 20, 1979, when the auction was about to be held in the Court room of the Supreme Court, the Union of India sought stay, pending a decision to acquire these jewels as art treasures in the National interest. The Antiquities and Art Treasures' Rules were amended with a view to declare, identified pieces of jewellery as art treasures. This was challenged in W.P. No,1429 of 1979 and the matter was remitted for consideration by the Government. On October 12, 1984, a notification for compulsory acquisition of seven items of jewellery was made in respect of which the trustees filed their objections and later an application to the Supreme Court for setting aside that order. In the meanwhile, another committee was set up by the Government with Sri Sharada Prasad as Chairman which recommended that acquisition of the entire collection as of historic interest. Thereupon, Negotiations were conducted and the parties entered into a compromise; dated February 14, 1989, for a package deal, by which the dispute was to be referred to arbitration. The Supreme Court recorded the compromise on April 25, 1989, and referred the matter to arbitration. In the meanwhile, an application was made by the Government for a declaration that the jewellery was part of regalia and belonged to the Union of India but this was dismissed as withdrawn on April 22, 1991. The two arbitrators differed on the question whether the right of the Government to acquire the property had lapsed in terms of the compromise agreement and the matter was referred to an umpire. Before the umpire also, the Government again took the objection that the jewellery belonged to the Government but it was rejected. On the question of fair price to be paid for the jewellery in terms of the agreement, the trustees claimed that the jewellery had been valued by Sotheby's at 162 million dollars which if taken as a reserve price, the fair price may be four times and could work out to 648 million dollars equivalent to Rs,1,192.32 crores. The claim also referred to valuation done by Christie's giving a valuation of 135 million dollars. The Union of India submitted that the foreign market for the jewellery had to be excluded in fixing the price that there were numerous restrictions on the sale of the jewellery and the only purchaser available being the Union of India, the valuation made for the purpose of wealth tax should be adopted as the fair market price. It was pointed out that the same jewellery was assessed by the Wealth Tax Officer on the basis of the valuation made under section 16-A of the Indian Wealth Tax Act and since that valuation had been accepted by both the parties, the fair price should not exceed the value adopted for wealth tax purposes. The value, Sri Chowlera, filed an affidavit before the arbitrator and he was also cross-examined on behalf of the trust. The umpire, Sri Justice A.N. Sen, gave an award, dated July 27, 1991, holding that the valuation made for wealth tax purposes cannot determine the fair and just value for the purpose of acquisition, that valuation made by Sotheby's and Christie's was with reference to an international auction and the valuation made by Vithaldas was based on fancy prices. Therefore, he himself determined the value of the 173 items of jewellery at Rs,225,37,33,959. The Union of India challenged this before the Supreme Court and by the decision reported in the case of Union of India v. Prince Muffakam Jah, AIR 1995 SC 498; (1994) 4 Scale 113, the Supreme Court held that the award was binding on the Government, but taking into account an arithmetical error, the amount that was to be paid as the just and fair price for 173 items of jewellery as on December 31, 1994, would be Rs,180,37,33,959. The Government was given the liberty to choose certain items alone if necessary and if all the items were acquired, a sum of Rs,1,50,000 was also to be paid as costs. It is stated that ultimately the jewellery has been taken over by the Government at that value. The Government's claim to title was also rejected by a separate order in (1994) 4 Scale 113 observing that it was based on gross misrepresentation. ' While the above proceedings were going on, wealth tax assessments had also been made. It is the case of the petitioner that all the facts relating to the proceedings mentioned above, were disclosed to the Wealth Tax Officer while filing the return for each assessment year. In 1979, one Mr.
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Mahenderji Mehta was appointed as a Valuation Officer for the valuation of the jewellery in respect of the assessm ent years 1957-58 to 1979-80. The valuation made by him started from Rs,1.87 crores for valuation, date March 31, 1957, to Rs,29.73 crores for the valuation, date March 31, 1979. Subsequently, for the assessm ent years 1980-81 and 1981-82, valuation dates (March 31, 1980, and March 31, 1981), the matter was referred to Mr. Chowlera under section 16-A and he gave his report on April 13, 1987, assessing the value of Rs,32.43 crores. According to the petitioner, returns were filed for the subsequent years on the basis of the valuation made by the Department for the earlier years. For the assessm ent years 1982-83 to 198586, a fresh valuation was made by Mr. Chowlera on March 13, 1986, taking the value at Rs,33.30 crores for 1982-83 and Rs,34.18 crores for 1983-84 and Rs,35.18 crores for 1984-85 and 1985-86. Similarly, the valuation was made for the three subsequent assessm ent years 1986-87---Rs,35.24 crores, 1987-88---39.89 crores, 1988-89---Rs,41.72 crores. For all these assessm ent years L984-85 to 1988-89 with which we are now concerned, assessments were made under section 16-A(6) in conformity with the valuation reports. ' By the impugned notices, the Wealth Tax Officer proposed to revise those valuations on the ground that net wealth chargeable to tax has escaped assessment by reason of underassessm ent. The reasons for the belief that wealth that wealth had escaped assessment were recorded as follows: "A reference was made to the determination of the fair value of the jewellery at Rs,171 crores in the proceedings before the Supreme Court and the admission of the valuer. Mr. Showlera before the arbitrator that his valuation made was on the low side and that he had also committed certain errors with reference to the valuation. It was stated that such valuation suffers from several infirmities resulting in underassessm ent of the wealth considering the fact that the trustees had returned the value at Rs,3.60 crores though according to them, the value was near the amount of Rs,1,000 crores and, therefore, it was clear that the trustees had not disclosed fully and truly all material facts pertaining to the value of the jewellery necessary for the assessment of the net wealth in the cases of the beneficiaries of the Jewellery Trust." ' These petitions challenge the impugned notices on the ground that such a belief that there was underassessm ent could not be entertained by the Wealth Tax Officer from the material on record, that the petitioners have disclosed all the relevant information and material particulars and that the question of non-disclosure of any material particulars becomes irrelevant, where the assessm ent is made under section 16-A and not on the basis of the return. Learned counsel for the petitioners submitted that any deficiency in the enquiry before making the assessment, cannot be the basis for reopening the assessment and the value of the property cannot be worked out backwards on the basis of the subsequent valuation. He pointed out that even according to the valuer who had fully participated in the arbitration proceedings, the value of the jewellery was taken at a lesser figure even after the arbitration award, as in his report, dated August 1, 1995, he has taken the value for 1989-90---Rs,56.06 crores. It was further submitted that the entire question of valuation was the subject of an appeal and concluded by the order of the Appellate Tribunal and cannot be the subject of escaped assessment. It was also pointed out that when the jewellery itself was tendered for examination/valuation, there was no question of disclosure of any further facts as to its valuation. It was also submitted that the notices are barred by limitation. It was submitted that in these circumstances the impugned notices were wholly without jurisdiction and should be quashed. ' On the other hand, in the common counter-affidavit filed on behalf of the Revenue, it is stated that the admission of the valuer in the Arbitration proceedings indicates that he did not have real expertise, as he had not seen an Alexandrite gem in his life. It is also stated that the petitioners knew that the jewellery was worth more than the value shown and yet chose to show a very low value. It is further stated that it was only at the hearing of the appeal before the Appellate Tribunal
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that the Revenue realized from an article in India Today that the intrinsic worth of the jewellery was many times more than what was declared and it is stated that an investigation was made thereafter and the Revenue came to know that the jewellery was being acquired by the Government at Rs,180 crores. Learned counsel for the Revenue submitted that a perusal of the proceedings pending before the Supreme Court would show that up to 1991 there was no challenge to title and up to 1989 there was no bar on the sale of the jewellery. He submitted that the compromise entered into in 1989 was significant and this compromise was not disclosed and the valuation reports obtained from Sotheby and Christie were not disclosed and hence it was a case of omission to disclose the material particulars. He further submitted that even though for the assessm ent year 1990-91 onwards those facts are mentioned, the vast difference between the claim for over Rs,1,000 crores before the arbitrator and the returned value of less than Rs,10 crores in the wealth tax proceedings indicated that the assessee knew that the jewellery was valuable but had deliberately withheld the information. He also submitted that even though the assessment was made under section 16-A(6), the Wealth Tax Officer was entitled to reopen the same when he had reason to believe that the wealth was under assessed. He argued that when section 17 provided for a reassessm ent of the escaped wealth, such a provisions had, to be applied to all assessm ents because excluding the assessments made under section 16-A(6) from the scope of section 17 will lead to discrimination. ' According to the provisions of the Wealth Tax Act, when the assets are held by the trustee, a return has to be filed by the trustee but the assessments have to be made in the like manner and to the same extent as it will be livable upon the beneficiaries. In a connected case which went up to the Supreme Court, it was held in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555 as follows (headnote) "The consequences of the provisions in section 21(1) that the trustee is assessable in the like manner and to the same extent' as the beneficiary are three-fold. In the first place, there would have to be as many assessm ents on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Second, the assessm ent of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the ' hands of the trustee. And lastly, the amount of tax payable by the trustee would be 'the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly. ' The Wealth Tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of subsection (1) of section 21. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinant shares, subsection (1) of section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being." ' Thereafter, subsection (1-A) was introduced for the purposes of assessing the value of the assets which fall short of the aggregate value of the interest of the beneficiaries. That is why in the present case, apart from making separate assessments in respect of about 180 beneficiaries, assessments have also been made under subsection (1-A) of section 21 in the hands of the trust.
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' A brief reference to legislative history gives us the perspective. Prior to April 1, 1989, a return had to be filed by the assessee under section 14 and the Wealth Tax Officer could assess the net wealth on the basis of the return, if he found it to be correct and complete. Otherwise, he could call for evidence in support of the return and after an enquiry, complete the assessment under section 16(3). The charge is on the net wealth, which is defined under section 2(m) as the aggregate value of all the assets in excess of the aggregate value of all the debts owed by the assessee on the valuation date. Section 7 provided at that time, that the value of any asset 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. Thus, the estimate of the value of the asset was one step in the assessment proceedings. With respect to this step, the assessee was required to make an estimate in the return which was substituted by the estimate made by the Wealth Tax Officer which could then be taken up on appeal for adjudication. Subsections (6), (7) and (8) of section 24 provided for a reference by the Appellate Tribunal for an arbitration by a value at the option of the assessee which was to be final. There were also departmental instructions for assistance by a value to the Wealth Tax Officer when he made his estimates. There was a general feeling that the assessees were under- valuing the assets. Therefore, by the Finance Act, 1976, Explanation 4 was added to section 18 which provides for penalty for concealment. This Explanation reads as follows: "Explanation 4.---Where the value of any asset returned by any person is less than seventy per cent. Of the value of such asset as determined in an assessment under section 16 or section 17, such person shall be deemed to have furnished inaccurate particulars of such asset within the meaning of clause (c) of this subsection, unless he proves that the value of the asset as returned by him is the correct value." ' The meaning of this Explanation has been clarified by a Circular and Press Note, dated May 27, 1968, by the Central Board of Direct Taxes itself to the effect that as long as some material is available to the assessee, such as a valuation report given by a registered value, the substitution by a value more than 30 per cent. By the Wealth Tax Officer would not make it a matter of concealment in spite of this Explanation. Simultaneously, there was the other side of the picture, namely, the Wealth Tax Officers were making wild and high pitched estimates, one of the reasons being that they did not have the expertise for valuation of assets, and secondly, they would be motivated by an understandable bias in favour of the Revenue. This aspect was considered by the Direct Taxes Enquiry Committee. Based on the report of the Committee, section 16-A was introduced to remove the matter of estimating the value of the assets from the purview of the Wealth Tax Officer to a Valuation Officer. The memorandum explained this amendment which was introduced by the Taxation Laws (Amendment) Act, 1972, as follows: "The valuation cells so established were poorly manned and their jurisdiction was far and wide and it was becoming increasingly difficult to cope with all the cases which required proper valuation and the completion of the assessm ents in respect of big and revenue yielding cases were being unduly delayed. ' As pointed out above, the function of the cell was advisory only and the report was technically not binding even on the Wealth Tax Officer and if there were errors or omissions even he could differ from the report. The assessee had no opportunity in placing before the officer of the cell his view- point or any document or evidence it support of the value declared by him. In order to remove these difficulties, the Taxation Laws (Amendment) Act, 1972, has introduced the procedure for valuation by the Valuation Officers appointed under the Act with powers to call the assessee, call for documents, records and accounts and also vests him with powers vested in the Civil Court for the purpose of discovery, inspection, of enforcing attendance, etc., under section 37 and powers of entry and inspection of land and building under, the newly inserted section 38-A.
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' The main object of the new procedure is minimizing tax evasion on account of undervaluation of properties. It simultaneously provides the assessee with an opportunity to prove his case regarding the value declared before the Valuation Officer as well as appeal against the order of the Valuation Officer before the Appellate Assistant Commissioner and later to the Tribunal. The purpose of the new administrative structure and procedure for valuation is to straighten the valuation machinery. With the introduction of valuation of properties by the statutorily appointed Valuation Officer at the initial stage of assessm ent, the old provisions regarding the reference to the values for arbitration at the Tribunal stage has been omitted being redundant and superfluous. With the introduction of the new procedure and appointment of Valuation Officers who are experts in their respective fields, the job of valuation is entrusted to the experts instead of being left to the Wealth Tax Officer who is a layman. The procedure outlined creates wheels within wheels. The work of the assessment is thereby divided into two distinct limbs. The valuation of the assets is to be done by the Valuation Officer in cases and circumstances outlined in the section. The Wealth Tax Officer has to complete the assessm ent adopting the value of such asset as determined by the Valuation Officer. The valuation report is to be defended by the Valuation Officer and not by the Wealth Tax Officer in the appellate proceedings." (Verma, page 1/494-495 (1978 edition)) (See also Central Board of Direct Taxes Circular No,96, dated November 25, 1972). ' Form 0-8 given in the rules lays down the particulars required to be given by the assessee for assessing the jewellery. Those particulars are only description, weight or special features . In view of the introduction of section 16-A, subsection (3) was introduced in section 7 to the effect that notwithstanding anything contained in subsection (1) in section 7, where the valuation of any asset is referred by the Assessing Officer to the Valuation Officer under section 16-A, the value of such asset will be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date. The Direct Tax Laws (Amendment) Act, 1989, amended section 7 with effect from April 1, 1989. It provided in subsection (1) that the value of any asset shall be the value as determined in the manner laid down in Schedule III Consequently, subsection (3) was omitted. However, Schedule III now provides that in respect of the jewellery the value shall be estimated to be the price which it would fetch if sold in the open market on the valuation date. According to rule 18, in that Schedule the return has to be supported by a report of a registered value where the value exceeds rupees five lakhs and if the Assessing Officer was of the opinion that the value declared is less than the market value, he may refer the matter to the Valuation Officer under section 16-A, and the value of such jewellery shall be the fair market value as estimated by Valuation Officer. Rule 19 provides for adjustment of the value once estimated by the Valuation Officer for four subsequent assessment years without fresh valuation. Form 0-8-A requires only the following information: "Form 0-8-A: (1) Serial No, (2) Description of item. (3) Gross weight. (4) Net weight of precious metal. (5) Description and weight of precious or semi-precious stones. (6) Value of each precious or semiprecious stone and decided value of such stones. (7) Total value of the item of jewellery." ' Therefore, in spite of these amendments, the position remains the same as before. As explained by the Supreme Court in Bharat Hari Singhania v. CWT (1994) 207 ITR 1 (at page 23): "Ordinarily, it is for the Wealth Tax Officer to value the assets of an assessee, whatever be their nature. Section 7(1) says so. Subsection (3) of section 7,'however, says that not with standing anything contained in subsection (1), where the valuation of any asset is referred by the Wealth Tax
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Officer to the Valuation Officer under section 16-A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date...]' Subsection (1) of section 16-A prescribes the situations in which the Wealth Tax Officer may refer the valuation of any asset to the Valuation Officer. Subsections (2) to (4) prescribe the procedure to be followed by the Valuation Officer on such reference. In short, he has to give notice to the assessee, receive the evidence produced by him, make appropriate enquiry and then sent his report under subsection (5) to tie Wealth Tax Officer.…
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