1998 PLP 1504 (PTD)

(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 ' [notwithstanding anything contained in subsection (1), where the valuation of any asset is referred by the Wealth Tax 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 the Wealth Tax Officer. Subsection (6) says that 'on receipt of the order under subsection (3) or subsection (5) from the Valuation Officer, the Wealth Tax Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer. In other words, the order or the valuation made by the Valuation Officer, as the case may be, is binding on the Wealth Tax Officer." Section 17 as, it stands today, amended with effect from April 1, 1989, being the law relevant to the date on which the action is proposed to be taken, is as follows: "Section

17. Wealth escaping assessment

(1) If the Assessing Officer has treason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of under assessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and section 17-A, serve an such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice , alongwith such other particulars as may be required by the notice. and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under section 14: Provided that where as assessment under subsection (3) of section 16 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any net wealth chargeable to tax has escaped assessment for such he assessment year by reason of the failure on the part of the assessee to make a return under section 14 or section 15 or in response to a notice issued under subsection (4) of section 16 or this section or to disclose fully and truly all material facts necessary for his assessment for that assessment year: Provided further that the Assessing Officer shall, before issuing any notice under this subsection, record his reason for doing so. " This section enables the Wealth Tax Officer to make a reassessment if the wealth was under assessed and the proviso states that unless the underassessment was by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, such reassessment cannot be made after the expiry of four years from the end of the relevant assessment year. The action proposed to be taken by the issue of the impugned notices are, therefore, challenged for want of jurisdiction three points: "(1) The matter of valuation of an asset being a matter of opinion, no reassessment can be made by reason of changing that opinion whatever be the provocation for the same. (2) The matter of valuation of an asset being within the .jurisdiction of the Valuation Officer, the Assessing Officer has no jurisdiction to reassess the same. (3) A matter of valuation of an asset being an opinion, it is not a matter of a material fact and there being no failure on the part of the assessee to disclose any material fact, any action taken under section 17 is barred by limitation under the proviso thereto." The statement that the matter of valuation of an asset is a matter of estimate and consequently the opinion of the valuer, admits of no dispute. As we have seen, section 7 itself stated originally that the value of an asset shall be estimated to be a price which in the opinion of the Assessing Officer it would fetch if sold in the open market on the valuation date. Therefore, the value determined by the Wealth Tax Officer, is in fact, an opinion. Similarly, the value estimated by any registered valuer or a Valuation Officer would again be an opinion. Not the least an estimate made by the assessee himself even without any expert advice would still be an opinion. Though it is a price which a willing buyer will pay to a willing seller, it has to be estimated in a hypothetical market, particularly when there are restrictions on such transactions. Any determination of the value will certainly vary from case to case and any precise mathematical calculation may not be possible. "Valuation is an art, not an exact science. Mathematical certainly is not demanded, nor indeed is it possible" said Viscount Simon in the case of Gold Coast Selection Trust Ltd. v. Humphrey (Inspector of Taxes (1949) 17 ITR (Supp.) 19 (HL). A national value is contemplated and many imponderables are involved requiring application of different methods and approaches. This is perhaps the reason why even in Form Nos.0-8 and 0-8A prescribed under the rules and Schedule III for jewellery, there is no column relating to the value. No doubt, 'the value is given by the assessee in the return and is often supported by a valuer's report. But it cannot be said that any other valuation report obtained by the assessee, is a material fact required to be intimated to the Wealth Tax Officer. It is quite possible that an assessee may obtain several valuation reports for different purposes but such valuation reports still remain only opinions of various experts. Though they may be relevant for any person to come to his own opinion about the valuation of the asset they do not constitute a primary fact which is required to be disclosed. Particularly in the case of jewellery, when the jewellery itself is produced for inspection and valuation, any other valuation, either by the assessee or any other qualified valuer would be just another opinion but not a primary fact and the omission to disclose the fact that the assessee obtained any other opinion, would not amount to failure to disclose fully and truly primary fact. Consequently, the fact that the assessee was able to obtain two different valuation reports from Sotheby's and Christie's is of no consequence when the jewellery was presented to the Valuation Officer of the Department for his own valuation. It is only with reference to Explanation 4 to section 18 that the assessee's own valuation has to be supported by a valuer's report. In the present context, it is not in dispute that for each assessment year the assessee took as the basis the valuation of the Department's Valuation Officer for the earlier year. Further, according to a Circular of the Central Board of Direct Taxes No.446 (see (1993) 200 ITR (St.) 228), dated March 15, 1993, as well as rule 19 of Schedule III the value of jewellery assessed in one year holds good for four successive assessment years. Therefore, in view of the clarification given by the Central, Board of Direct Taxes in the Press Note, dated May 27, 1968, there was no concealment of any particulars by the assessee inasmuch as the valuation shown in the return was bona fide and was based upon the Department's own valuation for the earlier years. It follows that there was no omission to disclose correct particulars. As observed earlier, it is only because the manner of valuation of assets led to unnecessary friction that section 16-A was introduced. A reading of that section shows that the entire procedure of valuation after enquiry, which was earlier done by the Wealth Tax Officer, was transferred to the exclusive jurisdiction of the Valuation Officer. He is appointed by the Government on the basis of his qualifications. He has been given the power under section 16-A(3) to accept the value shown by the assessee which earlier the Assessing Officer was doing under section 16(1). Similarly, he has been given power under subsection (4) to make a preliminary enquiry and call for the objections of the assessee and under subsection (5) to hear such evidence as the assessee may produce or as the Valuation Officer may require and to estimate the value of the asset after taking into account all relevant material which he has gathered. This is analogous to subsections (3) and (4) of section lti. In other words, a part of the assessment which was the valuation of the asset, which was being done by the Assessing Officer, was transferred to the exclusive jurisdiction of the Valuation Officer, because under subsection (6) the assessment has to be completed in conformity with the valuation of the Valuation Officer. It may be noted that if he has made any mistake then the Valuation Officer alone has the power to rectify the mistake as can be seen by section 35(1)(aaa). A consequence of this pattern of assessment is that litigation in respect of valuation of an asset is intentionally restrained on the part of the Department, for, an appeal lies against such valuation only at the instance of the assessee and the appellate authorities have to decide the matter only after hearing the Valuation Officer. The purpose of this legislation appears to be to maintain a ceiling on the valuation of the asset by the Department reserving only the right of the assessee to seek adjustments if he feels aggrieved by the valuation. This is similar to the valuation of land acquired under the Land Acquisition Act where the value determined by the Land Acquisition Officer is the minimum below which the Government cannot go, as it is binding on the Government though the claimant can have the matter referred to Court seeking a higher value. No doubt, prior to the introduction-of section 16-A, when the Wealth Tax Officer was himself making assessments by estimating the value of the asset, he could perhaps have invoked section 17 on the ground that the net wealth with reference to the value of an asset was under assessed by reason of his own failure to advert to any relevant material in the enquiry in the original assessment. But, even such an action would have been severely restricted because it would be a substitution of an earlier opinion with reference to the value of an asset by another opinion though well-informed. The Supreme Court has held in the case of CIT v. Simon Carves Ltd. (1976) 105 ITR 212, that it is not open to the Assessing Officer to substitute his opinion for that of the officer making the original assessment when the method of computation adopted at the time of the original assessment was permissible in law and that the fact that the adoption of a different method would have resulted in a higher yield of tax, would not justify the reopening of the assessment. If the Wealth Tax Officer could not have done such a reassessment prior to the introduction of section 16-A, all the more reason why he cannot do it after section 16-A(6) was enacted The valuation made by the Valuation Officer is binding on him and that part of the assessment which was in conformity with the Valuation Officer's estimate, cannot be revised by the Wealth Tax Officer. When we find that the jurisdiction of the Wealth Tax Officer in respect of the valuation of an asset was specifically transferred to the Valuation Officer including the matter of rectification of mistake and no right to revise such an estimate is reserved under section 17, it would follow that the jurisdiction of the Wealth Tax Officer under section 17 is curtailed to that extent. A harmonious reading of section 16-A and section 17 leads us to hold that the matter of valuation of an asset is within the exclusive jurisdiction of the Valuation Officer subject only to appeal by the assessee, and, therefore, cannot be the subject of reassessment under section

17. The contention of the Revenue that this will be discriminatory as under assessments in assessments made under section 16 will be open to revision, while those made under section 16-A will not, has only to be stated to be rejected. Obviously, it amounts to a reasonable classification between valuation by the Wealth Tax Officer without expertise and valuation by the Valuation Officer whose decision is clearly made final by section 16-A(6). In the present case, the valuation was actually the subject of an appeal. The assessee had accepted the estimate made by the Valuation Officer and asked only for certain discount because of various depressing factors which the Commissioner of Wealth Tax had accepted and it was upheld by the Appellate Tribunal. The Tribunal also exempted seven items of jewellery declared as art treasures exempt under section 5(l)(xii) of the Act. Once the matter of valuation has merged with the appellate order, there is no further justification for the Wealth Tax Officer to attempt a reassessment of the same. Learned counsel for the Revenue submitted that the Wealth Tax Officer had reason to believe that the net wealth has been underassessed because the fact that the assessee was claiming a very large amount as compensation and had also obtained other valuers' reports in support of that claim, was not disclosed and, secondly, the Valuation Officer had admitted during the arbitration proceedings that his own valuation was vitiated by certain infirmities. According to learned counsel, failure to keep the Valuation Officer informed about the exorbitant claim made in the arbitration proceedings amounted to failure to disclose truly and fully all material facts We are unable to accept these contentions because a reading of the entire proceedings shows that the Valuation Officer was a party to the entire proceedings in the arbitration. There was a co-ordinated effort by the Government of the India in the arbitration proceedings to project the Valuation Officer as the most credible valuer. There was correspondence between the Ministry of Cultural of Cultural Affairs and the Finance Ministry with reference to the deputation of the Valuation Officer for giving evidence before the arbitrators. On December 29, 1989, itself the Director -General of National Museum wrote to the Member, Central Board of Direct Taxes, that the Valuation Officer had been summoned before the Income Tax Appellate Tribunal with reference to an appeal relating to the valuation-of the jewellery and informed him that hearing of the appeal should be deferred, so that the trustees may not get away with a comparatively lower valuation in the Wealth Tax Assessment and extract the maximum price from the Government. Surprisingly, after all the appeals were concluded on February8, 1990, by the Appellate Tribunal, the Department's representative produced an issue of "India Today", dated February 15, 1990, to the members of the Tribunal which happened to have an article captioned "The Nizam's Jewels Treasure Hunt

Waiting to Encash a Legacy" and asked leave to rely on the same. But the Tribunal rightly rejected this plea made after the conclusion of the case before it. In the counter-affidavit filed before us the Assistant Commissioner of Wealth Tax states as follows: "For the first time, the Revenue realised at the time of hearing of the case from a coverage made in the leading fortnightly India Today that the intrinsic worth of the jewellery was many times more than what was declared and assessed." This statement clearly suppressed the fact that there was already a letter, dated December 29, 1989, on the subject. Apart from this, in every return filed by the trustees, the pendency of the litigation before the Supreme Court and the arbitrators have been mentioned. Learned counsel submitted that for the assessment year 1989-90 the compromise, dated February 14, 1989, was not disclosed. But the fact is that this compromise was recorded by the Supreme Court only on April 25, 1989, after the valuation date relevant to the assessment year 1989-90. Moreover, when the valuer gave evidence before the arbitrator, he was cross-examined on behalf of the trustees and he stated as follows: "This valuation was done for the purpose of wealth tax and I have submitted my proposed valuation report also and invited objections or errors whatever it was from the assessee. They have never submitted any specific objection or document to the same jewellery about which all these questions are being asked, and I have been told that I have just to bring down the value all these errors are being made by me. " Since this answer has been given in the cross-examination by the assessee, it appears to suggest that the Department did not want a higher value to be given so that the Government may be saved from paying more in case the jewellery was acquired. It must be remembered that the case with reference to the acquisition of the jewellery had been pending ever since 1979 and the Additional Secretary to the Ministry of Finance was himself a trustee. The Valuation Officer has also admitted that he was consistently associated with the Ministry of Finance in assessing the jewellery, and, therefore, he was coopted as a member of the Valuation Committee constituted in 1990. In the circumstances, we are unable to accept the contention of the Revenue that any information about the claim of the petitioner for a large amount in arbitration proceedings was unknown to the Assessing Officer, even if it was known to the Department, particularly when the same Valuation Officer had given evidence before the arbitrator and had also valued the jewellery in the wealth tax assessment. Furthermore, by a letter, dated August 5, 1991, the Central, Board of Direct Taxes Director wrote the following letter: "Dear Shri, Sub: Arbitration Proceedings in the case of Nizam Jewellery Trust and Nizam Supplemental Trust. Please find enclosed herewith a copy of the award given by Justice A. N. Sen (Rtd.), Umpire in the Nizam Jewellery arbitration proceedings. This award was given on July 27, 1991, at Calcutta. He has fixed the value of 173 items of jewellery comprised in the two Nizam's Trust at Rs.225.37 crores. The award given by Justice A. N. Sen discusses at length the valuation of the Departmental Valuer, Sri Jayant Chowlera which was adopted by the Wealth Tax Officer after certain modifications. Since the order of the umpire has commented upon certain infirmities and under valuation of jewellery, the award may be scrutinised and suitable action as necessary may be taken urgently under intimation to the Board. With regards. Yours, sincerely, (Sd.)K. Vasudevan. Encl. As above. Shri R. Ganeshan, of Chief Commissioner of Income-tax, Hyderabad. Copy to Sh. S. Govindarajan, Commissioner of Income tax, Andhra Pradesh-I, Hyderabad, for necessary action." This suggests that the belief of the Wealth Tax Officer was not his own but one induced by the Government. Learned counsel for the Revenue stressed the fact that the very wide difference between the valuations made by the Valuation Officer and the claim made by the petitioners in the arbitration proceedings would indicate that there was underassessment of the valuation of the jewellery. We find that there were several reasons for this wide variation and it is not suggested that there was anything mala fide in the matter. Firstly, there is a vital difference between the valuation for the purpose of an annual levy of tax and the valuation for the purpose of acquisition of the property. In the words of Justice Dixon in the case of Commissioner of Succession Duties v. Executor Trustee and Agency Co. of South Australia (74 CLR 358): "I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second, the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a Court's attitude in the application of the test. In a case of compensation, doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate. " We find that the same approach was taken by the learned umpire in the arbitration proceedings where it was stated that: "The valuation made by Chowlera on behalf of the Union of India was on the basis of the value of these items of jewellery for wealth tax purposes. Mr. Chowlera himself has admitted that his valuation which was accepted by the parties for wealth tax purposes was only for wealth tax purposes and was, therefore, on the low side. In course of his evidence, he has also admitted that there are errors in the valuation made by him and as the valuation was for wealth tax purposes he had also not considered a particular item to be real Alexandrite but an imitation one and if it were real Alexandrite the value would be much more as real Alexandrite is very rare and valuable. It appears that the Union of India itself has considered the valuation made by Mr. Chowlera as rather low and has itself added to the said valuation 20 per cent more on account of aesthetic value of items of jewellery and 20 per cent more on account of escalation in price. The addition of 20 per cent for escalation in price appears to be arbitrary. There is a huge quantity of gold in many items of jewellery. The hike in the price of gold is indeed huge. The escalation in price should further be considered after taking into consideration the increased valuation on account of aesthetic value. The valuation made for wealth tax purposes cannot, therefore, determine the fair and just value of these items of jewellery." This indicates that what was determined in the arbitration proceedings was the fair price that should be paid by the Government for acquisition of the jewellery as on December 31, 1994. The fact that the petitioner received a sum of Rs.180 crores as on that date could never be a primary fact for disclosure for valuation of jewellery on the valuation, dates March 31, 1984, to March 31, 1989, which were long prior to that event. What the Government was acquiring was the jewellery free from all encumbrances. On the other hand, as on the earlier date of valuation the Valuation Officer had to estimate the value on a hypothetical market subject to various restrictions such as, sale within India, objections of the beneficiaries dispute as to title by the Government, threat of acquisition by the Government and lack of possession inasmuch as it was under attachment and in the custody of the Government, etc. In a hypothetical market with all these depressing factors, no willing buyer would have paid what the Government ultimately paid for acquiring the jewellery free from all encumbrances. The valuation reports obtained by the petitioner was with reference to the foreign markets with the added prestige of a sale of jewellery belonging to a former ruler, whereas the valuation for wealth tax purposes was mostly confined to intrinsic worth with reference to the weight of the gold and gems and the market value thereof. A significant fact is that the same valuer has valued the same jewellery even after 1990 at figures less than that paid by the Government and curiously for the year 1994-95 he has taken a figure of Rs.236 crores which is even more than what it fetched. The more startling fact is that in spite of the valuer having admitted in the cross -examination before the arbitrator in April, 1991, that he had committed certain mistakes, he was continued to be employed as a valuer in respect of the same jewellery for subsequent valuation dates. This indicates that he was willing to give evidence before the arbitrators to suit the interests of the Government in order to continue his employment. His evidence, cannot, therefore, be relied upon by the Revenue to contend that he had failed to make an appropriate enquiry under section 16-A(5), and, therefore, his report has to be disregarded for making any reassessment. As we have seen from the scheme of the Act, the Valuation Officer's Report is binding on the Assessing Officer and if he could not avoid it at the time of the original assessment itself on the ground that the enquiry contemplated subsection was vitiated by the Valuation Officer not taking into account all relevant materials or not gathering all relevant materials, certainly he could not make a reassessment on that ground. We have already seen that the matter of valuation is a matter of opinion and not a primary fact. The Bombay High Court has held in the case of Tulsidas Kilachand v. D.R. Chawla (1980) 122 458: "That a subsequent valuer's report giving a higher value relevant information enabling the Wealth Tax Officer to reopen assessment based on a valuer's report because it would still to a change of opinion, especially when the Wealth Tax could have easily ascertained the correctness of the statement made in the return while making the assessment. The Supreme Court refused to grant the leave to appeal against that judgment ((1983) 141 ITR (St.) 47). It can, therefore, be taken as well -settled that an estimate of a value of an asset is not a primary fact. W e have also seen that the forms prescribes do not require the assessee to mention anything about the value except to support the value returned with the valuer's report. The assessee in the present case relied entirely on the Department's valuation for the value returned. We find that there was a full and complete disclosure of all the primary facts by production of the jewellery itself for inspection and evaluation, as well as by giving all relevant facts relating to the pending litigation before the Supreme Court. Furthermore, in spite of the petitioners giving all such information, the return filed was not accepted. The valuation was made by the Valuation Officer under section 16-A(5) independently and the assessment was made on that basis. It is, therefore, impossible for the Revenue to assert that there was any underassessment by reason of the failure of the assessee to disclose truly and fully all material particulars. When the assessment itself was made independent of any material furnished by the assessee, the Revenue cannot contend that there was any underassessment based on the belief that the valuation made in the assessments was low compared to the claim made by the assessee in the arbitration proceedings only by reason of the failure of the assessee to give any particulars. The proviso to section 17 states that in such circumstances a reassessment can be initiated only within four years from the date of the assessment order. Since that period of limitation has admittedly expired in respect of all the five assessment years 1984-85 to 1989-90, the impugned notices are also barred by limitation. The Supreme Court has held in the case of Calcutta Discount Co. Ltd. v. ITO (1961). 41 ITR 191 that: "The question whether the Income Tax Officer had reason to believe that underassessment had occurred by reason of non-disclosure of material facts was not a mere question of limitation only but was a question of jurisdiction which could be investigated under Article 226 of the Constitution of India." The Supreme Court has also observed in Parashuram Pottery Works Co. Ltd. v. ITO (1977) 106 ITR 1 and 10: "It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of Revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. " We have already found that the Act itself had been amended to limit the litigation in respect of valuation, and, therefore, we are of the opinion that the Revenue would do well to cease and desist from reopening the matter of valuation of jewellery. Writ Petition No.8612 of 1996 relates to 34 notices and Writ Petition No. 16431 of 1996 relates to 41 notices issued to the trustees in the representative capacity to reopen assessments made on the beneficiaries mentioned therein. Since all the assessments were made only on the basis of valuation made under section 16-A and for the assessment year 1989-90 though no reference was made under section 16-A, the earlier years' valuation prevailed because of the Departmental circular as well as rule 19 of Schedule. III, such valuation was outside the scope of section 17 and the Wealth Tax Officer has no jurisdiction to- revalue the same under section

17. The impugned notices are, therefore, quashed and the writ petitions allowed. No costs. After the judgment is pronounced, an oral application is made by learned counsel for the Revenue seeking leave to appeal to the Supreme Court. The case does not involve any substantial question as to the interpretation of the Constitution nor does it raise any question of law of general importance which need to be decided by the Supreme Court. Leave is, therefore, refused. M.B.A./1694/FC Leave refused.