Amiya Bala Paul vs Commissioner Of Income Tax, Shillong

The assessee built a house in a suburb of Kolkata

between the years 1981 to 1983. She filed a return in respect

of the assessment year 1982 –1983 in which she disclosed that

she had invested an amount of Rs.1,75,000 in the construction

of the house. The return was accepted by the Income Tax

Officer (now known as the Assessing Officer). In respect of the

subsequent assessment year, namely 1983-84, the assessee

disclosed that she had invested a further amount of

Rs 1,70,000 in the construction of the house. This was not

accepted by the Assessing Officer, who referred the question

of the construction cost of the house to the Valuation Officer

under Section 55(A) of the Income Tax Act, 1961 (hereinafter

referred to as the Act). The Valuation Officer submitted a report

to the Assessing Officer. On the basis of the report, the

Assessing Officer re-opened the assessment in respect of the

assessment year 1982-83. The Income Tax Officer then made

an addition of Rs 2,79,000 in respect of the assessment year

1982 - 83 and Rs 1,77,000 in respect of the assessment year

1983- 84 as undisclosed investment in the construction of the

house. The assessee's appeals from the assessment orders

were turned down by the Commissioner of Income Tax

(Appeals) Guahati. The Income Tax Appellate Tribunal,

however, following an earlier decision, allowed the assessee's

appeal and held that the Assessing Officer could not have

referred the question of the cost of construction of the

assessee's house to the Valuation Officer. In this background

the following question was referred to the High Court under

Section 256 (2) of the Act.

"Whether on the facts and in the

circumstances of the case, the Tribunal erred

in law by holding that the Assessing Officer

cannot refer the matter to the Valuation

Cell(sic) for estimating the cost of construction

of the house property".

The Division Bench of the High Court held that although

the Assessing Officer could not have referred the question of

the cost of construction of the assessee's house to the

Valuation Officer under Section 55 A of the Act, he had ample

power under Sections 131 (1), 133 (6) and 142 (2) of the Act to

ask for a Valuation Report from the Valuation Officer. It was

held that each of these sections were "enabling machinery

provisions which invested ample powers in the Assessing

Authority", and that any wrong mention of the provision on the

requisition memo would not be material. Accordingly the

question referred was answered in the affirmative and against

the assessee.

In the appeal before us, it was contended on behalf of the

assessee that a reference to a Valuation Officer could only be

made strictly in terms of section 55 A of the Act and that if the

circumstances justifying the reference under that Section were

not prevailing, the Assessing Officer did not have the

jurisdiction to otherwise refer the matter to the Valuation Officer.

It was further pointed out that Section 55 A of the Act only

allows for reference to the Valuation Officer for the purposes of

computing the market value of property in connection with the

computation of capital gains. It was also submitted that

reference to the Valuation Officer had been specifically

provided for under Section 55A and that this implied that a

reference to the Valuation Officer could not be made under any

of the other provisions which generally empowered the

Assessing Officer to ascertain the income of the assessee. The

submission of the appellant was that if the power to refer the

determination of the cost of construction to the Valuation Officer

was otherwise available to the Assessing Officer under the

other provisions of the Act, it was not necessary to

specifically empower the Assessing Officer under Section 55A.

Finally, it is submitted that the Valuation Officer is appointed

under the Wealth Tax Act and that he could exercise the power

only in the manner prescribed by that Act or by any other

statutory provision like Section 55 A of the Act, and that he

could not be called upon to discharge functions not statutorily

prescribed, in his capacity as a Valuation Officer.

Learned counsel appearing on behalf of the Revenue

Authorities has submitted that under Section 131 (1), the

Assessing Officer has all the powers of the Civil Court including

issuing of commissions under Section 131(1)(d). Further,

under Section 142 (2), an assessing officer for the purpose of

obtaining full information in respect of the income or loss of any

person, may make "such inquiry as he considers necessary".

While conceding that Section 55-A would not in terms apply to

the assessee's case, the respondents' contention was that the

Assessing Officer was otherwise empowered under the other

provisions of the Act to refer the matter to the Valuation Officer.

According to the respondents the powers of enquiry invested in

the Assessing Officer under Secs.131(1),133(6)and142(2) were

wide and that this Court should not read in any limitation to this

power. It was further submitted that there was nothing in the

Wealth Tax Act, 1957 which precluded the Valuation Officer

from giving a valuation report in respect of any matter not

covered by the provisions of that Act. Therefore, it was

submitted, the Assessing Officer's reference to a Valuation

Officer was correct and could not be held to be without

jurisdiction.

The Valuation Officer to whom a requisition was sent by

the Assessing Officer in this case, is an officer appointed under

the Wealth Tax Act 1957. Section 2 sub-section (r) of the

Wealth Tax Act ,1957, defines "Valuation Officer" as meaning a

person appointed as a Valuation Officer under Section 12 A of

the Wealth Tax Act and includes a Regional Valuation Officer, a

District Valuation Officer and an Assistant Valuation Officer.

Under section 8 of the Wealth Tax Act, it has been provided

that the Income Tax Authorities specified in Section 116 of the

Income Tax Act shall be the Wealth Tax Authorities for the

purposes of the Wealth Tax Act, and "every such authority shall

exercise the powers and perform the functions of Wealth Tax

Authorities under this Act in respect of any individual, Hindu

undivided family or company and for this purpose his

jurisdiction under this Act shall be the same as he has under

the Income Tax Act by virtue of orders or directions issued

under Section 120 of that Act or under any other provision of

that Act". A brief look at the powers and functions of a

Valuation Officer under the Wealth Tax Act would be apposite

at this stage. Under section 16 A of the Wealth Tax Act for the

purpose of making an assessment under the Wealth Tax Act

and in specified circumstances, the Assessing Officer may refer

the valuation of any asset to a Valuation Officer when, broadly

speaking, the Assessing Officer is of the opinion that the value

of the asset had not been correctly disclosed by the assessee.

Sub section (2) of Section 16 A of the Wealth Tax Act provides

for the Valuation Officer to give a notice to the assessee for

production of various accounts ,records or other documents as

the Valuation Officer may require. If the Valuation Officer is of

the opinion that the value of the asset had been correctly

declared in the return made by the assessee, he shall, under

sub-section (3) of section 16 A, pass an order in writing to that

effect and send a copy of his order to the Assessing Officer

and to the assessee. When, however, the Valuation Officer is

of the opinion that the value of the asset is higher than the

value declared in the return made by the assessee, and in

certain other specified circumstances, the Valuation Officer is

required under sub-section (4) of section 16 A to serve notice

on the assessee intimating the value at which he proposes to

estimate the asset giving the assessee an opportunity to state

his objections either in person or in writing before the Valuation

Officer and to produce or cause to be produced, such evidence

as the assessee may rely in support of his objections. Under

sub-section (5), the Valuation Officer may pass an order in

writing estimating the value of the asset after hearing such

evidence as the assessee may produce and after considering

such evidence as the Valuation Officer may require and after

taking into account all relevant material which he has gathered,

the Assessing Officer is required to complete the assessment in

conformity with the estimate of the Valuation Officer as far as

the valuation of the particular asset in question is concerned in

terms of sub-section (6) of section 16 A.

The decision of the Valuation Officer is amendable by

him under section 35 (aaa) of the Wealth Tax Act. The decision

may also be the subject matter of appeal under Section 23 (ha)

in which event the Appellate Authority is required, under

section 23 (3A), to give the Valuation Officer an opportunity of

being heard or if necessary direct the Valuation Officer to hold a

fresh inquiry. There is a similar provision in respect of appeals

before the Commissioner (Appeals). It is thus seen that the

Assessing Officer, under Section 16 A does not retain the

power of enquiry. There is a similar provision in respect of the

particular asset in respect of which the requisition is made to

the Valuation Officer. The entire process of inquiry is solely

conducted by the Valuation Officer alone whose responsibility it

is to arrive at a correct valuation of the asset.

The inquiry by the Valuation Officer is distinct from the

power of the Assessing Officer who is otherwise invested with

the power to enquire into the actual wealth of an assessee

under the Wealth Tax Act. For this purpose, under section

37(1) of the Wealth Tax Act, the Assessing Officer is given, the

powers of a Court under the Code of Civil Procedure, 1908

when trying a suit in respect of:

(a) discovery and inspection

(b) enforcing the attendance of any person, including any

officer of a banking company and examining him on

oath;

(c) compelling the production of books of account and

other documents; and

(d) issuing commissions.

Under section 38 of the Wealth Tax Act, the Wealth Tax

Authority is also given the power to obtain any statement or

information from any individual, company,(including a banking

company) firm, Hindu undivided family or other person and to

"serve a notice requiring such individual, company, firm, Hindu

undivided family or other person, on or before a date to be

therein specified, to furnish such statement or information on

the points specified in the notice, and the individual or the

principal officer concerned or the manager of the Hindu

undivided family, as the case may be, shall, notwithstanding

anything in any law to the contrary, be bound to furnish such

statement or information to such wealth-tax authority". Thus it

is apparent that the Assessing Officer's power to enquire under

sections 37(1) and 38 of the Wealth Tax Act is distinct from his

power to refer to the Valuation Officer under Section 16A.

There is no overlapping.

Section 55 A of the Income Tax Act occurs in Chapter IV,

Part E which deals with capital gains. For the purpose of

assessing the fair market value of a capital asset in connection

with the computation of capital gains it incorporates several

provisions relating to a Valuation Officer in the Wealth Tax Act

and reads as follows

"55A. With a view to ascertaining the fair

market value of a capital asset for the

purposes of this Chapter, the Assessing

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 a registered

valuer, if the Assessing Officer is of

opinion that the value so claimed 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 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-section (2), (3), (4), 5) and (6) of

section 16A, clauses (ha) and (i) of sub-section

(1) and sub-sections (3A) and (4) of section 23,

sub-section (5) of Section 24, section 34AA,

section 35 and section 37 of the Wealth tax 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 Assessing Officer under sub-section (1) of

section 16A of that Act.

Explanation – In this section, "Valuation Officer"

has the same meaning, as in clause ( r) of

section 2 of the Wealth-tax Act, 1957 (27 of

1957)."

Clearly this section in terms can have no application to

the assessee's case. But can the Assessing Officer otherwise

make a reference to a Valuation Officer for generally computing

the assessee's taxable income? The respondents say he can,

and have referred us to Sections 131(1) and 133(6) of the Act.

Section 131 (1) of the Act is in pari materia with Section 37(1)

of Wealth Tax Act and Section 133 (6) of the Act is substantially

similar to section 38 of the Wealth Tax Act. On a parity of our

earlier reasoning, the power of the Assessing Officer under the

Sections 131 (1) and 133 (6) of the Income Tax Act is distinct

from and does not include the power to refer a matter to the

Valuation Officer under Section 55A. Nor does the third

section viz., S.142(2) on which reliance has been placed by the

respondents allow him to do so. Section 142 (2) of the Act

provides:

"For the purpose of obtaining full information in

respect of the income or loss of any person,

the Assessing Officer may make such inquiry

as he considers necessary".

The common feature of Sections 133 (6) and 142 (2) is

that the Assessing Officer is the fact-finding authority. It is his

opinion on the basis of the facts as found on an enquiry

conducted by himself which results in the assessment order. A

report by the Valuation Officer under Section 55 A is on the

other hand the outcome of an inquiry held by the Valuation

Officer himself and reflects his opinion on the evidence before

him. Such a report would not be the result of an inquiry by the

Assessing Officer under the provisions of Section 133 (6) or

Section 142 (2). It is true that the Assessing Officer is not

bound by strict rules of evidence and a report of a Valuation

Officer under Section 55A may be considered by the Assessing

Officer as a piece of evidence if it is relevant. (See CIT V. East

Commercial Co. Ltd : 1967 LXIII ITR 449, 457) However, the

power of inquiry granted to an Assessing Officer under

Sections 133 (6) and 142 (2) does not include the power to

refer the matter to the Valuation Officer for an enquiry by him.

Learned counsel for the respondents has however

particularly drawn our attention to clause (d) of sub section (1)

of section 131 which provides inter alia that the assessing

officer shall, "for the purposes of this Act, have the same

powers as are vested in a court under a Code of Civil

Procedure, 1908, (referred to as 'the Code') when trying a suit

in respect of the following matters, namely: --

"(d) issuing commissions."

The Court's power to issue commissions is contained in

sections 75 to 78 of the body of the Code and Order XXVI of

the Schedule to the Code. Sections 76 to 78 are not relevant

for our purposes. Section 75 which delineates the power of

Court to issue commissions says:

"Power of court to issue

commissions. Subject to such

conditions and limitations as may be

prescribed, the court may issue a

commission –

(a) to examine any person;

(b) to make a local investigation;

(c) to examine or adjust accounts; or

(d) to make a partition;

(e) to hold a scientific, technical, or

expert investigation;

(f) to conduct sale of property which

is subject to speedy and natural

decay and which is in the custody

of the court pending the

determination of the suit;

(g) to perform any ministerial act."

Order XXVI provides for the procedure for issuing

commissions in respect of each of the purposes mentioned in

sections 75. Thus Rules 1 to 8 are in respect of commissions

to examine witnesses, Rules 9 to 10 C are in respect of

commissions for local investigations; Rules 11 and 12 relate to

commissions to examine accounts and Rules 13 and 14 pertain

to commissions to make partitions. If at all the Assessing

Officer could have issued a commission to a Valuation Officer it

could only be under Rule 9 which lays down that:

"Commissions to make local

investigations.—In any suit in which

the Court deems a local investigation to

be requisite or proper for the purpose of

elucidating any matter in dispute, or of

ascertaining the market-value of any

property, or the amount of any mesne

profits or damages or annual net profits,

the Court may issue a commission to

such person as it thinks fit directing him

to make such investigation and to report

thereon to the Court.

Provided that, where the State

Government has made rules as to the

persons to whom such commission shall

be issued, the Court shall be bound by

such rules."

Assuming that the Valuation Officer was appointed in

terms of Order XXVI Rule 9, it is not clear whether the report

submitted by the Valuation Officer was in keeping with Rule 10

sub-section 1 which requires the Commissioner not only to hold

"such local inspection as he deems necessary" but also to

reduce in writing the evidence taken by him and to return such

evidence together with his report in writing signed by him to the

court. If this were done then the report of the Commissioner

and the evidence taken by him "shall be evidence in the suit

and shall form part of the record" ". However the Court and any

of the parties to the suit, with the permission of the Court, may

examine the Commissioner personally "touching any of the

matters referred to him or mentioned in his report, or as to his

report, or as to the manner in which he has made the

investigation".

The Assessing Officer in this case had made a reference

under section 55 A of the Act. This action cannot be supported

by reference to Section 131(1) of the Act read with Order XXVI

Rule 9 of the Code since the consequences of reference to a

Valuation Officer under Section 55A of the Act and of a

commission issued under Section 75 read with Order XXVI

Rule 9 of the Code are different. It is not, therefore, a case of

correction of an error in mentioning the section by the

Assessing Officer, an error which could be ignored by referring

the action to the appropriate source of power.

Besides section 55 A having expressly set out the

circumstances under and the purposes for which a reference

could be made to a Valuation Officer, there is no question of the

Assessing Officer invoking the general powers of enquiry to

make a reference in different circumstances and for other

purposes. [ See Padam Sen v. State of U.P: AIR 1961 SC 218

para 8; Arjun Singh v. Mohindra Kumar : AIR 1964 SC 993

(para 19) ]. It is noteworthy that Section 55 A was introduced in

the Act by the Taxation Laws (Amendment) Act, 1972 when

Sections 131 (1), 133 (6) and 142 (2) were already on the

statute book. Learned counsel for the appellant has correctly

submitted that if the power to refer any dispute to a Valuation

Officer were already available in Sections 131 (1), 133 (6) and

142 (2), there was no need to specifically empower the

Assessing Officer to do so in certain circumstances under

Section 55 A.

We may also note Section 269L of the Act which enables

the competent authority appointed under Section 269B:

(1) (a) "for the purpose of initiating

proceedings for the acquisition of any

immovable property under section 269C

or for the purpose of making an order

under section 269F in respect of any

immovable property require a Valuation

Officer to determine the fair market

value of such property and report the

same to him;

(b) for the purpose of estimating the

amount by which the compensation

payable under sub-section (1) of section

269J in respect of any immovable

property may be reduced or, as the case

may be, increased under clause (a) or

clause (b) of sub-section (2) of that

section, require the Valuation Officer to

make such estimate and report the same

to him.

The Valuation Officer referred to has, according to the

Explanation to the Section, the same meaning as in clause ( r)

of Section 2 of the Wealth Tax Act, 1957. Under sub-section

(2) of Section 269L, the Valuation Officer to whom a reference

is made under clause (a) or clause (b) of sub-section (1) is

given all the powers he has under Section 38 of the Wealth Tax

Act, 1957. And if in an appeal under Section 269G against the

order for acquisition of any immovable property, the fair market

value of such property is in dispute, the Appellate Tribunal

shall, on a request being made in this behalf by the competent

authority, give an opportunity of being heard to any Valuation

Officer nominated for the purpose by the competent authority.

From this it is clear that whenever reference to a

Valuation Officer appointed under the Wealth Tax Act is

permissible under the Income Tax Act, it has been statutorily so

provided.

Apart from the aforesaid, a Valuation Officer is appointed

under the Wealth Tax Act and can discharge functions within

the statutory limits under which he is appointed. It is not open

to a Valuation Officer to act in his capacity as Valuation Officer

otherwise than in discharge of his statutory functions. He

cannot be called upon nor would he have the jurisdiction to give

a report to the Assessing Officer under the Income Tax Act

except when a reference is made under and in terms of Section

55 A or to a competent authority except under section 269L.

We are therefore of the view that the High Court

incorrectly answered the question referred to it in the

affirmative. The Tribunal had not erred in holding that the

Assessing Officer cannot refer the matter to the Valuation

Officer for estimating the cost of construction of the house

property. The appeal is accordingly allowed and the decision of

the High Court set aside. There will be no order as to costs.