GIFT-TAX OFFICER v. AMBALAL SARABHAI (HUF)
[Citation -1984-LL-0403-3]

Citation 1984-LL-0403-3
Appellant Name GIFT-TAX OFFICER
Respondent Name AMBALAL SARABHAI (HUF)
Court ITAT
Relevant Act Income-tax
Date of Order 03/04/1984
Assessment Year 1973-74
Judgment View Judgment
Keyword Tags reassessment proceedings • method of valuation • accountable person • change of opinion • value of goodwill • audit objection • revenue audit • market value • audit party • estate duty • book value • gift-tax
Bot Summary: The decisions of the Hon'ble Supreme Court in the cases of Kalyanji the decisions of the Hon'ble Supreme Court in the cases of Kalyanji Mavji Co. v. CIT 1976 102 ITR 287 and R.K. Malhotra, ITO v. Kasturbhai Lalbhai 1977 109 ITR 537 have lost their force in view of the subsequent decision in the case of Indian Eastern News paper Society, and the GTO was not justified in reopening the assessment on the basis of certain events which took place after the date of the gift, viz. In support of these submissions, the assessee relied on the decision of the Hon'ble Mysore High Court in the case of CED v. J. Krishna Murthy 1974 96 ITR 87 and of the orders of the Tribunal in the cases of C.V. Krishnammal GT Appeal No. 35 of 1979, dated 12-3-1980 and Smt. Gira Sarabhai GT Appeal No. 23 of 1981, dated 31-8-1982. Considering all the facts and circumstances of the case and the ratio of the decision cited by the appellant's representative quoted above, I am of the view that the GTO was not justified in reopening the appellant's case under section 16(1)(b). The learned representative for the department vehemently argued that the Commissioner was not justified in annulling the assessment framed by the GTO. Inviting our attention to the decision of the Hon'ble Calcutta High Court in the case of Export Enterprises Ltd. v. ITO 1983 142 ITR 641, the learned representative for the department submitted that since on the date of the initiation of the reassessment proceedings the ratio of the Hon'ble Supreme Court in the cases of Kalyanji Mavji Co. and Kasturbhai Lalbhai was in force, the GTO could have initiated the proceedings under section 16(1)(b) on the basis of the objection raised by the revenue audit. Relying on the decision of the Hon'ble Bombay High Court in the case of Tulsidas Kilachand v. D.R. Chawla 1980 122 ITR 458 and that of the Hon'ble Supreme Court in the case of CIT v. Simon Carves Ltd. 1976 105 ITR 212, the learned counsel for the assessee submitted that the GTO could not have reopened the assessment merely on the ground that on the basis of valuing the shares in question in different way, their value would be higher than the one earlier determined by him under the provisions of rule 1D of the Wealth-tax Rules, 1957. In the case of J. Krishna Murthy, the Hon'ble Mysore High Court was dealing with a case under the 1953 Act and while considering the provisions of section 37 of that Act, the Hon'ble High Court has observed that in the absence of detailed rules under the 1953 Act, for valuation of shares, the valuation of shares under rule 1D of the 1957 Rules, being the only statutorily recognised method, would be in order and that in such computation, the value of goodwill was not includible. We are fortified in our view by the aforesaid decision of the Hon'ble Bombay High Court in the case of Tulsidas Kilachand and of the Hon'ble Supreme Court in the case of Simon Carves Ltd. For the aforesaid reasons, we entirely agree with the decision of the Commissioner that the GTO could not have reopened the assessment under section 16(1)(b).


This is revenue's appeal against order of Commissioner (Appeals) wherein he has annulled assessment framed under section 15(3) read with section 16(1)(b) of Gift-tax Act, 1958 (' Act '). 2. facts of case till reassessment was made by GTO, are summarised by Commissioner (Appeals), as under: " 2. appellant had gifted 36 shares of Karamchand Premchand Private Ltd., on 29-3-1973 to three trusts. One share each was gifted to Ambalal Sarabhai, HUF Trust No. 1 and Mana Sarabhai Trust Nos. 20 and 34 shares were gifted to Ambalal Sarabhai HUF Trust No. 2. appellant filed gift-tax return on 28-9-1973 showing value of these shares at Rs. 96,048, being Rs. 2,668 per share and claimed deduction of Rs. 5,000 under section 5(2), and returned taxable gift at Rs. 91,048. valuation of shares was supported by Valuer's report dated 28-10-1972 and was based on company's balance sheet dated 31-3-1972. GTO completed assessment on 24-1-1976 on same taxable gift of Rs. 91,048. During course of original assessment proceedings, assessee claimed deduction for stamp duty of Rs. 3,910. This claim was rejected by GTO while making assessment. appellant filed appeal to AAC against this assessment contesting against disallowance of claim of stamp duty. appeal was allowed by AAC, vide his order dated 4-1-1978 giving relief of Rs. 3,910 in assessed gift, Thereafter, GTO reopened appellant's assessment under section 16(1)(b) vide notice dated 22-3-1978 and completed reassessment on 11-7- 1978 on taxable gift of Rs. 2,48,260 by revaluing shares at Rs. 7,035 per share. In his order of reassessment, GTO has mentioned that assessment was reopened under section 16(1)(b); that when original assessment was completed, these shares have been valued as per Wealth-tax Rules but under Gift-tax Act, Gift-tax Rule 10(2), value of unquoted shares of company are to be ascertained with reference to value of total assets of company including goodwill and not on book value of total assets; that language of Gift-tax Rule 10(2) is identical to that of section 37 of Estate Duty Act and valuation has to be done on lines of section 37 of Estate Duty Act; that these rules are not same as Wealth-tax Rules and since in original assessment GTO had failed to adopt this method and mistake has been pointed out by revenue audit party of Accountant General, this constituted information within meaning of section 16(1)(b) of Gift-tax Act, in view of Supreme Court decision in cases of Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 and R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537. According to GTO, therefore, assessment has been reopened on basis of this fresh information regarding under assessment of gift so as to bring to tax correct value of taxable gift which has escaped assessment by way of under assessment." 3. Before Commissioner (Appeals), assessee challenged assessment framed by GTO under section 15(3) read with section 16(1)(b) on following grounds: (i) that in notice issued under section 16 GTO had not mentioned whether he was reopening assessment under clause (a) or clause (b) of that section, (ii) since assessment was reopened on mere change of opinion as to valuation of shares in question, same was bad in law, (iii) since Circular No. IB/GT of 1968 issued by Board was applicable to year under consideration, fact that revised circulars were issued on 29- 10-1974 and 24-5-1975 would not have any effect and, therefore, reassessment made by GTO was bad in law, (iv) since GTO had reopened assessment on basis of revenue audit objection, same was bad in law in view of decision of Hon'ble Supreme Court in case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996, (v) since Circular No. IB/GT of 1968 was beneficial circular in favour of assessee, GTO could not have ignored same and framed reassessment on basis of subsequent circulars issued on 29-10-1974 and 24-5-1975. (vi) decisions of Hon'ble Supreme Court in cases of Kalyanji (vi) decisions of Hon'ble Supreme Court in cases of Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 and R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 have lost their force in view of subsequent decision in case of Indian & Eastern News paper Society, and (iii) GTO was not justified in reopening assessment on basis of certain events which took place after date of gift, viz., on 29-3-1973. In support of these submissions, assessee relied on decision of Hon'ble Mysore High Court in case of CED v. J. Krishna Murthy [1974] 96 ITR 87 and of orders of Tribunal in cases of C.V. Krishnammal [GT Appeal No. 35 (Mad.) of 1979, dated 12-3-1980] and Smt. Gira Sarabhai [GT Appeal No. 23 (Ahd.) of 1981, dated 31-8-1982]. It was, therefore, urged that assessment framed by GTO under section 15(3) read with section 16(1)(b) should be quashed. 4. After considering submissions made on behalf of assessee as w e l l as revenue, Commissioner (appeals annulled assessment framed under section 15(3) read with section 16(1)(b). In order to appreciate r iv l submissions of parties, it would be necessary to reproduce concluding portion of order of Commissioner (Appeals), which reads as under: " 9. In my view, there is force in contentions of appellant's representative. original assessment was made in accordance with Board's instructions which existed in assessment year 1973-74. Although these instructions stood modified before assessment was completed, there is nothing in said circular nor has GTO brought on record any decision of any Court to support view that such modification applied retrospectively to all pending assessments even for earlier years. On facts of appellant's case, original instructions directing application of rule 1D of Wealth-tax Rules for valuation of unquoted shares of private limited companies even for gift- tax purposes was beneficial to appellant and application of subsequent circular would operate against appellant's interest. There is no decision to support view that such benefit could be withdrawn retrospectively. On contrary, Kerala High Court decision in case of CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (FB) is in appellant's favour. It is Full Bench decision and it was held in that decision that when circular was in force and operation throughout assessment year, assessee was entitled to have assessment made and completed in accordance with circular and ITO was bound by such circular which conferred privileges and rights on assessees, even though he passed assessment order subsequent to withdrawal of said circular. In my view, therefore, appellant was entitled to benefit of instructions of 1968 which were prevailing in assessment year 1973-74 and it cannot be said that valuation of shares in accordance with rule 1D of Wealth-tax Rules was erroneous. It has also been argued by appellant's representative that use of words ' value of total assets of company ' in rule 10(2) in contrast with words ' market value of assets of firm ' in rule 10(3) is significant and it cannot be said that rule 10(2) necessarily requires adoption of market value of total assets including valuation of goodwill for valuation of shares with reference to total assets of company, instead of adoption of global value method on basis of book value. law on this point is not settled. There are decisions of High Court against department under Estate Duty Act in context of similar provisions under section 37 of Estate Duty Act, e.g., Mysore High Court decision in CED v. J. Krishna Murthy [1974] 96 ITR 87. Supreme Court in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 also recognises practice of valuation under rule 1D of Wealth-tax Rules for gift-tax purposes as well as one of methods of valuation. revenue audit objection, therefore, constitutes only opinion as to state of law regarding valuation of shares under Gift-tax Act which is on question of law. It cannot, therefore, be said that revenue audit objection in this context constituted ' information ' within meaning of section 16(1)(b) to enable GTO to reopen case. I am supported in my view by Supreme Court decision in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. It would have been different position if law on point were settled and audit party had pointed out some Court's decision to ITO holding that application of rule 1D for valuation of shares under Gift-tax Act was contrary to provisions of rule 10(2) of Gift-tax Rules or section 6(1) of Gift-tax Act. In that case audit party would have been only drawing attention of ITO to state of law and would not have been pronouncing their opinion on law. In such situation ITO could be ceased of jurisdiction to reopen assessment under section 16(1)(b) on basis of audit objection. But such is not case here. It has been held by Supreme Court in Indian & Eastern Newspaper Society's case itself that declaration or exposition to be law, must be creation by formal source either legislative or judicial authority. statement by person or body not competent to create or define law cannot be regarded as law. assessee's case is also supported by Income-tax Appellate Tribunal decisions quoted by appellant's representative and cited in extenso in earlier paras. There is also strength in appellant's contention that goodwill in this case was fixed after date of gift and could not be reckoned into valuation of shares under rule 1D of Wealth-tax Act. It is not GTO's case that in original assessment valuation had not been made even in accordance with rule 1D of Wealth-tax Act. Considering all facts and circumstances of case and ratio of decision cited by appellant's representative quoted above, I am of view that GTO was not justified in reopening appellant's case under section 16(1)(b). Whether rule 10(2) of Gift-tax Rules necessarily implies adoption of market value of assets and adding thereto market value of goodwill for valuing shares on basis of total assets of company is not settled law and only question of opinion at this stage. GTO, having made original assessment in accordance with recognised method of valuation and followed instructions of CBDT operative throughout relevant assessment year, it amounts to change of ' opinion on same set of facts to now value shares by different method, which is not permissible under section 16(1)(b) of Gift-tax Act. I, therefore, hold that GTO acted beyond his jurisdiction in reopening assessment under section 16(1)(b). 10. contention of appellant's representative that notice was vitiated by GTO not mentioning whether he had reopened assessment under section 16(1)(a) or 16(1)(b), cannot be upheld because it is settled law that even if assessment is reopened under section 16(1)(a) but was within time and could be justified as valid under section 16(1)(b), such reassessment would not be invalid in law for simple reason of reopening under sub-clause (a) rather than (b). ground No. 5 of grounds of appeal has also no substance in it because question whether gift in question is valid in law or not does not arise out of reassessment as it is not case either of assessee or department and point had not been raised in original assessment. Therefore, that point cannot be raised in reassessment proceedings. 11. In view of legal position discussed in earlier paras, I annul reassessment made on 11-7-1978 being without jurisdiction and ab initio void." 5. Being aggrieved by order of Commissioner (Appeals), revenue has come up in appeal before Tribunal. learned representative for department vehemently argued that Commissioner (Appeals) was not justified in annulling assessment framed by GTO. Inviting our attention to decision of Hon'ble Calcutta High Court in case of Export Enterprises (P.) Ltd. v. ITO [1983] 142 ITR 641, learned representative for department submitted that since on date of initiation of reassessment proceedings ratio of Hon'ble Supreme Court in cases of Kalyanji Mavji & Co. and Kasturbhai Lalbhai was in force, GTO could have initiated proceedings under section 16(1)(b) on basis of objection raised by revenue audit. In this connection, he stated that reassessment proceedings were initiated on 11-7-1978 while decision of Hon'ble Supreme Court in case of Indian & Eastern Newspaper Society was pronounced on 31-8-1979. In other words, he wanted to impress upon us that decision of Hon'ble Supreme Court has no retrospective effect. He further submitted that while framing assessment originally on 24-1-1976, since GTO had not taken note of circulars issued by Board, on 29-10-1974 and 24-5-1975, he was fully justified in reopening assessment under section 16(1)(b), on basis of objection raised by revenue audit. Inviting our attention to assessment order dated 11-7-1978 framed under section 15(3) read with section 16(1)(b), learned representative for department highlighted fact that in balance sheet as on 30-6-1973, of Karamchand Premchand (P.) Ltd., there was one item of goodwill of value of Rs. 10 crores. Since this aspect of matter should have been considered by GTO while valuing shares in question under rule 10(2) of Gift-tax Rules, 1958 while valuing shares in question under rule 10(2) of Gift-tax Rules, 1958 (' Rules '), which he failed to consider, GTO was fully justified in taking recourse to provisions of section 16(1)(b). He, therefore, urged that order of Commissioner (Appeals) should be set aside and that of GTO should be restored. 6. learned counsel for assessee, on other hand, reiterated submissions which were made before Commissioner (Appeals) and contended that we should uphold his order under appeal. Relying on decision of Hon'ble Bombay High Court in case of Tulsidas Kilachand v. D.R. Chawla [1980] 122 ITR 458 and that of Hon'ble Supreme Court in case of CIT v. Simon Carves Ltd. [1976] 105 ITR 212, learned counsel for assessee submitted that GTO could not have reopened assessment merely on ground that on basis of valuing shares in question in different way, their value would be higher than one earlier determined by him under provisions of rule 1D of Wealth-tax Rules, 1957 (' 1957 Rules '). In other words, learned counsel for assessee wanted to impress upon us that GTO had reopened assessment on mere change of opinion. At this stage, he invited our attention---[1983] 141 ITR (St.) 47---and highlighted fact that Hon'ble Supreme Court was pleased to dismiss special leave petition filed by revenue against decision of Bombay High Court in case of Tulsidas Kilachand. learned counsel for assessee further submitted that since, while valuing shares in question at time of framing assessment originally, GTO had followed circular issued by Board in 1968, he cannot take action under section 16(1)(b) on ground that said circular was revised subsequently by Board. According to learned counsel for assessee, circulars issued by Board have no retrospective effect. For this proposition, he relied on decision of Hon'ble Kerala High Court in case of CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (FB). Finally, relying on decision of Hon'ble Mysore High Court in case of J. Krishna Murthy, learned counsel for assessee submitted that since rule 10(2) of 1958 Rules does not prescribe any method to value shares in question, GTO was fully justified in valuing said shares as per provisions of rule 1D of 1957 Rules originally. In this connection, he invited our attention to order of GTO framed under section 15(3) read with section 16(1)(b) and highlighted fact that GTO himself had made remark that language of rule 10(2) is identical to that of section 37 of Estate Duty Act, 1953 (' 1913 Act '). In case of J. Krishna Murthy, Hon'ble Mysore High Court was dealing with case under 1953 Act and while considering provisions of section 37 of that Act, Hon'ble High Court has observed that in absence of detailed rules under 1953 Act, for valuation of shares, valuation of shares under rule 1D of 1957 Rules, being only statutorily recognised method, would be in order and that in such computation, value of goodwill was not includible. Since language o f rule 10(2) of 1958 Rules is in pari materia with that in section 37 of 1953 Act, learned counsel for assessee submitted that in valuing shares in question, value of goodwill has to be excluded. At this stage, he also highlighted fact that since gift in question was made on 29-3-1973, relevant balance sheet of Karamchand Premchand (P.) Ltd. would be that as on 31-3-1972 and, therefore, GTO was not justified in looking at balance sheet of said company as on 30-6-1973 for purpose of including value of goodwill in estimating value of shares in question as on date of gift. In support of his various submissions, learned counsel for assessee relied on orders of Tribunal dated 12-3-1980 and 31-8-1982 referred to above. He also invited our attention to paper book containing various correspondence which took place between assessee and GTO during course of assessment proceedings. 7. We have carefully considered rival submissions of parties as well as material placed before us and we find considerable force in submissions made on behalf of assessee. In our view, point at issue is covered by decision of Tribunal in case of C.V. Krishnammal. However, since both parties had advanced their arguments at some length o n issue of reopening assessment, we would like to discuss some of them. Any decision pronounced by Hon'ble Supreme Court is law of land and is binding on all concerned. It may be true that when GTO initiated t h e proceedings under section 16(1)(b), earlier decision of Hon'ble Supreme Court in cases of Kalyanji Mavji & Co. and Kasturbhai Lalbhai was i n force. However, by its subsequent decision in case of Indian & Eastern Newspaper Society, Hon'ble Supreme Court had held that its observations regarding ' oversight, inadvertence or mistake ' in Kalyanji Mavji & Co.'s case were too wide. After referring to its decision in cases of Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 and Bankipur Club Ltd. v. CIT [1971] 82 ITR 831, Hon'ble Supreme Court went on to observe, viz., ' any observations in Kalyanji Mavji & Co.'s case suggesting contrary do not, we say with respect lay down correct law '. With reference to its decision in case of Kasturbhai Lalbhai, Hon'ble Supreme Court in Indian & Eastern Newspaper Society's case at page 1007 held that ' this Court was in error in conclusion reached by it in . . .'. In other words, Hon'ble Supreme Court has held that tax officer cannot reopen assessment on basis of objection of revenue audit wherein audit party expresses its view regarding interpretation of statute or rules made thereunder. We, therefore, hold that decision pronounced by Hon'ble Supreme Court in case of Indian & Eastern Newspaper Society is to be treated to be always there even when GTO had initiated proceedings under section 16(1)(b). decision in case of Export Enterprises (P.) Ltd. relied on behalf of revenue too will not help it as Hon'ble High Court's attention was not invited to decision of Hon'ble Supreme Court in case of Ramdas Bhikaji Chaudhari v. Sadanand AIR 1980 SC 126, wherein Hon'ble Supreme Court has expressed its view in respect of effect to its subsequent decision on earlier decision pronounced by it, in following manner: ". . . Lastly it was argued that under article 141 since earlier case decided by this Court reported in [1975] 2 SCR 886 held field, it must be held that it was law laid down by this Court under article 141 of Constitution. It is well settled that whenever previous decision is overruled by larger Bench previous decision is completely wiped out and article 141 will have no application to decision which has already been overruled, and Court would have to decide cases according to law laid down by latest decision of this Court and not by decision which has been expressly overruled . . ." It is pertinent to note that decision in cases of Kalyanji Mavji & Co. and Kasturbhai Lalbhai was rendered by Hon'ble Supreme Court consisting of two learned judges, while decision in case of Indian & Eastern Newspaper Society was of Bench consisting of three learned judges. Therefore, applying ratio in case of Ramdas Bhikaji Chaudhari, we hold that law laid down in case of Indian & Eastern Newspaper Society would have to be applied with view to finding out whether GTO was justified in reopening assessment on basis of audit objection. Further, it is pertinent to note that Circular No. IB/GT of 1968 issued by Board was in force at relevant time and it had binding effect on all officers of Income-tax Department even if it contained certain instructions which are in variance with provisions of Act---see Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC). Therefore, if GTO had originally valued shares in question as per instructions contained in that circular, he would not be justified in initiating proceedings under section 16(1)(b), merely on ground that said circular was subsequently modified or revised by Board. aforesaid decision of Hon'ble Kerala High Court in B.M. Edward, India Sea Foods' case, clearly supports stand taken on behalf of assessee on this proposition. Further, when two methods are provided for valuing shares in question n d GTO adopts one, he would be prevented from reopening assessment under section 16(1)(b), by taking recourse to other method subsequently just because he felt that by adopting second method more tax will be recovered from assessee. We are fortified in our view by aforesaid decision of Hon'ble Bombay High Court in case of Tulsidas Kilachand and of Hon'ble Supreme Court in case of Simon Carves Ltd. For aforesaid reasons, we entirely agree with decision of Commissioner (Appeals) that GTO could not have reopened assessment under section 16(1)(b). 8. Apart from above, Hon'ble Mysore High Court in case of J. Krishna Murthy has clearly held that in absence of detailed rules for valuation of shares under 1953 Act, or rules made thereunder, it would be just and proper to adopt rules made under 1957 Act. In this view of matter, Hon'ble High Court had upheld contention of accountable person in that case that shares should be valued as per provisions of rule 1D of 1957 Rules even under 1953 Act. Hon'ble High Court, therefore, held that in valuing shares under said rule value of goodwill has to be ignored. Since provisions of rule 10(2) of 1958 rules are exactly identical with provisions of section 37 of 1953 Act, we are of view that value of goodwill could not be considered in valuing shares in question. Apart from this, we entirely agree with submissions made on behalf of assessee that GTO was not justified in taking into consideration certain events which took place after date of gift, viz., on 29-3-1973, or after date of relevant balance sheet, viz., 31-3-1972. 9. We have, therefore, no hesitation in upholding order of Commissioner (Appeals). 10. In result, appeal is dismissed. *** GIFT-TAX OFFICER v. AMBALAL SARABHAI (HUF)
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