05 May 2121

Liability of Wealth Tax Assessment is invoked owing to the release of seized Gold, Jewellery and Cash - Bombay High Court

Case : Nirajkumar N. Rungta & Anr v. Commissioner of Wealth Tax Bombay City VII and Ors. Wealth Tax Application No. 3 of 1984 with Wealth Tax Reference No. 8 of 1991

Court : Bombay High Court

Bench : Justice Milind N. Jadhav and Justice Ujjal Bhuyan

Decided on : 05 May 2121

Relevant Statues

Section 2(e), 7, 8, 27, 27-A of the Wealth Tax Act, 1957

Section 132, 222, 223, 232 of the Income Tax Act, 1961

Section 81, 82 of the Gold Control Act, 1968

Rule 126(m) of the Defence of India (Gold Control) Rules, 1962

Section 14(1) of the Voluntary Disclosure of Income and Wealth Ordinance, 1975

Brief Facts & Procedure History

1. The relevant seminal facts are that on the notification dated 19.10.1965 by the Ministry of Finance, the issuance of 'National Defence Gold Bonds' without any limit of the amount was applicable from 27.10.1965 to 31.01.1966 where the subscriptions were to be in the form of gold, gold coins and/or gold ornaments. Such investments were exempt from the Wealth-tax. On 18.11.1965 Chiranjilal Shrimal Goenka, the original assessee filed an application with the State Bank of India for investing gold under the Gold Bond Scheme and met the concerned Wealth-tax Officer to obtain clarification about the operation of the scheme.

2. The Wealth-Tax Officer used the information elicited by C.S. Goenka for getting a warrant dated 24.11.1965 issued for the search and seizure under Section 132 of the Income Tax Act, 1961. On executing the warrant, 85,617.80 grams of gold along with other valuables were seized from him and was deposited with the Custodian of the Income-Tax department. Later, the Custodian of Income Tax withdrew the gold where it was seized by the Deputy Collector, Central Excise for violation of the Defence of India (Gold Control) Rules, 1962. On 03.02.1966 the Deputy Collector, Central Excise issued a show-cause notice to C.S. Goenka as to why the seized gold should not be confiscated under Rule 126(m) of the said rules.

3. By order dated 04.03.1966 the Income Tax Officer included the value of the seized gold in the estimate of income filed by the assessee under Section 132(5) of the Income Tax Act, 1961 for which the assessee filed two writ petitions before the Honourable Rajasthan High Court to challenge the show cause notice dated 03.02.1966 and order dated 04.03.1966. The Honourable Rajasthan High Court dismissed the writ petitions. Being aggrieved, he filed an appeal before the Honourable Supreme Court where it directed the Income-Tax Officer to determine the Wealth-tax liability of C.S. Goenka in accordance with the law. By order dated 03.01.1970, the Collector of Central Excise directed the release of the seized gold to C.S. Goenka for investing it in the Gold Bond Scheme. However, the gold was not released and was attached by the Tax Recovery Officer on 14.01.1970. On 08.02.1971, the Tax Recovery Officer filed an appeal to challenge the order of the Collector, Central Excise dated 03.01.1970 before the Gold Control Administrator which was dismissed by the Gold Control Administrator stating incompetency to file such an appeal and availability of an alternate remedy under Sections 81, 82(2) and (3) of the Gold Control Act, 1968

4. On 01.06.1971 the Gold Control Administrator issued a show-cause notice to C.S. Goenka as to why the order dated 03.01.1970 should not be set aside which was challenged by C.S. Goenka by filing a writ petition before the Honourable Delhi High Court. It dismissed the writ petition and an appeal was filed before the Honourable Supreme Court where the court directed the stay of all proceedings under the Gold Control Act including the show cause notice dated 01.06.1971.

5. On 29.12.1975 C.S.Goenka made voluntary disclosure under Section 14(1) of the Voluntary Disclosure of Income and Wealth Ordinance, 1975 of his wealth of Rs.18,00,000.00/- which included the value of the seized gold at Rs.7,50,000.00/-. Later, C.S. Goenka addressed a letter to the Income Tax Officer claiming exemption from Wealth Tax liability in respect of the seized gold and an assessment order was passed by the Income Tax Officer. By order dated 18.02.1981, the first appellate authority i.e. the Commissioner of Wealth Tax (Appeals) dismissed the appeal filed against the order of the Income-Tax Officer. By order dated 29.09.1982, the second appellate authority i.e. the Tribunal dismissed the appeal filed against the order of Commissioner of Wealth-tax (Appeals).

6. C.S. Goenka filed 15 appeals challenging each of the separate orders computing the wealth-tax liability for the period 1961- 62 to 1975-76 before the Commissioner of Wealth Tax (Appeals) where it partly allowed the 15 appeals and granted certain reductions for each of the years i.e. 1961-62 to 1975-76. Thereafter, C.S. Goenka filed 15-second appeals before the Tribunal challenging the wealth-tax assessments for the period 1961-62 to 1975-76. The Tribunal by two consolidated orders dated 26.09.1982 for the assessment years 1961-62 to 1967-68 and dated 18.10.1982 for the assessment years 1968-69 to 1975-76 partly allowed the appeals and granted further reliefs to C.S. Goenka. Tribunal however dismissed 8 wealth-tax appeals filed by him for the assessment years 1976-77 to 1998-99. It was his contention that the value of the gold had been wrongly included while computing his total wealth for the period 1961-62 to 1998-99. Being aggrieved, he filed 39 reference applications in respect of the assessment years 1961-62 to 1992-93 where the Tribunal rejected all the reference applications.

7. C.S. Goenka is the original assessee. After his expiry, Sushila N. Rungta, his daughter claimed to be his sole executrix who filed the Writ Petition No. 793 of 2005 challenging the notice dated 22.09.2004 issued for the sum of Rs. 5,01,86,611.00/- along with interest. After her expiry, her son Nirajkumar Rungta and daughter Bharati Saraf were the legal heirs.

8. Hence, the appellants have filed Wealth-tax Application No.3 of 1984 under section 27(3) (b) of the Wealth Tax Act, 1957 to refer the matter to the forum regarding 7 questions of law i.e. 5 questions of law in the Wealth-tax References and Income-Tax Appeals and the 2 questions of law in Wealth-tax Application No.3 of 1984 to this Court.

The Issues of the Case

Whether the Tribunal erred in law in including the market value of the said gold for the computation of the net wealth of the Petitioner?

Whether the Tribunal erred in law in rejecting the Assessee's submissions that even if the gold was to be included in the net wealth, the value thereof to be taken ought to be Nil or ought to be arrived at bearing in mind the liability for confiscation, fine and penalty and bearing in mind that what had to be valued is the price which Assessee claim to be restored possession of the said gold would fetch if sold in the open market?

Whether the Tribunal erred in law, in rejecting the Assessee's claim that the matter had to be considered on the footing of the Assessee having invested the said gold in the Gold Bonds which were exempt from Wealth-tax?

Whether the Department having knowingly and consciously prevented the Assessee from investing the gold in the purchase of the Gold Bonds under the Gold Bond Scheme which was then in operation, can in law charge the Assessee to wealth-tax on the footing that the Assessee continues to be the owner of the said gold and was thus liable to wealth-tax on the value of the gold?

Whether the Tribunal erred in law in holding that the rules and principles of equity would have no application to the present case?

Whether the Tribunal erred in law in valuing gold on the basis of a notional sale when the assessee was not in possession of the gold and could not have sold the gold but could have at best entered into an agreement to sell the gold with a condition to deliver the gold, if and when he became entitled to and acquired possession thereof?

Whether, instead of determining the value of gold on the basis of a notional sale of gold which was not legally possible, the Tribunal ought to have included, if at all, the consideration which any wise and prudent person would have offered for entering into an agreement to purchase the gold subject to the condition that delivery of gold would be given and sale would be completed, if and when the assessee became entitled to, and acquired possession of gold?

The Observations of the Court

The Honourable Bombay High Court observed the following:

1. Concurred with the opinion of the Honourable Calcutta High Court by referring to the case of Murari Mohan Dutta v. Commissioner of Wealth Tax, (1991) SCC Online Cal 323::(1993)200 ITR 226 where Section 7(1) of the Wealth Tax Act, 1957 emphasis on the fact that mere legal ownership will not be enough to fasten liability on the assessee in respect of the market value of the seized assets even though the said seized assets belong to the assessee. In the present case despite the order of adjudication dated 03.01.1970 passed by the Collector of Central Excise to invest the gold in the Gold Bond Scheme, the same was not released by the respondents.

2. Negative to accede to the contention raised by the Revenue i.e the Respondent claiming that the assessee stood possessed and owned the gold and the gold coins on the respective valuation dates for the purpose of computation of Wealth-tax assessment.

3. Inclined to accept the case of the applicant/assessee that since the gold had been seized by the Gold Control Authorities, the market value of the seized gold is to be considered at "NIL" for the purpose of computation of wealth tax assessment on the respective valuation dates.

4. Based on the critical analysis of Section 8(2) of the Wealth Tax Act, 1957 and the case stated above, the Court was discernible that in the present case, there cannot be any market value ascribed for valuation of the seized gold on the respective valuation dates in view of the fact that the gold being seized was in the custody of the Central Excise Authorities on the respective valuation dates and the right of the original assessee was in jeopardy.

5. With respect to issue 1, issue 2, issue 3, issue 5 and issue 6 the Court answer stands as ‘Yes’ whereas with respect to issue 4, the Court answer stands as ‘No’. With respect to issue 7, the Court opined that the tribunal should not have included any consideration for the seized gold for computation of wealth tax assessment on the respective valuation dates as the gold still stands seized and not released.

6. With respect to the Writ Petition No. 793 of 2005, the Court was inclined to set aside the recovery notice dated 22.09.2004 as it is inadequate in terms of any details with liberty to the Respondents / Revenue / Income Tax department to issue a fresh notice in accordance with the law.

The Decision Held by the Court

The Honourable Bombay High Court disposed of the Writ Petition No. 793 of 2005 and directed the Respondents to release 85617 grams of gold, jewellery, cash and other valuable articles as per the panchnama and hand it over to the Petitioners.

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