THE COMMISSIONER OF WEALTH T vs. M/S.STATE INDUSTRIES PROMOTI

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TCA/880/2019HC Madras26 November 2019Bench: Hon`ble Mr Justice N. KIRUBAKARAN8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the Revenue. The dismissal was based on Circular No. 5 of 2019 dated 05.02.2019, which stipulated that no proceedings should be initiated if the wealth tax effect is not more than one crore. The Court noted that the learned Senior Standing Counsel for the appellant submitted that the issue was covered by this circular. Consequently, the appeals were dismissed without deciding the substantial questions of law framed. However, the Court explicitly stated that the substantial questions of law were left open. Liberty was granted to the Revenue to seek restoration of the appeals if the tax effect was found to be above the limit fixed in the circular, to be heard and decided on merits. No costs were awarded.

What were the facts?

The assessee, M/s. State Industries Promotion Corporation of Tamil Nadu Ltd., failed to file Wealth-tax returns for assessment years 1999-2000 to 2005-2006. Upon issuance of notice under Section 17 of the Wealth-tax Act, returns were filed admitting net wealth ranging from Rs. 76,54,900/- to Rs. 81,94,700/- for some years and Rs. 2,69,22,500/- to Rs. 7,86,42,100/- for others. The Assessing Officer initiated penalty proceedings under Section 18(1)(c) of the Wealth-tax Act, deeming the non-filing as concealment of particulars, invoking Explanation (iii). The assessee contended that a change in accounting policy from treating leased land as fixed assets to stock-in-trade from the financial year 2003-04 led to the omission, which was not wilful. The CIT(A) deleted the penalty, holding the delay was inadvertent. The Tribunal upheld the CIT(A)'s order. The Revenue appealed to the High Court.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Income Tax Tribunal was right in deleting the penalty levied under Section 18(1)(c) of the Wealth-tax Act? 2. Whether the Tribunal was right in not considering Explanation (3) to Section 18(1)(c) in the proper perspective? 3. Whether it was proper for the Tribunal to hold that there was a change in accounting policy from assessment year 2002-2003 onwards, even though no return was filed for earlier years? 4. Whether the Tribunal was right in concluding that no penalty was leviable due to the change in accounting policy, implying a bonafide belief that assets were not taxable prior to the change? 5. Whether the Tribunal was right in holding that leasehold rights acquired by the assessee were stock-in-trade and not capital assets under Explanation (1)(b) of Section 2(ea) of the Wealth Tax Act? 6. Whether the Tribunal was right in deleting an addition of Rs. 6,59,38,224/- and Rs. 7,47,18,958/- for assessment years 2004-2005 and 2005-2006? Assessee's contentions (as inferred from the facts and the Tribunal's decision): The omission to file returns was due to a change in accounting policy from treating leased land as fixed assets to stock-in-trade from FY 2003-04, making the delay inadvertent and not wilful concealment. The leasehold rights were stock-in-trade, not capital assets. Revenue's contentions (as inferred from the appeal and the Tribunal's decision): The non-filing of returns, despite having taxable wealth, constituted concealment under Explanation (iii) to Section 18(1)(c). The change in accounting policy did not absolve the assessee of the penalty for non-filing in earlier years.

Which sections of the Income-tax Act were involved?

Section 260A,Section 17,Section 18(1)(c),Section 2(ea)

AI-generated summary — verify with the full judgment below

T.C.A.No.880 of 2019 & batch IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 26.11.2019 CORAM : THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN and THE HONOURABLE MR.JUSTICE P.VELMURUGAN T.C.A.Nos.880, 881, 900, 901, 903, 915 & 918 of 2019 and C.M.P.Nos.24283, 24297, 24326, 24332, 24508 & 24511 of 2019 The Commissioner of Wealth Tax, Chennai.

... Appellant in all the appeals Vs M/s.State Industries Promotion Corporation of Tamil Nadu Ltd., 19A, Rukmani Lakshmipathy Road, Egmore, Chennai 600 008. ...Respondent in all the appeals COMMON PRAYER: Tax Case Appeals filed under Section 260A of Income Tax Act, 1961 against the common order dated 18.04.2011 in WTA Nos.32 to 38/Mds/2010 on the file of the Income Tax Appellate Tribunal Chennai 'C' Bench for the assessment years 1999-2000, 2000- 2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005 & 2005-2006. For Appellant : Mr.J.Narayanasamy, Senior Standing Counsel. 1/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch For Respondent : Mr.M.P.Senthil Kumar C O M M O N J U D G M E N T (Order of the Court was delivered by N.KIRUBAKARAN, J)

These tax appeals have been filed against the common order passed by the Income Tax Appellate Tribunal in WTA Nos.32 to 38/Mds/2010 dated 18.04.2011. 2.The facts of the case are as follows: The assessee did not file income tax return for the assessment years 1999-2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005 & 2005-2006 inspite of having taxable wealth. Therefore, notice under Section 17 of the Wealth-tax Act was issued calling for the return and the same was filed on 03.08.2002 admitting net wealth of Rs.2,69,22,500/-, Rs.3,08,72,400/-, Rs.3,41,31,200/-, Rs.2,66,69,800/-, Rs.7,86,42,100/-, Rs.81,94,700/- and Rs.76,54,900/-. The assessment was completed on 20.11.2006 on the net wealth returned and penal action under Section 18 (3) (c) was initiated. With reference to explanation (iii) which states that when net wealth is taxable and non filing of the return would amount to concealment of particulars 2/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch not withstanding the fact that the return was filed in response to the notice issued under Section 17. 3.The assessee filed a reply to the notice issued under Section 18 (1) (c) stating that till the accounting year 2002-2003 the land leased out on long term basis to various units were treated as fixed assets of the corporation and from the year 2003-04 the accounting policy was changed whereby the lands were treated as stock in trade and were accounted for sales. Therefore, the State industries Promotion corporation did not file the wealth-tax return and the omission to file the same was not intentional or wilful nor there was any concealment of particulars of net wealth. However, the assessee did not explain why a return was not filed and if the notice was not issued under Section 17 no return would have been filed. The Deputy Commissioner of Wealth-tax held that the present case fell under explanation (iii) to Section 18 (1) (c) and the reply given was not satisfactorily explained and therefore AO held why penalty should not be levied for the failure to return as it amounted to concealment. The DCIT therefore, charged wealth-tax as due for the assessment year 1999- 3/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch 2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005 & 2005-2006 at Rs.2,54,225/-, Rs.2,93,794/-, Rs.3,26,312/-, Rs.2,51,698/- Rs.7,71,421/-, Rs.7,26,329/- & Rs.8,08,739/- even though the maximum penalty leviable was five times, the minimum penalty alone was levied. 4.Aggrieved by the same an appeal was filed before the CIT(A), who held that the assessee being a Government company cannot be said to have been engaged in deliberate program of concealment of its taxable assets, it was only due to change in accounting policy for the financial year 2002-2003, there was inadvertently delay in filing the return of wealth which was not wilful and therefore deleted the penalty levied. 5.Aggrieved by the same, the department has filed an appeal before the Tribunal, questioning the action of the CIT (A). The Tribunal upheld the order of CIT (A) and dismissed the appeals of the revenue on the ground that there was no concealment as its accounting policy changed from fixed assets into stock in trade on the leased out property. Hence, against the said common order of the Tribunal, these present 4/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch appeals have been filed. 6.These appeals are admitted on the following substantial questions of law; “(i)Whether on the facts and in the circumstances of the case, the Income Tax Tribunal was right in deleting the penalty levied u/s.18 (1) (c) of the Wealth-tax Act? (ii)Whether on the facts and in the circumstances of the case, the Income Tax Tribunal was right in not considering the explanation (3) in proper perspective under Section 18 (1) (c)? (iii)Whether it was proper for the Tribunal to hold that it was change in accounting policy in the matter of treatment of its fixed assets from the assessment year 2002- 2003 onwards even though no return of income was filed for the earlier years? (iv)Whether the tribunal was right in its conclusion in holding that no penalty was levy able due to the change in accounting policy the assessee was under bonafide belief that the assets were not taxable even for the period prior to the change? (v)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the leasehold 5/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch rights acquired by the assessee was in the nature of stock in trade and not a capital assets in terms of explanation (1) (b) of Section 2 (ea) of the Wealth Tax Act? (vi)Whether the Tribunal was right in its conclusion in deleting an addition of Rs.6,59,38,224/- and Rs.7,47,18,958/- for the assessment years 2004-2005 and 2005-2006?"

7.However, when the matter is called today, Mr.J.Narayanasamy , learned Senior Standing Counsel appearing on behalf of the appellant would submit that this issue is covered by Circular No.5 of 2019 dated 05.02.2019 by which if the wealth tax effect is not more than one crore, there should not be any proceedings against any order passed in this regard. This Court has perused the said circular dated 05.02.2019. 8.Hence, in view of the submissions made by the learned counsel appearing on behalf of the appellant and also in view of the Circular No.5 of 2019 dated 05.02.2019, these Tax Case Appeals are dismissed. 6/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch 9.However, the substantial questions of law framed are left open. In the event the tax effect is above the limit fixed in the said circular, liberty is granted to the Revenue to make a mention to this Court to restore the appeal to be heard and decided on merits. No costs. Consequently, connected miscellaneous petitions are closed. (N.K.K.,J.) (P.V.,J.) 26.11.2019 ay To The Commissioner of Wealth Tax, Chennai.

N.KIRUBAKARAN, J. 7/8 http://www.judis.nic.in T.C.A.No.880 of 2019 & batch and P.VELMURUGAN, J. ay T.C.A.Nos.880, 881, 900, 901, 903, 915 & 918 of 2019 and C.M.P.Nos.24283, 24297, 24326, 24332, 24508 & 24511 of 2019 Dated:26.11.2019 8/8 http://www.judis.nic.in

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