WEALTH TAX CASE STUDIES

1. Whether the best judgment assessment order passed without giving the assessee 
an opportunity of being heard is valid in a case where the notice under section 
16(4) has already been given?

CWT v. Motor and General Finance Limited (2011) 332 ITR 1 (Delhi)In the present case, the assessee did not file the wealth-tax return under section 14(1).The Assessing Officer issued a notice to the assessee under section 16(4), calling upon it to furnish the return. On the failure of the assessee to comply with the terms of the notice issued, the Assessing Officer proceeded to make the assessment to the best of his judgement without issue of any further notice under section 16(5). The assessee
questioned upon the validity of the assessment done on the ground that the mandatory  notice under section 16(5), giving opportunity of being heard to the assessee, was not issued by the Assessing Officer.On the above issue the Delhi High Court held that, as per section 16(5) the Assessing
Officer can resort to making best judgment assessment, after giving an opportunity of being heard to the assessee by issue of notice, in case -

(a) where a person fails to make the return under section 14(1) or under section 15, or

(b) where he fails to comply with all the terms of notice issued under section 16(2) or section 16(4).

Further, according to the second proviso to section 16(5), no notice or opportunity of being heard is required where a notice under section 16(4) has been issued prior to the making of the best judgment assessment.In the present case, since the Assessing Officer has duly served the notice under section
16(4) on the assessee upon failure of the assessee to file the wealth-tax return, no separate notice under section 16(5) giving opportunity of being heard is required to be issued before making a best judgment assessment.

Note: As per section 16(5), notice giving opportunity of being heard has to be mandatorily to be issued before making the best judgment assessment by the Assessing Officer in a case where the assessee has not filed the wealth-tax return under section 14(1) or section 15.However, in the case discussed above, though the assessee has not filed the return under section 14(1), it was not necessary for the Assessing Officer to issue the notice under section 16(5), for assessing the wealth of the assessee to the best of his judgment, since he has already issued notice under section 16(4) requiring the assessee to furnish
the wealth-tax return. Therefore in this case, the second proviso to section 16(5) comes into operation and no further notice or opportunity to be heard is required to be given to the assessee.

2. Is wealth-tax leviable on the value of house under construction, where the 
construction was still incomplete on the relevant valuation date?

CIT v. Smt. Neena Jain (2011) 330 ITR 157 (P & H)On this issue, the Revenue contended that the incomplete house of the assessee fell within the purview of assets in section 2(ea) of the Wealth-tax Act, 1957 and it was liable to wealth-tax. Consequently, the value of the plot and investment of assessee’s share in construction of the residential house was added and tax was, accordingly assessed.
The High Court opined that the words “any building” could not be read in isolation and had to be harmoniously construed with the remaining portion of section 2(ea) i.e.,whether the building was used for residential or commercial purposes or for the purpose of maintaining a guest house, because an incomplete building could not possibly either be used for residential or commercial purposes or for the purposes of maintaining a guest house. Therefore, the word “building” has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary
fittings etc.In this case, the assessee was constructing the building after obtaining sanction from the
appropriate authorities. Explanation 1(b) under section 2(ea) defining “urban land” for levy of wealth-tax, specifically excludes from its scope, the land occupied by any building which has been constructed with the approval of the appropriate authority. Therefore, the incomplete building of the assessee neither fell within the meaning of a building nor within the purview of “urban land” under section 2(ea). Consequently, the incomplete building is not an asset chargeable to wealth-tax.