Case: Arvind N. Mafatlal Vs. T.A. Balakrishnan, Deputy Controller of Estate Duty, Bombay

. The petitioner is the person against whom the notice was issued. He is the son of the deceased and admittedly the accountable party under the Act. The circumstances under which the notice came to be issued are briefly as follows : navinchandra Mafatlal passed away on 31st of August, 1955, and in due course a return in regard to the assessment of estate duty was filed on behalf of the petitioner by a chartered accountant on 18th February, 1956. The late Navinchandra was the chairman and managing director of a private limited company known as Mafatlal Gagalbhai and Company Ltd. , having its registered office in Bombay. The subscribed andcapital of the company consisted of 25,250 ordinary shares of Rs. 100 each and 75,750 preference shares of Rs. 100 each, out of which Navinchandra owned 2,150 ordinary shares and 9,050 preference shares. Navinchandra had, some time prior to his death, gifted away some part of his share capital to various persons and at the time of his death he only held 975 ordinary shares and 9,050 preference shares of the company. We are primarily concerned in this petition with the valuation of the 2,150 ordinary2 ) ON 28th March, 1956, after the return was filed, the Assistant Controller of Estate Duty asked the petitioner a number of questions which were replied to and along with the reply was also filed a valuation report dated 10th December, 1956. The replies to the questions were given on 13th February, 1959. The petitioner has also alleged that in the meanwhile a number of hearings took place at which several questions were discussed in connection with the return. On 22nd March, 1960, the then Deputy Controller of Estate Duty, Mr. Jhala, made an assessment order which is at exhibit F. In the order the Deputy Controller has stated that there were several points arising out of the return submitted by the accountable person but all except one of those points had been disposed of by discussion with the parties and agreed figures were included in the computation given in the assessment order.( 3 ) IN order to complete the narration of facts resulting in the issuance of the notice under section 59 of the Act, it is necessary to state that after the assessment order was passed there came into force on 1st July, 1960, the Central Act, 33 of 1958, known as the Estate Duty (Amendment) Act, 1958, whereby substantial changes were made in the then existing Estate Duty Act. One of those changes was to bring into force the new section 59 of the Estate Duty Act as amended. It was after the section came into force on 23rd January, 1963, that the notice which is impugned in the present petition came to be issued by the Deputy Controller of Estate4 ) CONSEQUENT upon the issue of the notice, the petitioner or his chartered accountant had an interview with the Controller of Estate Duty on 16th April, 1963 and thereafter wrote several letters some of which are filed before us explaining the petitioners position and disputing the right of the Deputy controller of Estate Duty to issue the notice at all. There were further interviews and a number of letters were exchanged by which the petitioner demanded from the respondent Deputy Controller, the "information" in his possession on the basis of which he claimed to reopen the assessment already made under his powers under section 59 of the Estate Duty Act. It is the petitioners case that until he filed the present petition and raised the issue before the court the"information" on the basis of which the respondent claimed to act, was never disclosed to him. The petitioner insisted that the assessment order made on 22nd March, 1960 was a final order, which was no liable to be reopened under law, especially in view of the fact that all possible information had been placed before the then Deputy Controller of Estate Duty and after long discussion that order came to be passed as an agreed order. From the order of assessment dated March 22, 1960, it does appear that the order was virtually passed upon an agreement between the assessee and the department on all points except one and so far as the point on which there was any difference, it does not affect the dispute between the parties in the present5 ) ON 16th March, 1964, the respondent wrote to the chartered accountants of the petitioner a letter in which he disclosed his own computation of the value of the ordinary shares of the company which the deceased held and informed the petitioner that the various contentions which he had put forward were being considered. Meanwhile he offered his own valuation of the ordinary shares "on the assets basis as at the date of death of the deceased" and called upon the petitioner to let him have his views regarding the same. It may be stated here that in the assessment order dated 22nd March, 1960, the computation of the value of those shares was made at Rs. 1,250 per share whereas in the computation now made by the deputy controller of Estate Duty the value of each share was assessed at Rs. 2,800, i. e. , more then twice the original value of the shares. Though the petitioner has stated that on the date of his death the deceased owned 975 ordinary shares, it is now not in dispute that the date of his death the deceased owned 975 ordinary shares, it is now not in dispute that the assessment has to be made on the basis that the deceased owned 2,150 ordinary shares, for the transfer which is by way of gift would be caught under the Act. On this basis, the total valuation comes to Rs. 33,32,500 and the additional duty payable comes to Rs. 13,33,400.

Reasoning: ( 17 ) IN the light of these general principles we turn to examine whether in the present case the order passed on 22nd March, 1960, was a completed and final order which could not be reopened except by virtue of express enactment or necessary intendment. We may first of all dispose of a point which Mr. Joshi made on behalf of the department that the order was not final, because the assessee had preferred an appeal. In the first place the plea is not to be found stated in any part of the affidavits filed on behalf of the department, but it is also not disputed that that appeal was filed at the instance of the assessee claiming a reduction of tax and nothing further, and in regard to minor item. We do not think that in a case where the assessee claims that he is not liable to tax it can possibly be urged that the departments right to assess or reassess was kept alive. In fact, even on that occasion the department could not have claimed that the assessee was liable to a higher rate of taxation or to a higher amount of tax. Therefore, the mere fact that an appeal on behalf of the assessee was pending would not, in our opinion, affect the question whether the order passed on 22nd March, 1960, was final and completed order or not. That order was a completed and final22 ) IN Commissioner ofv. Shantilal Punjabji the effect of the Supreme Court decision upon the view taken by the Division taken by the Division Bench of this court in Prashar v. Vasantsen Dwarkadas was considered and at page 73 it reopen an assessment which is barred under section 34 and no subsequent enlargement of time can revive such right by section 31 of the Amendment Act of 1953, as we have pointed out in Mathurdas Govinddas v. G. N. Gadgil, the Bombay decision in Prashar v. Vasantsen Dwarkadas still holds good and is binding upon us as on this point. Out of the five learned judges, two took the view, two a contrary view and the fifth judge, Sarkar J. , did not express any opinion at all and, therefore, as held by the Bombay High Court, section 31 did not save the right of the taxing authorities to issue the notice after the right to do so wasunder section 34 (1 ). " With respect we are in agreement with this view as to the effect of the decision of the Supreme Court in Prashar v. Vasantsen Dwarkadas, so far as the decision of this court in Prashar v. Vasantsen Dwarkadas is31 ) WE do not think, therefore that the decision in the Calcutta Discount Companys case, takes any view contrary to the view taken in the decision to which we have referred but on the contrary it affirms the principle that, unless there is express statutory provision or necessary intendment to be found from the language of a statute, completed and final orders of assessment cannot be reopened. The Calcutta Discount Companys case was, upon the findings of the division Bench in that case, an exception to the rule, because it was held that the rights created by the amending Act of 1948 were not new rights but merely a variant of the old rights under the replaced32 ) IN the light of these principles, we can find noting in the provisions of section 59 to suggest that it as been given any retrospective operation. Reference was made to section 73a which was also introduced into the Estate Duty Act by the same amending Act, 33 of 1958. Section 73a provides as follows : "no proceedings for the levy of any estate duty under this Act shall commenced(a) in the case of a first assessment, after the expiration of five years from the date of death of the deceased in respect of whose property estate duty became payable; and (b) in the case of a reassessment, after the expiration of tree years from the date of assessment of such property to estate duty under this Act. "( 33 ) CLAUSE (a) of the section is obviously inapplicable here, because this is not a case of a first assessment. This is undoubtedly an attempt at reassessment and to that extent clause (b) would be attracted provided it has the necessary application to the present case. There is nothing in clause (b) of section 73a to suggest a retrospective operation. No doubt, clause (b) says "in the case of a reassessment, after the expiration of three years from the date of assessment of such property to estate duty under this Act," but it does not say that the date of assessment must be a date prior to the coming into force of section 73a. Therefore, even though section 59 is subject to the provisions of section 73a, we do not think that by virtue of section 73a, clause (b), section 59 would apply for any period prior to the date of the coming into force of the Act, namely, 1st July, 1960, much less where the assessment has been final and completed, in the present case. In any case section 73a, clause (b), will clearly apply to cases of reassessment made after its provisions came into force, i. e. , prospectively. If then the provisions of section 73a, clause (b), can apply prospectively and there is no express provision or necessary intendment to suggest the retrospective operation we can see no reason why we should give this clause any retrospective operation at all. Though clause (b) says that in the case of a reassessment, the assessment cannot be reopened after the expiry of three years from the date of assessment, it does not say that a reassessment can take place in a case where a final order has already been5 ) IN this connection, we may here dispose of an ancillary point which was raised by Mr. Joshi on behalf of the department and that is that the provisions of section 62 of the old Act are in pari materia with the provisions of section 59 of the new Act, and, therefore, on the analogy of the reasoning of chief Justice Chakravartti in the Calcutta Discount Companys case, section 59 is not a new provision at all, but only a variant of the old provision which it replaced, namely, section62. We are unable to accept this contention, We have already indicated when considering the provisions of section 62 that its ambit was strictly limited. In the first place, the grounds upon which action could be taken under that section were only, mistake apparent from the record, mistake in the valuation of any property, or omission of any property. Section 59 does not at all deal with any case of mistake. In fact, in the Estate Duty Act as amended, the question of rectification of mistake is relegated to the new section 61 and that section has not been invoked by the department at any stage. Secondly, the action that could be taken under section 62 was onlyIf the assessee applied, he could be refunded the excess duty, if any, paid by him or so far as the department is concerned, the only action that could be taken was to determine the additional duty payable on the property. In no case could an assessment made be reopened under the old section 62. In other words, the assessee could not be called upon to render a fresh account or to submit a fresh return which under section 59 the department is expressly authorised to do. The words in section 59 are decisive in this respect, "may. . . . require the person accountable to submit an account as required under section 53 and may proceed to assessee or reassess such property as if the provisions of section 58 applied thereto. " Section 53 requires that every person accountable for estate duty shall, within six months of the death of the deceased, deliver to the Controller an account in the prescribed form and verified in the prescribed manner. That is the initial return which the person accountable is called upon to make and that is what the Controller is authorised to call for under section 59, if the conditions of that section are fulfilled. Therefore, it is a completely new account that could be called for. That could not be done under the old section 62. Similarly, power is given to the Controller to proceed to assess or reassess the property as if the provisions of section 58 applied thereto. Section 58 deals with the subject of "assessment" and it refers obviously to the assessment of the principal value of the estate of the deceased to determine the amount payable as estate duty. Therefore, the cumulative effect of reading the provisions of section 58 along with the provisions of section 59 is that if the conditions of section 59 is that if the conditions section 59 are fulfilled, the Controller can call upon the person accountable to render a fresh account and assess him as if he were assessing him for the first time under section 59. None of these powers or remedies, if we may say so, are conferred upon the department under the old section 62. These, in our opinion, are he fundamental differences between the rights or remedies under the old section 62 and the new section 59. Whatever similarity there was between the rights or remedies under the old section 62 and the new section 59 was in regard to the question of mistake which, in the amended Act, has been relegated to section 61, but section 61 had not been invoked by the department. So far as section 59 is concerned, in our opinion, it is not in any sense merely a variant of the old section 62 so as to attract the provisions of section 62 as held in the Calcutta Discount Companys case. We may stress here that in coming to this conclusion we have not compared the grounds upon which action could be taken under section 59 or under section 62, because of the remark of Chief Justice Chakravartti that those difference in the grounds upon which action could be taken were37 ) AT a later stage, the learned judge pointed out that the power of review under Order 47, rule 1, was more restricted in scope than the power under section 35, but the extent of that restriction was not indicated. It seems to us that upon the particular facts of that case it was held that the error sought to be corrected was a mistake apparent from the record, though it was not an error apparent on the face of the record. But the facts of the present case are entirely different. To that extent, therefore, we do not think that the distinction pointed out in that case would apply here.(39 ) THEREFORE, despite the distinction which was drawn between the words "apparent from the record" and "error apparent on the face of the record, the Supreme Court itself has indicated that even under the words "apparent from the record" the mistake contemplate is not one which is to be discovered as a result of an arguments, but it must be a mistake which becomes apparent from the examination of the record. We fail to see upon that view how section 62 of the unamended Act will not apply to the facts of the case. The words of section 35 of theAct are to that extent in pari materia with the words of section 62. We may also mention here that it was urged by Mr. Palkhivala that the very provisions of the law which fell to be considered in Asok Textiles Ltd. case namely Schedule I, Part I, Item B, proviso (ii), of the Finance Act (23 of 1951) were declared not to levy a charge ofat all and to that extent offended against section 3 of the IndianAct. See Commissioner ofv. Khatau Makhanji Spg. and Wvg. Co. Ltd. , and that, therefore, the question which arose in Asok Textiles Ltd. case need not be gone through. However, it is unnecessary to go into that question, because even accepting the view in Asok Textiles Ltd. s case, we do not think that section 62 would be attracted in the present case.No affidavit, however, has been filed by this officer and, therefore, we think that the affidavits filed by Mr. Butani and Mr. Gopalkrishnan have very little value. So far as the petitioner is concerned, he has, insubparagraph of paragraph 4 ofhis affidavit, categorically stated, "i further state that rule 15 was considered along with all relevant questions and that relevant information and documents were furnished to show that the deceased had no control within the meaning of subrule (3) of rule 15 and it was shown that the deceased was not in the position of a governing director and that he had not the powers of the board of directors. It was contended that the resolution of the board and the article 125 of the company under which the powers of the board were delegated did not amount to control within the meaning of rule 15. All the facts relating to control within the meaning of the rules were disclosed in the course of assessment proceedings". Besides these pleadings there is absolutely nothing before us to show whether rule 15 was considered or not. In these circumstances, we can see no reason why we should not accept the affidavit of the petitioner that rule 15 was considered by the original assessing officer. There is no denial of this on the part of the original assessing officer, who was still available. So far as the affidavits of Butani and Gopalakrishnan are concerned, they are admitted to have been made only from the record.One of the points which Mr. Joshi made on behalf of the department was that if rule 15 had been discussed, some mention of it would have been found in the assessment order.We think that the absence of reference to rule 15 in the assessment order cannot indicate in the present case that rule 15 was not discussed or considered at the time of the original assessment because, as we have shown, all the points of difference or dispute at the time of the assessment were in the words of the assessment order "disposed of by discussion with the parties and agreed figures" were included in the computation made. Therefore, there is nothing upon the record to suggest that rule 15 was not considered.Thus section 37 provides that it is the market value of the shares that would prevail "if not ascertainable by reference to the value of the total assets of the company". In other words, it is the value which is ascertainable, by reference to the value of the total assets of the company which must be made in the first instance and, then, if that valuation is not ascertainable then only the market value has to be resorted t. Though rule 15 purports to have been made under thepower contained in section 20(e), we have no doubt that it makes detailed provisions for computation of the valuation of shares on the basis of the total assets of the company in terms of the provisions of section 37. If then it is an admitted position that section 37 was considered by the officer who made the original assessment, there can be hardly any doubt that he must have applied his mind to both the alternative principles of valuation mentioned in section 37 and that can only mean that rule 15 must have been considered by him. At any rate, section 37 indicates two methods of valuation, (1) on the basis of the total assets of the company, and (2) on the basis of the market value. The first is under section 37 preferred to the second and it is only in the event that the first principle cannot apply that the second principle is made applicable. Now if the assessing officer makes the assessment on the basis of the second principle, namely, that of market value, we cannot but hod that he must have considered the first principle, namely, the valuation on "the assets basis", and rejected it as not ascertainable. This again would support the affidavit made by the petitioner that rule 15 was considered. At any rate, in view of the complete absence of any reference to rule 15 in the record of the original assessment proceedings, in the absence of any affidavit by the officer making the original assessment and the other circumstances which we have discussed, we cannot but hold in the present case that rule 15 was considered by the assessing officer when he made the original assessment.48. In this view, it seems to us hardly necessary to consider whether, upon the facts and circumstances of this case, rule 15 could possibly apply, but since elaborate arguments have been addressed by both the sides whether rule 15 could apply at all, and the matter may not rest with this court, we think we must deal with that point.Now in the first place, though no doubt the resolution read along with article 125 does give the managing director the powers of the board of directors as are vested in the board of directors by the articles, all that one can say is that the managing director was given plenary powers of management of the company. But we fail to see how powers of management can be approximated with control of the company such as is required by rule 15. We have already indicated that in respect of his shareholdings, the deceased did not have a controlling interest in the company, that is to say, at least more than 50% of the share capital of the company. Therefore, looked at from the point of view of his real control over the company, there was none so far as the deceased was concerned. He could at a general meeting have been always outvoted by the other shareholders and it is well known that the real control of a company lies in the fact that a person or persons hold a majority of the shares in a company and on whether they can control the general meetings of the company. That the deceased had no power to do in the present case.60. Even so far as the management of the company so vested in the deceased is concerned, two facts may be emphasized, which show, in our opinion, categorically that it was not the deceased who was controlling the board of directors or the management of the company, but that it was really the board of directors or the management of the company, but that it was really the board of directors who were controlling him. These two important facts are : (1) that the operation of the resolution was limited only to one year at a time. Surely, it is a poor way of exhibiting control of a company that a managing director has to go and ask the board of directors to give him his powers annually. (2) Secondly, article 125 itself vests plenary power of removal of the managing director in the board of directors and that power remained uncontrolled. In other words, the power of the board to remove the managing director could be exercised at any time. It was disputed that they could remove him in the course of one year after having passed a resolution such as is to be found at exhibit E, but we think that notwithstanding such resolution they could have removed him for sufficient cause. But that apart, so far as the power to remove him is vested in the board of directors and the board of directors carefully considered the exercise ofthat power and limited it to one year at a time, we do not think that in the circumstances of the present case they ever intended to part with their power of control in favour of the managing director. It is quite clear that it was the managing director who was under the control of the board of directors and notvice versa as alleged on behalf of the department.61. Some reference was made in the arguments to the definition of "manager" in the old Companies Act and to the new definition of "managing director" in the present Indian Companies Act to speed out the powers of control. We do not think that we need go into those definitions upon the view that we have taken in the present case. In our opinion, upon the facts placed before us there is no manner of doubt that the deceased, though appointed the managing director with full powers of the board of directors for one year, did not have the control of the company within the meaning of rule 15. Rule 15, therefore, could not have applied in the circumstances of the case.In the present case, we are quite unable to find any mistake, much less a mistake which is "glaring and obvious" or which "is plainly and obviously inconsistent with a specific and clear provision of the state". The department, it appears, merely reconsidered the provisions of section 62 read with rule 15 and changed its opinion, though there was no mistake apparent from the record.65. Having considered the question of the applicability of rule 15, in so far as its allegedcould constitute a mistake under the provisions of section 62, we hold that there was no mistake and, therefore, section 62 would not be applicable to the facts and circumstances of the present case. If that be so, then the point we have earlier made that section 59 cannot affect a final and concluded order of assessment made in favour of the petitioner, becomes reinforced. The finality of the order of assessment made on 22nd March, 1960, is not affected by any right existing in favour of the department arising under section 62. Therefore, the provisions of section 59 would not apply, because section 59 was brought into force as a law long after the assessment order was made.Thus two facts or circumstances are alleged as constituting "information". One is the fact of overlooking of rule 15. We have already dealt with this ground. The other ground is that the company was a dealer in shares, whereas the correct position was that the company was an investment company. In this respect, the only material placed before us by Mr. Joshi on behalf of the department was to refer to an answer given on behalf of the petitioner to a questionnaire "A" issued by the department, where a statement has been made "The company is essentially an investment company". In the affidavit of Mr. Gopalakrishan we have shown that it is stated that the Appellate Assistant Commissioner had given a finding that they are dealers in shares. No such order has been produced before us. We presume that, if a finding of that kind was at all given by the authority under the Estate Duty Act or even for that matter under the IndianAct or any other fiscal enactment, it could only be by a written order, but no such order has been placed on record. Therefore, the allegation remains completely unsubstantiated and we cannot accept the statement that some such order was passed. Apart from this, there is nothing before us to show that the company was a dealer in shares. We must hold, th refore, that there was no information in the possession of the Deputy Controller such as is required under the provisions of section 59(b) to enable him to reopen the order passed on 22nd March, 1960. The fact that the deceased was the managing director, the fact that the deceased was the managing director, the fact that the articles of association of the company were before the assessing officer as well as the facts relating to the interest of the deceased in the company and the nature of the business activities of the company and the resolution which is now sought to be invoked, do not carry the matter any further in favour of the department. All the information necessary to come to a conclusion as to the valuation of the shares was in the possession of the department. There was no information received by them subsequent to the order of assessment. Therefore, there was no jurisdiction to proceed to repent the assessment.The Division Bench relied upon the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner ofto which we have already referred. With respect, we agree with the remarks of the Division Bench of this court and normally its decision is also binding is also binding on us.In the present case, it can hardly be said that there were any facts which, even if correlated, could have amounted to "information" in the possession of the Deputy Controller. We have already shown that there were no such facts available to the department. The Malegaon Electricity Co.s case therefore, is distinguishable upon its own facts.79. In the view which we take, it is unnecessary to go into the further point urged by Mr. Palkhivala on behalf of the petitioner as to vires of rule 15 What Mr. Palkhivala urged was that, if rule 15 were to justify the assessment of estate duty on the "assets basis" without providing for it in the tax law, it is ultra vires of sections 36 and 37 of the Act. We have already shown that, in our opinion, rule 15 does not apply to the facts and circumstances of the present case. Therefore, it is unnecessary to consider whether it is also ultra vires the provisions of the Act.