Wealth tax---

---- Valuation of assets---Valuation of land---Land subject to urban land (Ceiling and Regulation) Act, 1976---Restrictions and prohibitions contained in Ceiling Act must be taken into account.

Whenever a person holds vacant land in excess of the ceiling limit, he cannot dispose of such land at all. It cannot be sold in the open market. When land cannot be sold in the open market, the question of valuation on the hypothetical basis as to what price it would have fetched had it been sold in the open market, could not arise even assuming that such land may be sold subject to the restrictions imposed by the Urban Land Ceiling Act. In that process, one has to take into account the remote possibility of such land being granted full or partial exemption giving liberty to the assessee to dispose of it as he likes or subject to such restrictions as may be imposed as the conditions for exemption. In valuing such a property, one has to take into account the state of affairs as prevailing on the relevant valuation date.

The assessee filed two valuation reports in respect of a plot of land. The first report, dated November 30, 1972, estimated the then market value of the plot at Rs.77,000. The second report, dated July 8, 1977, showed the value at Rs.11,650, the decline being attributed to the depressing effect of the passage of the Indian Urban Land (Ceiling and Regulation) Act, 1976. The Wealth Tax Officer did not accept the contention of the assessee. He valued the land at Rs.1,93,600. The Appellate Assistant Commissioner observed that the land under consideration was hit by the aforesaid Act, and that the bulk of the land was in excess of the ceiling and so was liable to be acquired by the Government. Considering the value that could be obtained under the said Act, he considered that the valuation taken by the Wealth Tax Officer had no justification. In this view of the matter, he directed that the valuated of the land under consideration should be taken at Rs.77,000 only. On further appeal by the Revenue, the Tribunal observed that the valuation adopted by the Wealth Tax Officer was based on actual enquiry regarding the price of land in adjoining areas. However, it held that, considering the fact that the land is hit by the Urban Land Ceiling Act (which fact had not been controverted by the Revenue), some discount had to be made from such average value. It determined the value at Rs.1,68,600. On a reference:

Held, that the Tribunal did not approach this issue from a correct angle. The land in dispute-owned by the assessee should be valued at Rs.77,000 as estimated by the Appellate Assistant Commissioner inasmuch as such valuation was not disputed by the assessee before the Tribunal.

CWT v. K.S. Ranganatha Mudaliar (1984) 150 ITR 619 (Mad.) applied.

R.N. Bajoria and J.P. Khaitan for the Assessee.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 27(1) of the Wealth Tax Act, 1957 for the assessment year 1977-78, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the value of the land owned by the assessee was rightly valued by the Tribunal at Rs.1,68,600 instead of Rs.1,93,600 estimated by the Wealth Tax Officer and Rs.77,000 estimated by the Appellate Assistant Commissioner?"

Shortly stated, the facts are that the assessee filed before the Wealth Tax Officer two valuation reports in respect of the plot of land being 37-F, Paikpara Road, Calcutta. The first report, dated November 30, 1972, estimated the then market value of the plot at Rs.77,000. The second report, dated July 8, 1977, showed the value at Rs.11,650, the decline being attributed to the depressing effect of the passage of the Urban Land (Ceiling and Regulation) Act, 1976. The Wealth Tax Officer did not accept the contention of the assessee as regards the valuation of the land on the ground that the value of Rs.77,(W in 1972 could not go down to Rs.11,500 after five years. He also observed that the land under consideration had not been notified by the urban land ceiling authority for taking over lie gathered from enquiry made by the Departmental Inspector that land was sold in the adjoining area at Rs.12,000 per kottah on August 13, 1972, and two other plots were sold at the rates of Rs.8,000 and Rs.9,540 per kottah. The average rate of sale, according to the said plot, came to Rs.9,846 per kottah. However, considering the fact that the land under consideration was quite big in area, he took the value of the land under consideration at Rs.8,000 per kottah and thus arrived at the value of Rs.1,93,600. He made the assessment on the basis of the above value determined by him.

The assessee appealed to the Appellate Assistant Commissioner and contested the value taken by the Wealth Tax Officer. It was urged that the said land was covered by the Urban Land (Ceiling and Regulation) Act, 1976, and the excess land was liable to be acquired by the Government at a price of Rs.10 per square meter. The Appellate Assistant Commissioner observed that the land under consideration was hit by the aforesaid Act and that the bulk of the land was in excess of the ceiling and so was liable to be acquired by the Government. Considering the value that could be obtained under the said Act, he considered the valuation taken by the Wealth Tax Officer had no justification. In this view of the matter, he directed that the valuation of the land under consideration should be taker at Rs.77,000 only. The assessee got relief of Rs.1,11,600.

The Department appealed to the Tribunal and contended that the Appellate Assistant Commissioner erred in his decision. The assessee was not represented before the Tribunal at the time of hearing of the appeal. The Tribunal considered the issue raised in the appeal and held as below:---

"We find that the valuation adopted by the Wealth Tax Officer is based on actual enquiry made by him through his inspector. The average rate of sale of land in the adjoining area has not been controverted. The assessee merely insisted that his valuation report should be accepted. In our opinion, the value at which plots of land in the adjoining area were actually sold is a better index for determining the fair market value of the land under consideration. However, considering the fact that the land is hit by the Urban Land Ceiling Act, (which fact has not been controverted by the Revenue), some discount has to be made from such average value. The Wealth Tax Officer has reduced the average value only on account of size but has not taken into consideration the effect of the aforesaid Urban Land Ceiling Act. In our opinion, the value of the land should be further reduced by Rs.1,000 per kottah or Rs.25,000 (sic) in round figures from the value determined by the Wealth Tax Officer. Thus, considering all the facts and circumstances of the case, we determine the fair market value of the land as on the valuation date under consideration at Rs.1,68,600 instead of Rs.1,93,600 determined by the Wealth Tax Officer and Rs.77,000 determined by the Appellate Assistant Commissioner. We direct that the assessment be modified accordingly."

At the hearing before us, Mr. Bajoria, learned counsel appearing for the assessee, has contended that there was no basis for determination of the valuation of the land in dispute at Rs.1,68,000. He has also submitted that the Tribunal failed to take into account the provisions of the Urban Land Ceiling Act and the disadvantages or the restrictions flowing therefrom. According to him, the only valuation which could have been taken in such circumstances was the compensation which was payable by the Government when the land vests in the Government under the Act. The Tribunal could not have given any discount of Rs.1,000 per kottah from the value determined by the Wealth Tax Officer. There is no basis at all for arriving at such a valuation. He has, however, fairly submitted that since the assessee did not challenge the determination made by the Appellate Assistant Commissioner at Rs.77,000, he cannot ask for reduction of the valuation below Rs.77,000.

The contention of the Revenue before us is that the valuation was adopted on the basis of the comparable sale instances of adjoining lands and because it is vacant land within the meaning of the Urban Land Ceiling Act, which did not vest at the material time, the Tribunal was justified in giving certain reduction in the valuation.

We have considered the rival contentions. In our view, the Tribunal did not approach this issue from the correct angle. Whenever a person holds vacant land in excess of the ceiling limit, he cannot dispose of such land at all. It cannot be sold in the open market. It is true that the vacant land does not automatically vest in the State Government but the owner may hold it subject to certain conditions. Until a notification is issued under section 10(3) of the Land Ceiling Act, the land does not vest in the Government. Once the land vests in the State Government, there is no question of exemption being granted under section 20 of the Land Ceiling Act. In this case, a notification has been issued. The assessee had made an application in this case for exemption under section 20 of the Land Ceiling Act. Even in 1991, as has been stated by Mr. Bajoria, such exemption has neither been given nor rejected and the land remained as excess land all these years.

The State Government may exempt any excess vacant land in public interest' and also in a case where such exemption is considered necessary. to avoid undue hardship that may be caused to the person holding the vacant land in excess. The order of exemption can only be made if the State Government is satisfied and the reason for doing so is recorded in writing. In granting exemption, it is open to the State Government to impose such condition as may be specified in the order. Certain guidelines have been issued which enjoin that the vacant land in excess, if exempted, could be used for certain specific purposes. In our view, such vacant land in excess, although may be sold in the open market, cannot be transferred by way of mortgage, lease or otherwise in view of the provisions contained in section 5 of the Land Ceiling Act. Any transfer made in contravention of the provisions of subsection (3) of section 5 of the Land Ceiling Act shall be deemed to be null and void. In such a case, therefore, there may not be any willing purchaser for such vacant land.

In our view, therefore, when land cannot be sold in the open market, the question of valuation on the hypothetical basis as to what price it would have fetched had it been sold in the open market could not arise even assuming that such land may be sold subject to the restrictions imposed by the Urban Land Ceiling Act. In that process, one has to take into account the remote possibility of such land being granted full or partial exemption giving liberty to the assessee to dispose of it as he likes or subject to such restrictions as may be imposed as the conditions for exemption. In valuing such a property, one has to take into account the state of affairs as prevailing on the relevant valuation date. The Tribunal has not adverted to this aspect of the matter at all. In our view, admittedly, when the land is in excess within the meaning of the Urban Land Ceiling Act, the method, which has been adopted for valuation of such land cannot be sustained. To ignore the prohibitions and restrictions of the Ceiling Act in valuing a vacant land in excess and liable to be acquired by the Government and to value it as freely transferable land will amount to an arbitrary act resulting in undue taxation.

Our attention has been drawn to the decision of the Madras High Court in the case of CWT v. K.S. Ranganatha Mudaliar (1984) 150 ITR 619. In that case, the assessee's claim that, for the valuation of the agricultural lands held by them in excess of the ceiling limit fixed under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, the valuation should be based on the compensation that they would get from the Government in relation to those lands was negatived by the Wealth-tax Officer, but- accepted by the appellate authority and the Tribunal. The Madras High Court also observed that, normally, the market value of land is the value, which the land, if sold in the open market by a willing seller, might be expected to realise, such market value being generally ascertained on a consideration of the prices obtained by sale of adjacent lands with similar advantages. If there are no sales of comparable lands, the value must be found in other ways. One method is to take the annual income which the owner may expect to obtain from the land and capitalize it by the number of years, purchase and the capitalized value is taken as the market value which a willing seller may reasonably expect to obtain from a willing buyer. If this is also not possible, the Court can adopt the method of reinstatement value. In that context, the Madras High Court held that, if the restrictions and prohibitions contained in the Ceiling Act cannot be ignored in valuing the excess land, such lands would have to be valued only after taking note of the restrictions and prohibitions which would have the effect of depressing its value. Hence, the valuation on the basis of compensation receivable under the Act was justified. In our view, the same principles will govern the valuation of vacant land in excess of the ceiling within the meaning of the Urban Land Ceiling, Act, taking into account the restrictions and prohibition.

For the reasons aforesaid, the question in this reference is answered by saying that the land in dispute owned by the assessee should be valued at Rs.77,000 as estimated by the Appellate Assistant Commissioner inasmuch as such valuation was not disputed by the assessee before the Tribunal.

SHYAMAL KUMAR SEN, J.---I agree.

M.BA./202/T.F. ????????????????????????????????????????????????????????????????????? Reference answered.