COMMISSIONER OF WEALTH TAX VS DILIP KUMAR SINGHANIA, 1998 PTD-GAUHATI-HIGH-COURT-INDIA 1498 (1997)

Wealth tax---

Reference to Valuation Officer---Duty of Valuation Officer to give notice and proper hearing to assessee before arriving at valuation---Valuation Officer fixing valuation of land and building at a high figure---Registered valuer of assessee fixing value at a much lower figure---Building partly tenanted---Collusive nature of tenancy not proved by Department---Income earned from rented portion accepted in assessee's income-tax assessment-- No opportunity of hearing given to assessee by Valuation Officer while arriving at his valuation---Resulted in violation of principles of natural justice---Tribunal finding that valuation arrived at by Valuation Officer very high and not in accordance with law---Justified in ordering substitution of value arrived at by approved valuer ---Indian. Wealth. Tax Act, 1957, S.16-A(5), (6).

Under section 16-A of the Wealth Tax Act, 1957, the Wealth Tax Officer can refer to a Valuation Officer, only when the value of the asset as returned is less than the market value or in other words the market value of the asset exceeds the value as returned. This opinion gives jurisdiction to the Wealth Tax Officer for referring the matter to the Valuation Officer under section l6-A and when it is referred to the Valuation Officer, it is the duty of the Valuation Officer to give notice and also give proper hearing to the assessee and thereafter, he may come to the conclusion after considering all these aspects.

For the assessment year 1985-86, the valuation date of which was March 31, 1985, the assessee filed a return of wealth showing his wealth at Rs.96,100, The return was revised later on, showing his wealth at Rs.46,100. The Wealth Tax Officer referred the valuation of land and building, which was shown at Rs.1,35,500 by the assessee, to the Departmental Valuer under section 16-A(5) of the Wealth Tax Act, 1957, who valued the same at Rs.12,85,100. The Wealth Tax Officer adopted under section 16-A(5) of the Act the valuation arrived at by the Valuation Officer and allowed exemption to the assessee under section 5(1)(iv) to the extent of Rs.2,00,000 and added the balance of Rs.10,85,000 to the wealth of the assessee. On appeal to the Appellate Assistant Commissioner, the assessee contended that the registered valuer of the assessee had valued the land and building at Rs.4,48,000 and there was no reason for rejecting that valuation and that at any rate the value ought to have been taken, as it was on April 1, 1971, in view of section 7(4) of the Act. The Appellate Assistant Commissioner found that the building was partly used for rental purposes and that the rental method ought to have been applied to work out the value of the rented portion and- also the self-occupied portion as envisaged under section 7(4) of the Act. The Appellate Assistant Commissioner worked out the value of the rented portion at Rs.1,56,250 and for the self-occupied portion at Rs.1,28,327 and arrived at the total value of Rs.2,84,577. On further appeal by the Department to the Appellate Tribunal, the Revenue contended that the rental method of valuation was not correct as part of the property had been given on rent to a close relative of the assessee, which was not the market rent. The Appellate Tribunal found that the onus to prove that the tenancy was collusive, was with the Department, which onus was not discharged by it, that the income earned from the rented portion was accepted in the income-tax assessment of the assessee, that however, the valuation could not be lower than the valuation of Rs.4,48,000 as shown by the assessee's own valuer and directed the Wealth Tax Officer to substitute the valuation as determined by the registered valuer. On a reference.

Held, that the Tribunal had considered all aspects of the matter and came to the conclusion that the valuation adopted by the Valuation Officer was high and not in accordance with law. Further, the Valuation Officer did not give any opportunity of hearing to the assessee which resulted. in violation of the principles of natural justice. Therefore, the Tribunal was right in rejecting the Department Valuer's Report and instead ordering substitution of the value on the basis of the report of the registered valuer.

CIT v. Shri Radhey Mohan (1985) 153 ITR 399 (P & H) and CED v. Bijoy Kumar Khandelwal (1977) 108 ITR 864 (Gau) ref.

G.K. Joshi and U. Bhuyan for the Commissioner.

Dr. A.K. Saraf, K.K. Gupta and R.K. Agarwala for the Assessee.

JUDGMENT

D.N. BARUAH, J.---In this reference under section 27(1) of the Wealth Tax Act, 1957 (for short, "The Act"), the following three questions have been referred by the Tribunal for opinion of this Court:

"(1) Whether, on the facts and circumstances of the case and in view of provisions of the Appellate Tribunal Rules, the Tribunal did notin law as well as in facts in accepting the valuation report of the assessee's valuer, which was not considered either by the Wealth Tax Officer or by the Appellate Assistant Commissioner?

(2)Whether, on the facts and circumstances of the case, the Tribunal did not err in law as well as in facts in not accepting the Departmental Valuer's Report valuing the property at Rs.12,85,100?

(3)Whether, the Tribunal's order directing the Wealth Tax Officer to adopt the value as per the assessee's valuer's report, is not bad in law as the Tribunal had not given any reason or discussed anything in supporting the same and as such not sustainable?"

The facts for the purpose of answering the above questions may be narrated as follows:

In the wealth tax assessment of the assessee, the valuation date of the assessee was March 31, 1985, for the assessment year 1985-86. The assessee filed a return of wealth at Rs.96,100. This return was later on revised and the wealth was shown at Rs.46,100. The matter of assessment was taken up by the Assessing Officer. He found that there was a land and building standing thereon at Thana Road, Shillong, the value of which was shown at Rs.1,35,500. The case was referred to the Department Valuer under section 16-A(5) of the Act. The value was determined thereafter by the officer under section 16-A(5) of the Act and the same was valued at Rs.12,85,100. The Wealth Tax Officer accordingly adopted the same value under section 16-A(6) of the Act: He also allowed exemption under section 5(1)(iv) to the extent of Rs.2,00,000. The balance of Rs.10,85,100 was added.

Being aggrieved d99 the assessee took up the matter before the Appellate Assistant Commissioner challenging the assessment made by the Wealth Tax Officer on various grounds. According to the assessee, the value determined by the assessee's registered valuer was at Rs.4,48,000 as on March 31, 1985, as against Rs.12,85,100 determined by the Valuation Officer. It was urged that there was no reason for rejecting the value shown by the registered valuer. It was also submitted that the value determined by the Valuation Officer for the dwelling house was also excessive and that at any rate the value ought to have been taken as it was on April 1, 1971, in view of section 7(4) of the Act. The Appellate Assistant Commissioner felt that the Wealth Tax Officer should have considered the fact that the building was partly used for rental purpose. To discard this, it was the duty of the officer to prove that the tenancy claimed by the assessee was false. As this was not done the rental method ought to have been applied to work out the value of the rental portion and also the self-occupied portion of the value as envisaged under section 7(4) of the Act. The Appellate Assistant Commissioner, therefore, worked out the value of the rental portion at Rs.1,56,250 and Rs.1,28,327 for the portion occupied by the assessee under the provisions of section 7(4) of the Act. In total the value was Rs.2,84,577

Against that decision, the Revenue took up the matter by way of an appeal to the Appellate Tribunal contending, inter alia, that the Appellate Assistant Commissioner erred in taking the value of the property at Thana Road, Shillong, at Rs.2,84,577 as against Rs.12,85,100 taken in the assessment on the basis of the Departmental Valuer's Report. The contention of the Revenue before the Tribunal was that the value worked out by the Valuation Officer was proper as it reflected the market value of the property and that the rental method was not correct inasmuch as a part of the property had been given on rent to a close relative which was not the market rent.

The Appellate Tribunal after hearing the parties held that the onus ~to prove that the tenancy was collusive was with the Department and they had not been able to discharge in this case. It was stated on behalf of the assessee that the income earned from the rented portion was accepted in the income tax assessment. Accordingly, the Appellate Tribunal was of the opinion that it could not accept the valuation report as given by the Valuation Officer. The Appellate Tribunal observed that the assessee had brought on record a valuation report of an approved valuer and determined the value at Rs.4,48,000. The Appellate Tribunal, therefore, came to the conclusion that it was not proper to take that value inasmuch as the same could not go down below the figure shown by the assessee's own valuer. The Appellate Tribunal, therefore, rejected the valuation of Rs.12,85,100 worked out by the Valuation Officer and directed the Wealth Tax Officer to substitute the value of Rs.4,48,000 as determined by the assessee's own valuer.

We have heard both sides.

Mr. G.K. Joshi, learned senior standing counsel appearing on behalf of the Revenue, has submitted before us that the Departmental Valuation Officer determined the value of the Land and building at Thana Road. Shillong, at Rs.12,85,100 and the said valuation was binding on the Wealth Tax Officer under section 16-A(6) of the Act and, therefore, according to learned counsel, the Wealth Tax Officer took up the same value for assessment under the Act. Learned counsel for the Revenue has contended before us that as per the provisions of section 7(3) of the Act if valuation of any asset is referred by the Assessing Officer under section 16-A, the value of such asset will be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch, if sold in the open market on the valuation date. As in the present case, the Departmental Valuation Officer determined the value of the property at Rs.12,85,100, the said valuation was binding on the Wealth Tax Officer and he had no other alternative than to accept the same. Learned Counsel has further submitted that the Appellate Assistant Commissioner was not justified in ignoring the valuation made by the Departmental Valuation Officer and to accept the valuation made by the assessee's registered valuer at Rs.4,48,000 and determining the value at his own at Rs.2,84,577. Learned counsel has submitted that it was the duty of the Appellate Assistant Commissioner to give an opportunity of hearing to the Departmental Valuation Officer as required under the provisions of section 23(3-A) of the Act and then to come to a finding. He has further submitted that the Tribunal committed a manifest error of law in ignoring the valuation made by the Departmental Valuation Officer under section 16-A of the Act as there was a specific proviso to subsection (5) of section 24 of the Act. The provision contained in the above proviso is mandatory and the Tribunal ought to have given an opportunity to the Departmental Valuation Officer and the assessee before coming to any conclusions, Thus, the Tribunal violated the provisions of section 24(5) of the Act,

Dr. A.K. Saraf, learned counsel appearing on behalf of the assessee has submitted that question No. l does not arise out of the order of the Tribunal inasmuch as the valuation report of the assessee's valuer was very much there before the appellate authority and the reference was made by the appellate authority in his order, dated March 1, 1988. In that regard it is not correct that the valuation report of the assessee's valuer was not considered by the lower authorities. Regarding questions Nos.; and 3, it is submitted that there is a discretion with the Tribunal in applying any method for determining the fair market value of a property and the discretion exercised by the Tribunal should not be interfered with in a reference proceedings this connection, Dr. Saraf has drawn our attention to a decision in the case of CIT v. Shri Radhey Mohan (1985) 153 ITR 399 (P & H). Dr. Saraf has also drawn our attention to a decision of this Court in the case of CED v. Bijoy Kumar Khandelwal (1977) 108 ITR 864, where this Court held that the Tribunal could have adopted one or more methods for estimating the value. In the said case the Tribunal found that the gross rental value was the proper method to be applied for determining the fair market value. Further, the question as regards valuation of a property is a question of fact. The Tribunal has given sufficient reasons for not accepting the report of the Departmental Valuation Officer.

On the rival contentions of the learned counsel for the parties, it is now to be seen whether the Tribunal was justified in coming to the conclusion.

Section 16 of the Act envisages how to make assessment regarding the valuation of the property. Section 16-A of the Act envisages a references to the Valuation Officer. As per the said section, the Wealth Tax Officer foci the purpose of making an assessment under the Act, may refer the valuation of any asset to a Valuation Officer m a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer. If the Wealth Tax Officer is of opinion that the value so returned is less than its fair market value, or in a case where the Wealth Tax Officer is of opinion that the fair market value of the asset exceeds that value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf or it is necessary to refer the same having regard to the nature of the asset and any other relevant instances. Subsection (2) of section 16-A requires that for estimating the value of any asset in pursuance of a reference under sub section (1), the Valuation Officer may serve on the assessee, a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require. The power of reference under section 16-A of the Act can be exercised by the Wealth Tax Officer only when assessment is not complete. Where assessment is complete and it has not been reopened, power under section 16-A cannot be exercised.

From the above section, it appears that the Wealth Tax Officer can refer to a Valuation Officer only when the value of the asset as returned is less than the market value or in other words the market value of the asset exceeds the value as returned. This opinion gives jurisdiction to the Wealth Tax Officer for referring the matter to the Valuation Officer under section 16-A and when it is referred to the Valuation Officer, it is the duty of the Valuation Officer to give notice and also give proper hearing to the assessee and thereafter, may come to the conclusion after considering all these aspects. The Tribunal while deciding the matter observed thus:

"At the outset we may mention that the onus to prove that the tenancy is 'collusive' is with the Department and that they have not been able to discharge it in this case. We have a statement at the Bar by the assessee's counsel that the income earned from the rented portion has been accepted in the income-tax assessments by the Department. In this view of the matter, we cannot prevail upon ourselves to accept the valuation report as framed by the Valuation Officer. We, however, find that in the course of the proceedings the assessee had brought on record a valuation report of an approved valuer determining the value of the property at Rs.4,48,000. This aspect of the matter has been brought out in paragraph 3 of the written submissions addressed to the Appellate Assistant Commissioner This valuation report, however, seems to have been overlooked by the Appellate Assistant Commissioner inasmuch as he has worked out the value of the property at a much lower figure, viz., Rs.2,84,600. This according to us is not proper and correctsince the valuation cannot go down on the facts of the present case below the figure shown by the assessee's own valuer.

In the final analysis we, while rejecting the valuation of Rs.12,85,100 worked out by the Valuation Officer, direct the Wealth Tax Officer to substitute the same by the figure of Rs.4,48,000 which is the value worked out by, the assessee's own valuer. The Figure of Rs.2,84,600 worked out by the Appellate Assistant Commissioner accordingly stands modified." ,

In view of the above we find that the Tribunal has considered all aspects of the matter and came to the conclusion that the valuation given by the Valuation Officer was too high and not in accordance with law. On the facts also we find that the Valuation Officer while assessing the value did not give any opportunity of hearing. It was in violation of the principles of natural justice. Therefore, the Tribunal rightly rejected the Departmental Valuer's Report and ordered for substitution. We find no infirmity in the order passed by the learned Tribunal. Accordingly, we answer all the questions in the affirmative in favour of the assessee and against the Revenue.

A copy of this judgment under the signature of the Registrar and Seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal.

M.B.A./1693/FC Reference answered.