RAJENDRA KUMAR AGRAWAL VS COMMISSIONER OF WEALTH TAX
2001 P T D 1620
[245 I T R 18]
[Allahabad High Court (India)]
Before M. C. Agarwal and R. K. Agrawal, JJ
Dr. RAJENDRA KUMAR AGRAWAL
versus
COMMISSIONER OF WEALTH TAX
Wealth Tax Reference No. 187 of 1991, decided on 24/09/1999.
Wealth tax---
---- Valuation of assets---Valuation. of house property---Assessment order not stating reasons for resorting to sub-rule (5) of R. 1-BB---No justification for Assessing Officer to adopt price on sale on 28-2-1984 as market value of property as on 31-3-1983---Tribunal not right in invoking provisions of sub rule (5) of R. 1-BB---Wealth Tax Act, 1957, S.7---Indian Wealth Tax Rules, 1957, R.1-BB.
The assessee determined the value of the house property situate in Allahabad by applying a. multiplier of 20 to its annual letting value which was shown as Rs. 1,496. The Assessing Officer noticed that the property was sold for Rs. 3 lakhs on February 28, 1984, while the valuation date for the year under consideration was March 31, 1983. The assessee claimed that the value of the property should be determined by applying rule 1-BB of the Wealth Tax Rules, 1957, which was rejected by the Assessing Officer. The Tribunal held that because of sub-rule (5) of rule 1-BB the value could be determined in the manner adopted by the Assessing Officer. On a reference:
Held, that if the Assessing Officer wanted to resort to sub-rule (5) of rule 1-BB it was mandatory for him to specify the reasons in writing in the assessment order or otherwise why he considered it impracticable to apply the provisions o: rule 1-BB. The Assessing Officer was not justified in adopting the sale price in respect of the sale that took place on February 28, 1984, as the market value of the property on March 31, 1983, without taking note of material change in circumstances that would affect the market value of the property. The Tribunal was not right in restoring the order of the Assessing, Officer.
Bharat Hari Singhania v. CWT (1994) 207 ITR -1 (SC) and CWT v. Ganga Pershad Kedia (1990) 185 ITR 30 (Delhi) ref.
Nemo for the Assessee.
Shambhu Chopra for the Commissioner,
JUDGMENT
This is a reference under section 27(1) at the instance of the assessee and has been made by the Income-tax Appellate Tribunal, Allahabad. The Tribunal has referred the following questions stated to be of law and to arise out of its order, dated October 11, 1990, passed in W.T.A. No 27 (All.) of 1990, for the assessment year 1983-84.
"(1) Whether, on, the facts and in the circumstances of the case, the Tribunal was, justified in restoring the order of the Assessing Officer estimating the value of the property at Rs. 3 lakhs?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in applying the provisions of law contained in sub-rule (5) of rule 1-BB of the Wealth Tax Rules, 1957?"
We have heard Sri Shambhu Chopra, learned counsel for the Commissioner. No one has appeared on behalf of the assessee.
The facts of the case are that the assessee was the owner of a house property bearing Municipal No. 735 and situate in Mohallah Katra in the town of Allahabad. The assessee declared its value by determining the same by applying a multiplier of 20 to its annual letting value, which was shown at Rs. 1,496. The Assessing Officer, however, noticed that the said property was sold for Rs. 3 lakhs on February 28, 1984, while the valuation date for the year under consideration was March 31, 1983. The assessee's contention was that the value of the property should be determined by applying rule 1-BB of the Wealth Tax Rules, 1957. .The Assessing Officer took the view that if the value is determined under rule 1-BB, the 'value of the property would come to Rs. 13,000 only and it will be absurd to accept this amount when the property was sold for Rs. 3 lakhs. The assessee appealed to the Commissioner of Wealth Tax (Appeals), who took the view that rule 1-BB was applicable in this case and, therefore, he directed that the value declared by the assessee, which appears to have been arrived at under rule 1-BB, be adopted. The Assessing Officer then appealed to the Tribunal which reversed the appellate order and held that because of sub-rule (5) of rule 1-BB the value could be determined in the manner adopted by the Assessing Officer. It is against this view of the Tribunal that the assessee has ,got this reference made.
Learned standing counsel for the Commissioner, Sri Shambhu Chopra stated that under section 7 of the Wealth Tax Act, 1957, an asset has to be valued at the price which in the opinion of the Assessing Officer it could fetch if sold in the open market on the valuation date and that the subsequent sale made by the assessee for Rs. 3 lakhs was a relevant market value for adopting that value on the valuation date and that it would be anomalous to adopt the value arrived at by applying rule 1-BB which was disproportionately low.
We have given our full consideration to the argument of learned counsel for the Commissioner as well as the view expressed by the Appellate Tribunal. Section 7 of the Wealth Tax Act provides for the method of the valuation for assessment and it begins with the words "subject to any rules made in this behalf." It means that the value has to be determined according to the rules. Various rules have been made under section 7 of the Act, which are contained in the Wealth Tax Rules, 1957, for the purpose of determination of the market value of various types of properties. Rule 1-BB describes the mariner of valuation of life interest. Rule 1-BB describes the method for valuation of immovable properties, rule IC made provision for determining the market value of unquoted preference shares. Rule 1-D made provision for valuation of unquoted equity shares. Rule 2 provides for the valuation of interest in a partnership firm or association and there are certain other rules also dealing with the valuation of other properties.
Sub-rule (1) of rule 1-BB provides "for the purposes of sub section (1) of section 7, the market value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts." Thus, the rule uses the word "shall". Similarly in all other rules mentioned above and contained in the Wealth Tax Rules, 1957, the word "shall" has been used meaning thereby that the rule is mandatory and must be applied in all cases unless otherwise permitted. In CWT v. Ganga Pershad Kedia (1990) 185 ITR 30 a Division Bench of the Delhi High Court had held that if rule 1-BB is applicable then it is immaterial as to what is the value arrived at by the valuation cell, meaning thereby that if rule 1BB applied no other method of valuation can be adopted. Dealing with. the provisions of rule 1D which provides for the valuation of unquoted equity shares, the Supreme Court in Bharat Hari Singhania v. CWT (1994) 207 ITR 1, observed that the use of the word "shall" in rule 1D prima facie indicates its .mandatory character. The view of the Supreme Court would apply equally to rule 1-BB and other rules which use the word "shall"
We,, therefore, find that if rule I-BB is applicable to a property then its market value has to be determined in accordance with the' provisions contained in that rule and other. methods stand excluded. In this view there can be no dispute that rule 1-BB was applicable.
The Tribunal has made a reference to sub-rule, (5) of rule .1-BB, which says that nothing contained in this rule, shall apply where having regard to the facts and the circumstances of, the case, the Wealth Tax Officer with the previous approval of the Inspecting Assistant' Commissioner is of the opinion that it is not, practicable to apply the provisions of this rule to such a case. The impracticability conceived by the Tribunal appears to arise because of the vast difference in the value of the property as determined under rule 1-BB and as determined by taking the subsequent sale as an exemplar.
In our view a mere difference in the two values, however, large cannot be a reason for taking the view that it is impracticable to apply the rule and in any case, if the Assessing Officer wanted to resort to sub-rule (5) of rule 1-BB, it was mandatory for him to specify the reasons in writing-in the assessment order or otherwise why he considers it not practicable to apply the provisions of rule 1-BB. No such reasons have been stated in the assessment order and there is no mention that the Assessing Officer, who was an Inspecting Assistant Commissioner found it impracticable to apply rule 1-BB.
Lastly, the Assessing Officer mechanically adopted the sale price in respect of the sale that took place on February 28, 1984, as the market value of the property on March 31, 1983. There was sufficient gap between the valuation date and the date of sale and the Assessing Officer did not even bother to verify whether vacant possession of the property was given when it was actually sold. On the valuation date the property was probably not vacant and that would bring about a material change in the circumstances that would affect the market value of the property.
In our view, therefore, the Tribunal was not right in setting aside the order passed by the first appellate authority and restoring the order of the Assessing Officer and it was also not right in invoking the provisions of sub rule (5) of rule 1-BB.
We, therefore, answer both the questions in the negative i.e. in favour of the assessee and against the Revenue.
M.B.A.l493/FCReference answered