2012 (8) TMI 595 - AT - Wealth-tax

Valuation - exempted asset under wealth tax - Assessing Officer noticed that the assessee has not occupied the property in question for residential purpose for the period of 12 months - Assessing Officer valued the property as per 2nd proviso to Rule 3 of Schedule III of WT Rules Held that - What is required is that the house should have been exclusively used by the assessee for residential purpose and should not have been let out for rent or used for any commercial or non-residential purpose - property in question is residential house which has not been let out or used for the purpose other than residential; therefore, even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied - conditions as enumerated in third proviso to rule 3 of Schedule III were satisfied by assessee

Issues Involved:
1. Validity of assessment under Section 16(3) read with Section 17 of the Wealth Tax Act, 1957.
2. Validity of reopening the assessment by issuing notice under Section 17 of the Act.
3. Validity of the assessment order under Section 16(3) without issuing notice under Section 16(2) within the stipulated time.
4. Valuation of the Awas Property.
5. Determination of whether the Awas property was exclusively used for residential purposes throughout the period of 12 months.

Issue-wise Detailed Analysis:

1. Validity of assessment under Section 16(3) read with Section 17 of the Wealth Tax Act, 1957:
The assessee contested the assessment under Section 16(3) read with Section 17 of the Wealth Tax Act, 1957. The tribunal did not address this issue directly as it became academic due to the decision on the merits of the case.

2. Validity of reopening the assessment by issuing notice under Section 17 of the Act:
The assessee challenged the reopening of the assessment by issuing a notice under Section 17 of the Act. Similar to the first issue, this was not addressed directly because the primary issue on the merits was decided in favor of the assessee.

3. Validity of the assessment order under Section 16(3) without issuing notice under Section 16(2) within the stipulated time:
The assessee argued that the assessment order under Section 16(3) was invalid as notice under Section 16(2) was not issued within the stipulated time. Again, this issue was rendered academic due to the favorable decision on the merits.

4. Valuation of the Awas Property:
The primary dispute revolved around the valuation of the Awas property. The assessee valued the property at Rs. 26,563 based on the capitalization of net maintainable rent as per the third proviso to Rule 3 of Schedule III of the Wealth Tax Rules. The Assessing Officer, however, valued the property at Rs. 22,22,068 as per the second proviso to Rule 3, arguing that the property was not occupied for residential purposes for 12 months.

The tribunal examined Rule 3 of Schedule III, which stipulates the method of valuation by multiplying the net maintainable rent by 12.5. The second proviso applies if the property was acquired or constructed after March 31, 1974, and if the value is lower than the cost of acquisition or construction, the cost should be taken as the value. The third proviso exempts one house used exclusively for residential purposes from the second proviso.

5. Determination of whether the Awas property was exclusively used for residential purposes throughout the period of 12 months:
The tribunal considered whether the property was used exclusively for residential purposes. The assessee argued that exclusive use did not mean the house had to be the sole residence. The tribunal referred to the Full Bench decision of the Madras High Court in CWT v. Smt. Muthu Zulaikha, which clarified that "exclusive use" means the property should not be let out or used for non-residential purposes. The intention to use the property for residence suffices, even if not occupied continuously.

The tribunal concluded that the Awas property was not let out or used for non-residential purposes, satisfying the conditions of the third proviso to Rule 3. Therefore, the valuation should be based on the third proviso, and the addition made by the Assessing Officer was deleted.

Conclusion:
The tribunal allowed the appeal, deciding in favor of the assessee on the merits regarding the valuation of the property. Consequently, the technical and legal objections about the reopening of the assessment and the issuance of notices were not addressed as they became academic.

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