1984 (5) TMI 133 - AT - Wealth-tax

Issues Involved:
1. Application of Section 7(4) of the Wealth-tax Act, 1957 for valuation of property.
2. Non-application of Rule 1BB of the Wealth-tax Rules, 1957.
3. Acceptance of the Valuation Officer's report under Section 16A of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Application of Section 7(4) of the Wealth-tax Act, 1957 for valuation of property:

The primary issue in all the appeals was whether the assessee, in their capacity as HUF and individual, was entitled to claim that their respective shares in the property at 20, Barakhamba Road, New Delhi, used exclusively for residential purposes, should be valued as per the provisions of Section 7(4) of the Wealth-tax Act, 1957. The assessee argued that the property should be valued at its value as on the valuation date relevant for the assessment year 1971-72, as the property was exclusively meant and used for residential purposes. The Wealth-tax Officer (WTO) rejected this claim, stating that Section 7(4) required exclusive use of the property for residential purposes throughout the 12 months preceding the valuation date, which was not satisfied as the property was only occasionally used by the assessee during visits to Delhi. The WTO proceeded to value the property based on an agreement of sale during the accounting year relevant to the assessment year 1978-79, ignoring the Valuation Officer's lower valuations, as the Valuation Officer had applied Section 7(4) in excess of his powers under Section 16A.

2. Non-application of Rule 1BB of the Wealth-tax Rules, 1957:

The assessee also contended that Rule 1BB should have been applied in valuing the residential property. The AAC, who decided the appeals of the HUF for 1977-78 and 1978-79 and that of the individual for 1978-79, rejected this claim, stating that the house was incapable of division into independent residential units, and the sale agreement during the accounting year relevant to the assessment year 1978-79 represented the market value of the property. However, the AAC, who decided the appeal for the individual for 1977-78, agreed with the assessee that a liberal interpretation should be placed on Section 7(4) to include constructive use of the property as long as it was not used for commercial purposes.

3. Acceptance of the Valuation Officer's report under Section 16A of the Wealth-tax Act:

The WTO ignored the Valuation Officer's report, which proposed lower valuations, on the grounds that the Valuation Officer had exceeded his powers by applying Section 7(4). The assessee appealed against this decision, and the AAC confirmed the orders of the WTO for the HUF for both years and the individual for 1978-79. The appeal for the individual for 1977-78 was decided by the AAC's predecessor, who upheld the right of the assessee to freeze the value of the property under Section 7(4).

Tribunal's Decision:

The Tribunal, agreeing with the Cochin Bench's decision in H.H. Gouri Lakshmi Bayi's case, held that Section 7(4) would be applicable even if the property was not occupied by the owner for the entire period of 12 months, as long as it was intended for residential use and not rented out or used for commercial purposes. The Tribunal upheld the assessee's claim to freeze the value of the property as relevant to the assessment year 1971-72 under Section 7(4).

Regarding the application of Rule 1BB, the Tribunal upheld the assessee's claim, directing that properties used wholly or mainly for residential purposes should be valued as per this rule, relying on the decision of the Delhi Bench 'A' (Special Bench) in Biju Patnaik v. WTO.

Conclusion:

The appeal filed by the department was dismissed, and the cross-objection of the assessee and the appeals filed by the assessee relating to the assessment years 1977-78 and 1978-79 for the HUF and the assessment year 1978-79 for the individual were allowed.

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