2021 (1) TMI 974 - AT - Wealth-tax

Wealth tax assessment - assessee has challenged inclusion of residential property at Mc Nichols Road on the ground that said property was used for the purpose of residence and hence the same is exempted u/s.5(1)(vi) - assessee has also challenged valuation adopted by the AO on the ground that the AO ought to have followed the method of valuation prescribed under Schedule III to Wealth Tax Act, whereas he has arrived at the value on the basis of market value which is incorrect - HELD THAT - In this case, on perusal of facts, we find that although assets have been distributed among the family members in pursuant to MOU cum Deed of family settlement, but the contention of the assessee before the Hon ble High Court is that he did not receive said assets. We, therefore, considering facts and circumstances of the case, are of the opinion that AO as well as CWT(A) were erred in assessing the value of residential house property and diamonds for taxation for the impugned assessment years without taking into account the dispute pending before Hon ble High Court of Madras. Residential property at Mc Nichols Road, the claim of assessee that said property was used for own residence and consequently outside the purview of definition of asset as defined u/s.2(ea) of the Act. Although, the assessee claims that said property was used for own residence, but no evidence has been placed before the authorities or even before us to prove that said property was used for own residence. No doubt, in case the property is used for own residence then the same is exempt u/s.5(1)(vi) of the Act. But, it is for the assessee to prove with necessary evidence that said asset is used for own residence. In this case, the assessee has not placed any evidence on record to justify his stand. Therefore, we are of the considered view that the issue needs to be reexamined by the AO in light of claim of the assessee that said property is used for own residence. Appeals filed by the assessee allowed for statistical purpose.

Issues Involved:
1. Legality of the reassessment order.
2. Inclusion of residential property and diamonds in taxable wealth.
3. Valuation method for assets.
4. Exemption claim under Section 5(1)(vi) of the Wealth Tax Act.
5. Principles of natural justice.

Detailed Analysis:

1. Legality of the Reassessment Order:
The appellants argued that the reassessment order was passed without adhering to the prescription of law, making it invalid and without jurisdiction. The Commissioner of Wealth Tax (Appeals) [CWT(A)] upheld the reassessment, but the appellants contended that the order was passed out of time and was not sustainable both on facts and in law.

2. Inclusion of Residential Property and Diamonds in Taxable Wealth:
The Assessing Officer (AO) included the residential property at Mc Nichols Road and diamonds valued at ?50 lakhs in the taxable wealth, based on a Memorandum of Understanding (MOU) cum Deed of family settlement dated 13.01.2006. The assessee argued that these assets were not handed over as per the MOU, and a civil litigation was pending to declare the MOU null and void. The CWT(A) rejected this argument, stating that once the MOU was executed, the assessee became the owner of the assets, making them subject to wealth tax.

3. Valuation Method for Assets:
The assessee challenged the valuation method adopted by the AO, arguing that the AO should have followed the method prescribed under Schedule III to the Wealth Tax Act, rather than using the market value. The CWT(A) did not find merit in this argument and upheld the AO's valuation.

4. Exemption Claim Under Section 5(1)(vi) of the Wealth Tax Act:
The assessee claimed that the residential property at Mc Nichols Road was used for own residence and thus should be exempt under Section 5(1)(vi) of the Act. However, the AO included the property in the taxable wealth, and the CWT(A) upheld this inclusion, noting that the assessee failed to provide evidence that the property was used for own residence.

5. Principles of Natural Justice:
The assessee argued that there was no proper opportunity given before passing the impugned order, violating the principles of natural justice. However, the CWT(A) did not address this issue in detail.

Tribunal's Findings:
The Tribunal noted that the AO and CWT(A) erred in including the residential property and diamonds in the taxable wealth without considering the pending litigation challenging the MOU. The Tribunal emphasized that unless the assessee becomes the owner of the assets as per the valuation date, these cannot be included in the taxable wealth. The Tribunal also highlighted the need for the AO to re-examine the claim that the residential property was used for own residence, as no evidence was provided by the assessee.

Conclusion:
The Tribunal set aside the appeals to the AO for re-examination of the issues regarding the residential property and diamonds in light of the pending litigation and the claim of the property being used for own residence. The appeals for both assessment years 2006-07 and 2007-08 were allowed for statistical purposes.

Order Pronouncement:
The order was pronounced on 20th January 2021 at Chennai.

← Previous Next →