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TMI Blog1981 (2) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... B would override such valuation. Since there was difference of opinion, on the point raised in the appeals on the additional ground of appeal between different Benches of the Tribunal, the case was referred by the President under section 255(3) of the Income-tax Act, 1961, to the Special Bench consisting of three Members for deciding the point at issue. 2. There were five interveners who were represented by the counsel and they were duly heard on all the aspects arising out of the application of rule 1BB of the Wealth-tax Rules. The assessee was represented by Shri K.K. Jain who led the arguments. The department was ably represented by Shri S.D. Kapila, Senior Departmental Representative. 3. Before we proceed to consider the arguments advanced by the counsel on either side and to give our findings on the same it would be proper to give a few facts which would help in deciding the question at issue and also which would bring into clear focus the effect of rule 1BB which is the subject-matter of decision before us. The assessee had purchased the property at 3, Aurangzeb Road, New Delhi, which abuts on two roads. i.e., Aurangzeb Road and also on 4, Prithvi Raj Road, for a considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 7,49,775 1969-70 4,31,000 15,26,000 7,87,925 1970-71 4,31,000 15,66,000 8,09,000 1971-72 4,31,000 16,48,000 8,53,150 1972-73 4,31,000 17,28,000 8,95,300 1973-74 4,31,000 18,12,000 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances still existed which would justify a reference to the Valuation Officer under section 16A, would the report of the Valuation Officer be binding. Otherwise if there were no circumstances justifying a reference to the Valuation Officer in the light of rule 1BB, then the report of the Valuation Officer would not be binding because the very reference to the Valuation Officer would be outside the purview of section 16A of the Act, and, therefore, invalid. It was urged that even the Valuation Officer would be bound by rule 1BB and he would not be entitled to value the residential property by ignoring the said rule. Certain authorities were cited for the propositions which have been noticed by us above and we shall have occasion to refer to those authorities during the course of our judgment. 7. Shri O.P. Vaish, appearing for one of the interveners, urged that a harmonious construction of the different provisions of section 7(1), read with rule 1BB, sections 16A(3) and 7(3), was necessary. His contention was that rule 1BB being retrospective the assessee would be entitled to value the property on the basis of these rules even though a higher value may have been returned in any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings. Since rule 1BB was retrospective in operation, the report of the Valuation Officer would become void and there would be no need to bear him before deciding the appeals. The opinion of the WTO, for referring the question of valuation to the Valuation Officer, is subject to rule 1BB and the validity has to be judged in the light of this rule. He further urged that there can be no discrimination between an assessee whose case was referred to the Valuation Officer and another whose case was not so referred, because the person whose case was referred to the Valuation Officer cannot be worse off than another person whose case was not so referred. Rule 1BB being binding on the WTO, he must give effect to this rule in every case and if he has not done so, the appellate authorities must do so. 12. As against these arguments advanced on behalf of the appellant and interveners, the learned departmental representative, at the outset, took objection to the admission of the additional ground of appeal. His contention was that this ground should not be admitted. It was, however, pointed out to him that the Division Bench, before which the appeals had originally come for hearing, had consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no further option with the assessee in such cases. Section 7(4) would, therefore, override the provisions of section 7(1), read with rule 1BB. In any event, he urged that rule 1BB should yield to the section and it cannot make a section redundant. He further urged that rule 1BB cannot render nugatory and destroy any proceedings validly initiated, prior to the rule coming into force, by a Valuation Officer who is not subject to the said rule. He further contended that even if rule 1BB was procedural, its retrospectivity would only be partial, i.e., it would apply only to the proceedings which would be pending before the WTO, provided he has not made a reference to the Valuation Officer already. He further pointed out that rule 1BB would not always yield lesser valuation than the valuation arrived at under the substantive provisions of section 7(1), i.e., what a property would fetch, if sold in the open market, on the valuation date. 16. The learned departmental representative further contended that section 144B of the Income-tax Act was also a procedural section but it could not be given retrospective effect in all proceedings pending when the said section came into force s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral rule and, therefore, retrospective in operation. Section 3 is the charging section. Section 7 pertains to the determination of the value of the assets and lays down the method for the same. In the case of Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470, the Supreme Court laid down on page 476 that "section 7 falls in Chapter II which deals with the charge of wealth-tax and assets subject to such charge ; it is intended to provide a machinery for the determination of the value of assets". 19. For determining whether rule 1BB is procedural in nature, we can take guidance from similar rules framed under section 7(1) for the valuation of unquoted preference and equity shares, being rules 1C and 1D introduced by the Wealth-tax (Amendment) Rules, 1967 by notification, dated 6-10-1967. The question arose before the Allahabad High Court in CWT v. Laxmipat Singhania [1978] 111 ITR 272 whether these rules were retrospective in operation and apply to all pending proceedings. Their Lordships held that these two rules must be held as rules of evidence or procedure and not as rules of substantive law. Reliance was placed on the Supreme Court ruling in the case of Izhar Ahmed Khan. It was, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of that part of the house, which is used for residential purposes and 100/9 for the remaining part of the house, in case the land is freehold. In case the land is leasehold, the multiplier is 100/9 and 100/10, respectively. These multipliers are not arbitrary but are based, on scientific data. That apart there could be no doubt that these multipliers would yield a value which is less than the real market value on the valuation date but that is no reason to hold that the rule becomes substantive thereby. 20. In the case of CWT v. Sripat Singhania [1978] 112 ITR 363, the Allahabad High Court held that rule 1D applies not only to the WTO but also to the AAC and the Tribunal. Assessment appeal to the AAC and further appeal to the Tribunal are parts of an integrated process and an appellate court or authority exercises the same powers as the trial court or the assessing authority. 21. The question pertaining to rule 1D also came before the Bombay High Court in the case of Smt. Kusumben D. Mahadevia v. N.C. Upadhya [1980] 124 ITR 799, and that Court held that rule 1D is not mandatory but is directory. However, there is no ruling so far wherein it has been held that rules 1C a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments for determining the market value of unquoted shares. The contention of the department that rule 1BB is not retrospective is, therefore, clearly at variance with their own stand when rules 1C and 1D were brought into operation. We, therefore, hold that rule 1BB is procedural in nature, is retrospective in operation and, therefore, applies to all pending proceedings whether they are pending before the WTO, the AAC/Commissioner (Appeals) or the Tribunal. 23. The next point that arises is how section 7(1), read with rule 1BB, can be reconciled with section 7(3) where a reference has been made to a Valuation Officer as a result of which the valuation made by the Valuation Officer becomes binding on the WTO. The effect of a legal fiction was considered by the Supreme Court in the case of CIT v. S. Teja Singh [1959] 35 ITR 408, and on page 413 their Lordships quoted, with approval, the observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council which are as under : "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per book, which also shall form Annexure 'B' to this order, according to which the value of a residential bungalow at 7 Tolstoy Marg comes to Rs. 12.70 lakhs by applying rule 1BB, while it was valued at Rs. 106.64 lakhs by the valuation cell and it was actually sold for Rs. 98 lakhs on 26-2-1979. It is, therefore, not a case where the CBDT was not alive to the effect of rule 1BB. On the contrary this rule was clearly brought into effect to give a benefit to owners of residential properties by adopting a lesser value than what would be arrived at on the principle that it was sold in the open market on the valuation date. On this ground alone, that the valuation arrived at by applying rule 1BB comes to much less than by ignoring the rule, the said rule cannot be ignored by the WTO. Under the circumstances, therefore, we hold that the WTO who had no opportunity to consider rule 1BB when he made the reference under section 16A because the said rule did not then exist, must now re-consider the question whether a reference under section 16A could be validly made keeping in view rule 1BB and only if he comes to such a conclusion, would he be bound by the report of the Valuation Officer. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be binding on the Valuation Officer only in exceptional cases which had been laid down in rule 1BB(5). Obviously, if rules are binding on the WTO, but not on the Valuation Officer, it would lead to absurd results and would defeat the very purpose of rule 1BB in as far as litigation would increase rather than decrease thereby. We, therefore, hold that rule 1BB being a piece of delegated legislation which is mandatory in nature as held in Laxmipat Singhania's case by the Allahabad High Court and which binds the WTO, also binds the Valuation Officers who are part of the machinery under the Wealth-tax Act and, therefore, the Valuation Officer cannot ignore rule 1BB for valuing the residential properties falling under rule 1BB. 27. We may point out that rule 1BB(5)(i) applies only where the WTO with the previous approval of the IAC is of the opinion that it is not practicable to apply the provisions of the rule to a particular case. The mere fact that the value arrived at by applying rule 1BB would be much less than the value arrived at by ignoring the said rule, would not make it unpracticable to apply the rule to a given case. So far as the argument of the learned departmental rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of section 7(1) for the valuation of self-occupied properties. The contention on behalf of the assessee and the interveners was otherwise and their contention was that rule 1BB would apply even to self-occupied properties so long as the assessee exercises the option not to be governed by section 7(4) but to be governed by rule 1BB. The argument that an assessee can opt to be governed by section 7(1) or 7(4) has somewhat been obscurely worded and is capable of both the interpretations canvassed before us. However, we find that while section 7(4) came into effect from 1-4-1976, on 26-7-1976 the CBDT appointed a Committee to go into the question of valuation of immovable property so that the valuation of immovable properties should be made more certain by applying certain rules to be framed. The Committee gave a report drawing up guidelines for the valuation of residential properties as a result of which rule 1BB was enacted. Rule 1BB applies to a house which is wholly or mainly used for residential purposes. Obviously, when a reference was made by the CBDT to the Committee to draw up guidelines for valuation of immovable property and the report of the Committee for valuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the assessee pertaining to the assessment years 1965-66 to 1974-75 are concerned, the orders of the Commissioner (Appeals) and the WTO are set aside and the WTO is directed to revalue the property at 3, Aurangzeb Road, keeping in view the provisions of rule 1BB and he shall accordingly give a fresh decision on the question of valuation of the said property. 31. So far as the departmental appeals for the assessment years 1960-61 to 1974-75 are concerned, the appeals for the assessment years 1960-61 to 1963-64 can be separately disposed of. They pertain to the inclusion of assets held in the name of Kalinga Foundation Trust and shares of Kalinga Tubes Ltd. in the hands of the assessee. The Commissioner (Appeals) noticed that the Cuttack Bench of the Tribunal by order dated 27-11-1970 had held that the wealth of the trust cannot be added to the assessee's wealth. It was held that the Kalinga Trust was a genuine entity. It further held that the shareholders of Kalinga Tubes were not the benamidars of the assessee. The department's reference had been rejected by the Tribunal and by the Orissa High Court. The Commissioner (Appeals), therefore, deleted the additions so far as the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the lease deed and come to a fresh decision regarding the claim for deduction for unearned increase while applying rule 1BB. In the result, the departmental appeals for the assessment years 1965-66 to 1974-75 are also partly allowed. 35. This leaves for consideration the assessee's and the department's appeals for the assessment year 1964-65 when rule 1BB could not be applied since section 7(1) was in that year not subject to rules. However, since the WTO had referred the valuation of the property to the Valuation Officer under section 16A which applied to all assessments which are pending when section 16A was brought on the statute book, the Commissioner (Appeals) was, under section 23(3A), required to give the Valuation Officer an opportunity of being heard when the valuation of the property was challenged. The Commissioner (Appeals) failed to do so. We, therefore, set aside the order of the Commissioner (Appeals) for the assessment year 1964-65 and restore the matter on his file for a fresh decision after giving the Valuation Officer an opportunity of being heard. 36. To sum up, the questions that arose in this case and our findings thereon are as follows : Question Findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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