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TMI Blog1989 (4) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... n the purchase of the shares of Eicher Tractors in their individual names and they declared the said sale proceeds and the investments therefrom in their individual wealth-tax returns. The same were accepted by the WTO in the course of time. The said persons also declared income arising from the aforesaid investments in their individual Income-tax returns and the same were accepted as their incomes by the ITO. On these facts, it was pleaded by the assessee before the learned AAC that there was no justification for including the entire sale proceeds of the land in the total wealth of the family as the partition of the sale proceeds of the land itself was clear evidence of the partition of the original asset, viz., the land. 3. The above plea was accepted by the learned AAC, while passing his order dated29-2-1984in the case of the assessee for asst, year 1975-76. He pointed out inter alia that the aforesaid partition could not be held to be hit by the provisions of section 20 of the WT Act, 1957 for the said section dealt with the cases of complete partition and not with the cases of partial partition, In the case of partial partition, whatever property was partitioned amongst the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the said property at Rs. 7,45,640 on the ground that in the immediately preceding year, the value of the property was taken at that figure. The contention of the assessee that Rule 1BB may be applied to the valuation of the said property was rejected by the WTO by observing that Rule 1BB came into force w.e.f.1-4-1979, and as such it was not applicable for the asst. year 1978-79. 8. The assessee appealed against the aforesaid order to the AAC, who observed that Rule 1BB was retrospective in operation and, therefore, it covered the asst. year 1978-79 and, therefore, the value of the property in question should have been worked out by the WTO by applying Rule 1BB. 9. The revenue challenges the correctness of the above direction of the learned AAC and it is submitted that the valuation adopted by the WTO was not excessive and was in keeping with the figure adopted in the immediately preceding asst. year, which was not challenged by the assessee. On behalf of the assessee, order of the learned AAC is supported. 10. It has been pointed out by their Lordships of the Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, that when the WTO is of the opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ground. If he admits it, he would naturally adjudicate upon it. If he does not, he will give reasons for it so that if the assessee is aggrieved of his order, it may be possible for him to file an appeal. For this limited purpose namely to consider the admissibility of the additional ground raised by the assessee before the learned AAC, we restore the matter back to him. 14. The assessee returned the value of the other property owned by him at Hissar, namely, Shanker Niwas at Rs. 33,333. The WTO referred the matter of valuation of the said property to the Valuation Officer with whom the assessee unfortunately did not co-operate. The said Valuation Officer, therefore, estimated the value of the property in question for asst. year 1978-79 at Rs. 2,33,333. On the basis of that valuation, the WTO estimated the value of the said property in the assessee's hands on the valuation date i.e.30 Sept., 1974, corresponding to the asst. year under consideration, at Rs. 1,75,000. The assessee appealed against the aforesaid order to the learned AAC. There is unfortunately no discussion again with regard to this point in the order of the learned AAC. The ground was specifically taken before hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (business and non-business) which would yield the assessee's net wealth The AAC will, therefore, re-examined the matter and allow the assessee's claim, if it is in accordance with law. 16. In the result, we will treat the assessee's appeals for, statistical purposes, as partly allowed. Per M.C. Agarwal, J.M. - I have gone through the order prepared by my learned brother. I agree that his views and conclusions in so far as WTA Nos. 457/Del/85, 648/Del/84 and WTA No. 750/Del/84 are concerned. 2. As regards WTA No. 456/Del/85, also I agree with him so far as the exclusion of sale proceeds of agricultural land is concerned. However, so far the valuation of the house property is concerned I beg to differ from the order proposed by my learned brother. 3. The property is a house property No. 2, Panchsheel Marg,New Delhi. The assessee had returned its value at Rs. 5,50,624. In the preceding assessment year (1977-78) this property had been valued by the WTO at Rs. 7,45,640. During the assessment proceedings the assessee claimed that this property be valued in terms of Rule 1BB of the Wealth-tax Rules. The WTO declined to apply Rule 1BB on the ground that the said Rule came into fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of unquoted equity shares, prescribed in Rule 1-D can be applied only where the two dates aforesaid are common. At page 561 the Hon'ble court observed: "To summarise-The position, therefore, is that when a question arises as to the value of unquoted equity shares, the Wealth-tax Officer has to act according to the provisions of Sec. 7(1) read with Rule 1-D, if applicable. He has to determine the break-up value of the shares in the manner prescribed in Rule I-D." In the case of application of Rule 1BB no problem like the one in the case of Sharbati Devi Jhalani arises, because Rule 1BB would apply whatever be the valuation date. No doubt the Hon'ble High Court has gone to state that where the value determined by applying Rule 1-D exceeds the returned value by more than the prescribed limit, then the question of valuation of shares has to be referred to the Valuation Officer, who will not be bound by Rule 1-D. The Hon'ble High Court has taken up this position because of sub-sec. (3) of Sec. 7, which is in the nature of a proviso to Sec. 7(1) as it begins with the words--'Notwithstanding anything contained in sub-sec. (1)'. Under sub-sec. (3) the Valuation Officer has to determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he duties and powers of the Valuation Officer u/s 16A read with section 7(3) of the Wealth-tax Act, 1957 applies only to the valuation of shares under Rule 1D or whether it will be applicable to the valuation of any property including that covered under Rule IBB?" The ratio of Sharbati Devi Jhalani's case does not apply to Rule 1BB. "2. If the answer to the above be in the negative, whether, the direction given by the AAC in the present case that the value of property No. 2, Panch Sheel Marg,New Delhibe determined in accordance with Rule 1BB of the Wealth-tax Rules is erroneous?" THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President - This is a matter that came to me under section 24(1) of the Wealth-tax Act, 1957 read with section 255(4) of the Income-tax Act, 1961 as there is a difference of opinion between the Members, who heard this appeal on the following points: "1. Whether the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, 559 and 561 indicating the scope of the duties and powers of the Valuation Officer u/s 16A read with section 7(3) of the Wealth-tax Act, 1957 applies only to the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Sharbati Devi Jhalani held that when the Wealth-tax Officer was of the opinion that the value of the property in question was more than 331/2 per cent of the returned value, it was not open to him to value the property himself and in terms of Rule 3B read with section 16A of the Wealth-tax Act, he should refer the matter to the Valuation Officer, who would then find out the market value of the property. Further, according to the learned Accountant Member, the Delhi High Court laid down in that case that when Valuation Officer has to value the property in terms of sub-section (3) of section 7, the Wealth-tax Rules would not govern his valuation and when the matter was brought in appeal before the Appellate Authorities, the Appellate Authorities also would not be governed by the relevant Wealth-tax Rules including Rule 1BB. On this under standing the learned Accountant Member held that the direction given by the Appellate Asstt. Commissioner to the Wealth-tax Officer in this case to value the property at No. 2, Panch Sheel Marg,New Delhiin terms of Rule IBB deserved to be modified in the light of the observations of the Delhi High Court in the above ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Judicial Member further pointed out that Rule 1BB has a different setting and it begins by saying "For the purposes of sub-section (1) of section 7," and therefore in determining the fair market value of any asset, particularly of a house, there is no escape other than applying the provisions of Rule 1BB to arrive at the market value of that house. In this context it cannot be said that Rule 1BB was not binding upon the Wealth-tax Officer or on the Valuation Officer to whom the matter might be referred or on the Appellate Courts. The learned Judicial Member further pointed out that there was nothing in Sharbati Devi Jhalani's case which would show that the same principles, as would apply to Rule 1D, would also apply to Rule 1BB. Thus he came to the conclusion that the direction given by the Appellate Asstt. Commissioner that the property in question should be valued in terms of Rule 1BB was correct and required no interference. 5. The learned Departmental Representative now before me argued that the view taken by the learned Judicial Member cannot be supported in the light of the categorical findings by the Delhi High Court. She submitted that the market value of this pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be able to attend the hearing and that the case should be adjourned. Since sufficient notice had been given to the assessee, it was expected of the assessee to make proper arrangements and this being a very old matter, it was considered unnecessary to adjourn the case. The case was therefore disposed of after hearing the Departmental Representative and on perusing the records. 7. I have already mentioned above the sharp controversy that arose in this case over the interpretation of the judgment of the Delhi High Court in the case of Sharbati Devi Jhalani. I have also gone through this judgment both in the Court along with the Departmental Representative and also afterwards with a view to see whether the High Court had made any observations even by way of obiter dicta as to whether the rule laid down by the High Court would be applicable in relation to valuation of property other than unquoted shares. In this judgment I found that the main discussion centred round Rule 1-D, as to whether it is mandatory or directory and in that context the question of applicability of the rules to the Valuation Officer was discussed. The circumstances under which the Wealth-tax Officer woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-D and at the same time not to do violence to the language of the relevant provisions, the High Court held that where the valuation date of the company and that of the assessee happened to be the same, then the application of Rule 1-D is mandatory but in cases where they are not the same, then the applicability of Rule 1-D would be only directory. It is only when the rule is directory that the Wealth-tax Officer would not be bound by the method provided for in Rule 1-D to value the shares. But if by the other method the Wealth-tax Officer comes to the conclusion that the value of the shares was more than the prescribed limits, then by virtue of section 16A read with Rule 3B, the Wealth-tax Officer has to refer the question of valuation of shares to the Valuation Officer. In that event the Valuation Officer by virtue of the provisions of sub-section (3) of section 7 has to value the asset by determining as to what it would fetch if sold in the open market on the valuation date and therefore he would not be bound by Rule 1-D. Rule 1-D basically provided for the valuation of the shares on what is known as break-up value method. But the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Wealth-tax Officer as to the market value that was relevant for making the assessment and when the opinion of the Wealth-tax Officer was subject to an appeal to the Appellate Authorities and when the powers of the Appellate Authorities were governed by the other sections, it could not be said that the Appellate Authorities were bound by what was binding upon the Wealth-tax Officer. That would mean that the power of the Appellate Authorities was restricted by the provisions of Rule 1D and if such a construction was to be placed upon Rule 1D, it would amount to overriding, reconstructing or amending the provisions of the substantive Statute, which result could not be countenanced. Dealing with a contention addressed by the Revenue before the High Court that the Valuation Officer was bound by the rules contained in Rule 1D, the High Court pointed out that: "To read section 16A in the manner in which the learned counsel for the respondents (i.e. Revenue) wants us to read, would amount to giving arbitrary powers to the Wealth-tax Officer. Giving of such a power may invite attack on it on the ground of its being arbitrary and thereby violative of article 14 of the Constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court had pointed out in this case the mandatory nature of the rules prescribed in the method of valuation. Sub-section (3) of section 7 would come into operation only where a reference has to be made on the Valuation Officer. Otherwise it is sub-section (1) that has to be applied. In sub-section (1) the Wealth-tax Officer has to arrive at the price of the assets as it would fetch if sold in the open market and that has to be done subject to the rules made in that behalf. In this context the Delhi High Court pointed out that the rules would be binding on the Wealth-tax Officer. The binding nature of the rules would cease to have effect only when a reference is made to the Valuation Officer and that too on the Valuation Officer. But so far as the Wealth-tax Officer is concerned the rules are binding on him. This is the rule laid down by the Delhi High Court in the case of Sharbati Devi Jhalani. So the Wealth-tax Officer when he has to value the property in the first instance has to value the property only in accordance with rule 1BB, whatever may be the price that that property would fetch if sold in the open market. He cannot under the rules forsake the valuation arrived at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislation has to be harmoniously understood and interpreted. 11. Except a discussion about the application of Rule 1D and as to what would happen about the binding nature of the rules on the Valuation Officer, the Delhi High Court, in my opinion, cannot be read as laying down a principle that the valuation of properties covered by Rule 1BB also is to be valued differently otherwise than in accordance with Rule 1BB, even though it can be said that the ratio enunciated by the Delhi High Court may become applicable to valuation of all other properties. That means according to me that in respect of properties covered by Rule 1BB, the ratio laid down by the Delhi High Court on the binding nature of the rules on the Valuation Officer cannot arise because in such cases the question of the Wealth-tax Officer referring the valuation to the Valuation Officer cannot arise. Therefore my opinion on the first point of difference of opinion is in the negative. It therefore follows that the direction given by the Appellate Asstt. Commissioner in the present case that value of the property at No. 2, Panch Sheel Marg,New Delhishould be determined in accordance with Rule 1BB of the Wealth-tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X
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