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TMI Blog1991 (9) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purposes. The WTO did not accept this version. 3. On appeal before the CIT(A) it was contended on behalf of the assessee that a house includes portion of the house also as per Explanation to section 7 and, therefore, the WTO should have given relief under section 7(4). The CIT(A) pointed out that according to the Income-tax records the ALV of this house was Rs. 7,200 and 1/6th was claimed as reduction for commercial purposes and only the balance was shown as taxable ALV. According to the CIT(A) the assessee's claim in the Income-tax records is against the claim that servant quarters were used as business premises. He further pointed out that the business was conducted by the assessee's husband who was paid salary and also by some other employees. Therefore, it is not possible to believe, according to the CIT(A), that these employees were sitting in the servant quarters, if any, and doing the business of money lending. The CIT(A) also stated that considering the status of the assessee, she would not have carried on the money lending business in servant quarters. He also pointed out that the existence of a free servant quarters is itself doubtful. Ultimately he came to the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date may, at the option of the assessee, be taken to be the price which, in the opinion of the WTO, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later". According to Explanation (ii) to section 7(4) "house" includes a part of a house, being an independent residential unit. 7. In view of section 7(4) read with Explanation (ii) the assessee is entitled to value her property under section 7(4) to the extent of 5/6th of the same since according to the Department 1/6th of the said property is used for money lending business. A similar view was taken by the Appellate Tribunal, Allahabad Bench-B in the case of WTO v. Bansilal Agrawal [1982] 13 TTJ 375. Before us the learned counsel appearing for the assessee produced copies of valuation reports by the assessee's valuer, departmental valuer and a site pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Rules. A similar question came up for consideration before the Tribunal in the case of the same assessee in W.T.A. No. 631 (Mds.)/85 for the assessment year 1979-80, wherein the Tribunal in its order directed the WTO to apply Rule 2B strictly in respect of each share. It further held that the WTO will adopt the market value only in respect of such shares where the market value exceeds the book value by more than 20 per cent as required under Rule 2B. Considering the facts and circumstances appearing, similar in the assessment years 1979-80, 1980-81 and 1981-82 and by applying the reasons given in the order in WTO No. 631 (Mds.)/85 we direct the WTO to value the shares in question wherever the market value exceeds the book value by more than 20 per cent by applying Rule 2B and in respect of the other shares the WTO should value by not applying the said. Rule 2B. In the result, the appeals filed by the assessee are allowed in part for statistical purposes. Per T.V.K. Natarajachandran, A.M. --- I have gone through the order proposed by my learned brother, but I am unable to agree with his decision. According to my learned brother 5/6th portion is to be valued according to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty or on the valuation date relevant for the assessment year commencing on 1-4-1971, i.e., as on 31-3-1971 whichever is later. 4. Admittedly the assessee carried on money lending and dealings in his shares in the house property under consideration and for that reason on estimate deducted 1/6th of the annual value of the house property in the Income-tax assessment. Even at the time of hearing the learned counsel for the assessee admitted this factual position. In the letter dated 14-3-1985 addressed to the ITO, the assessee admitted that her business consists of money lending and dealings in shares, but these did not require much space in the house property. The business is said to be carried on by her husband with one or two clerks and, therefore, it was not a big establishment. Even the corporation receipts did not specify separate details for servants' quarters so as to constitute it as a separate unit of assessment. Thus it is evident that the house property is not used exclusively for residential purposes. 5. The case of the assessee as seen from the letter cited is that she was using the servant's quarter as the place of business whose area is roughly 1/6th of the mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The entire property including servant quarters should be used for residence of the owner or attendant servants or must be such that it is capable of being used for residential purposes. User of the property for purposes other than residence is not countenanced by law. In this view of the matter, therefore, I am of the opinion that the special statutory prescriptions under section 7(4) are not strictly satisfied by the assessee. 9. At this juncture it is necessary to refer to the Explanation (ii) under section 7(4) of the W.T. Act as per which "house" includes a part of the house being an independent residential unit. Section 5(1)(iv) gives exemption for one house or part of the house belonging to the assessee. Therefore, it is clear that even if a part of the house belongs to an assessee, he is entitled to claim exemption only in respect of that part of the house. The word "or" appearing in section 5(1)(iv) is disjunctive and not conjunctive. In other words, if an assessee owns one house he will get exemption in respect of that house. If he owns part of the house, he will get exemption in respect of that part of the house. There is no warrant for holding in respect of one hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the direction given by my learned brother regarding the valuation of shares. 12. In the result, the appeals are allowed in part. Order u/s 24(11) of the Wealth-tax Act, 1957 read with section 255(4) of the Income-tax Act, 1961 We have differed in our opinion in respect of the following points:--- 1. Whether the definition of 'house' contained in clause (ii) of Explanation under proviso to sub-section (4) of section 7 of the Wealth-tax Act would apply to the case of the assessee where she is the owner of the entire house, a part of which was used for business purposes? 2. Whether in the facts and circumstances of the case the assessee has satisfied the conditions of section 7(4) of the Wealth-tax Act, 1957 so as to be entitled to the beneficial valuation of the property? 3. Whether in the facts and circumstances of the case the assessee would be entitled to valuation of 5/6th portion of the property in accordance with section 7(4) of the Wealth-tax Act, 1957 while 1/6th portion is to be valued in accordance with the market value of the property under section 7(1) of the Wealth-tax Act, 1957?" The case is referred to the President of the Tribunal for favour of ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining on the valuation date relevant for the assessment year 1971-72. The Wealth-tax Officer rejected this claim on the ground that a portion of the house was used for business purposes and therefore the house could not be said to have been exclusively used for residential purposes, which is an essential requirement of section 7(4) for its application. The claim of the assessee before the Wealth-tax Officer that only the servant quarter was used for business purposes and not the other building, was not accepted. By showing that only servant quarter was used for business purposes, the attempt of the assessee was that the requirements of section 7(4) read with the Explanation added thereto were satisfied. Somehow this argument did not find favour with the Wealth-tax Officer. 4. Again on appeal before the Commissioner (A), the same contention was reiterated laying emphasis on the fact that under the Explanation to section 7(4) a house includes a portion of the house if it is an independent residential unit and since the house under the occupation for residential purposes was an independent residential unit, the requirements of section 7(4) were fully satisfied and therefore the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not possible to carry on any business much less business involving money lending and share dealings. One would expect the valuable securities to be kept in the main house and not in the servant quarter. Thus when these securities were locked in the main house, it could not be said that the house was exclusively used for residential purposes. Further the servant quarters were not such as to accommodate the business, the employees besides the house hold employees. He also referred to the fact that the Municipal Corporation did not recognise the servant quarters or the garages as a separate unit of assessment. Since it was not proved to be so in this case, the Explanation did not apply. He drew analogy for his conclusion from the provisions made in section 5(1)(iv) of the Wealth-tax Act, which granted exemption for one house or a part of the house and also to section 7(4) of the Wealth-tax Act, which made a provision for a member of Association of Persons being a Cooperative Housing Society. He was of the opinion that the emphasis laid by section 7(4) was also on the ownership of the property or pan thereof and not mere user of part of the property. He disagreed with the view e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WT v. Mrs. Avtar Mohan Singh [1972] 83 ITR 52. He also placed reliance on a decision given by the Income-tax Appellate Tribunal, Madras Bench 'B' in the case of Dr. Miss R. Sundaram v. First WTO [1984] 18 TTJ 478 and also another decision of the Income-tax Appellate Tribunal Allahabad Bench in the case of Masood Halim v. WTO [1987] 28 TTJ 101 wherein it was held that the entire property must have been used for residence in order to gain the advantage of beneficial valuation provided for in section 7(4) of the Wealth-tax Act, 1957. 10. As I have mentioned earlier it was on a consideration of these arguments and the relevant law on the subject and the exposition of the legal position made by the orders referred to, I came to the conclusion that the assessee is entitled to the benefit of the valuation provided for in section 7(4) of the Wealth-tax Act, 1957. Sub-section (4) of section 7 at the material time was in the following terms : "7(4) Notwithstanding anything contained in sub-section (1), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date may, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "exclusively" as held by the learned Accountant Member and emphasised by the learned Departmental Representative but also on the phrase "independent residential unit". An independent residential unit though it forms a part of a house is qualified to the beneficial valuation provided for in sub-section (4) of section 7. One has therefore to see what is an independent residential unit. Does the word "independent" mean independent enjoyment of a house without depending upon any other portion of the house or does it mean independent of disposition, or does it mean independent possession, or does it mean all of them. In the context in which the word "independent" occurred in the Explanation and the context in which the independent residential unit was used in sub-section (4), the word "independent" can only refer to, in my opinion, independent enjoyment of the house. If an independent enjoyment of a part of a house is possible as a residential unit, it should be possible not only to possess it independently of other units and it is also capable of being disposed of independent of other units or portions. Thus the word "independent" means peaceful enjoyment of the house as a residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge capital therein as stock-in-trade. For safe custody, he may keep the cash in the house in a safe or in an almirah. Does it mean that the house was used for business purposes also and not exclusively for residential purposes. Similarly if a dealer in shares keeps share certificates in the house for safe custody, does it mean that the house was used for business purposes and not exclusively for residential purposes. A person is entitled to keep his valuables with him in the same house where he is living for safe custody. The residential purpose therefore includes the purpose of keeping the valuables, be it personal or belonging to the business in the safe custody with him. If keeping of such valuables is included in the expression residential purposes, how can it then be said that the house was not exclusively used for residential purposes ? 11. I am dilating on this point because the Wealth-tax Officer's order shows that he was influenced by the fact that the assessee was keeping the valuables in the residential premises and therefore, residential premises could not be said to have been exclusively used for residential purposes. This is what he has said in the order, which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are dealing are kept in the common chest or iron safe, it can be said that excluding that part, the other part was a part of a house used exclusively for residential purposes being an independent residential unit. The independent residential unit need not necessarily be carved out as a separate unit built on the same land. But that was never the intention of the Legislature nor could it ever be because houses are built according to the economic capability of the person and his convenience and requirements. A person may borrow money and build a house in such a way that a portion of the house can be let out and from the rent so derived a part of the loan can be repaid. Can we say that the portion occupied by the owner was not exclusively used for residential purposes or was not an independent residential unit. The Legislature, when it provided in the Explanation that a part of a house being an independent residential unit is also included in the term "house" was not contemplating the situation where different units are built on the same land because this sub-section was inserted long after 1-4-1971 by when several houses had already been built. The legislative intent must therefore b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the house was used not exclusively for residential purposes and was used for business purposes In this view of the matter, I am inclined to agree with the view expressed by the Allahabad Bench of the Income-tax Appellate Tribunal in the case of Bansilal Agarwal. 13. Now adverting to the decision of the Delhi High Court in the case of Mrs. Avtar Mohan Singh, the principle laid down there was totally inapplicable to the facts of this case and therefore the reliance upon the decision would not advance the case of the Revenue. There the assessee built a house and occupied it for her own residence. Her husband 'B' also resided with her as a member of her family. 'B' as a working director of a company was entitled to rent free accommodation but as the company could not provide him with such accommodation, it paid him a certain amount of rent per month as compensation, which was passed on by him to the assessee. The question was whether the assessee could claim exemption from the payment of wealth-tax to the extent of Rs. 1 lac in relation to that house under section 5(1)(iv) of the Wealth-Lax Act, 1957. The Delhi High Court held that since the husband of the assessee had systematical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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