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TMI Blog2014 (7) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... ial scrutiny. In the present case, the AO refused to accept self assessment for the following reasons: - (i) There is a wide variation between the market value and the valuation done by the assessee as per municipal taxes. - (ii) The property is used as a guest house. - (iii) The value for levy of municipal tax is very low, as the total ratable value of the assessee is done by the municipal authorities @ ₹ 6,573/- per annum. - (iv) The assessee was a tenant of the property @ ₹ 500/- per month. After purchase of the property a lot of expenditure was incurred from time to time on improvement of the property which is very difficult to ascertain. - (v) The value of the building is grossly understated as the assessee himself entered into an agreement to sell the same in the year 1995 for a sum of ₹ 10,26,00,000/-. Considering the above factors, the AO assessed the value of the property at ₹ 2,60,73,000/- as valued by the Departmental Valuation Officer. AO was justified in holding that it was not practicable to apply Rule 3 in the instant case and rightly referred the matter to the Valuation Officer under Section 16A for determination of value of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rules 3 to 7 hence Rule 8(a) is attracted. The A.O. further observed that as the assessee had taken plea that it was paying rent @ ₹ 500 per month prior to the purchase of the flat and incurred expenditure on the improvement of the said flat, it was difficult for the AO to ascertain the price and, therefore, it would be impracticable to apply Rule 3. 3. On appeal, preferred by assessee, the Commissioner of Wealth-tax (Appeals) dismissed the appeal vide order dated 31 st December, 1996. The appellate order was confirmed by ITAT vide order dated 12th June, 2000. Thereafter, the assessee preferred a miscellaneous application u/s 35 of the Act seeking rectification of mistakes of fact and law apparent from the Tribunal's order. It was rejected by ITAT by its order dated 11th July, 2001. Finally, by the impugned judgment the High Court also affirmed the view taken by the Revenue. 4. According to learned counsel for the assessee the provisions of Rule 3 is applicable on the facts of the case. On the other hand, according to learned counsel for the revenue it is not practicable to apply Rule 3 and hence Rule 8 (a) was rightly applied by Revenue. 5. In order to appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the value of any immovable property, being a building or land appurtenant thereto, or part thereof, shall be the amount arrived at by multiplying the net maintainable rent by the figure 12.5: Provided that in relation to any such property which is constructed on lease hold land, this rule shall have effect as if for the figure 12.5 (a) where the unexpired period of the lease of such land is fifty years or more, the figure 10.0 had been substituted; and (b) where the unexpired period of the lease of such land is less than fifty years, the figure 8.0 had been substituted: Provided further that where such property is acquired or construction of which is completed after the 31st day of March, 1974, if the value so arrived at is lower than the cost of acquisition or the cost of construction, as increased, in either case, by the cost of any improvement to the property, the cost of acquisition or, as the case may be, the cost of construction, as so increased, shall be taken to be the value of the property under this rule: Provided also that the provisions of the second proviso shall not apply for determining the value of one house belonging to the assessee, where such hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (a) where the property is let throughout the year ending on the valuation date (hereinafter referred to as previous year ), the actual rent received or receivable by the owner in respect of such year; (b) where the property is let for only a part of the previous year, the amount which bears the same proportion to the amount of actual rent received or receivable by the owner for the period for which the property is let as the period of twelve months bears to the number of months (including part of a month) during which the property is let during the previous year: Provided that in the following cases, such actual rent under sub-clauses (a) and (b) shall be increased in the manner specified below: - (i) where the property is in the occupation of a tenant and taxes levied by any local authority in respect of the property are borne wholly or partly by the tenant, by the amount of the taxes so borne by the tenant; (ii) where the property is in the occupation of a tenant and expenditure on repairs in respect of the property is borne by the tenant, by one-ninth of the actual rent; (iii) where the owner has accepted any amount as deposit (not being advance payment towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied area exceeds fifteen per cent, but does not exceed twenty per cent, of the aggregate area by an amount equal to forty per cent, of such value. Explanation. -For the purposes of this rule and rule 6; (a) aggregate area , in relation to the plot of land on which the property is constructed, means the aggregate of the area on which the property is constructed and the unbuilt area; (b) specified area , in relation to the plot of land on which the property is constructed, means (i) where the property is situate at Bombay, Calcutta, Delhi or Madras, sixty per cent, of the aggregate area; (ii) where the property is situate at Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Cochin, Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur, Lucknow, Ludhiana, Madurai, Nagpur, Patna, Pune, Salem, Sholapur, Srinagar, Surat, Tiruchirapalli, Trivandrum, Vadodara (Baroda) or Varanasi (Banaras), sixty-five per cent, of the aggregate area; and (iii) where the property is situate at any other place, seventy per cent, of the aggregate area: Provided that where, under any law for the time being in force, the minimum area of the plot of land required to be kept as open space ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (c), the value of the property shall be determined in the manner laid down in rule 20. 13. It is submitted on behalf of the appellant that the purpose of the amendment of Sec.7, if read it can be stated that the intention of the legislature, behind the amendment of Section 7(1) and deletion of Rule 1BB was to bring in uniformity and provide relief to the tax payers by bringing down litigation. It nowhere provided that the levy of the wealth tax after the amendment would be based on a value that does not have any correlation with the fair market value of an asset. 14. According to learned counsel for the assessee since the property in question was acquired prior to 1.4.1974, second proviso to Rule 3 is not applicable. However, such submission has been refuted by the learned counsel for the Revenue. 15. As there is a dispute as to whether Rule 3 is applicable or Rule 8, it is also desirable to notice Rule 20 and Section 16A of the Act. 16. Rule 8(a) carves out an exception to Rule 3 that while the AO, with the previous approval of the Joint Commissioner is of opinion that it is not practicable to apply Rule 3 to a particular case, then Rule 3 shall not be made app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as returned or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do. (2) Fort the purpose of estimating the value of any asset in pursuance of a reference under sub-section(1), the Valuation Officer may serve on the assessee a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require. (3) Where the Valuation Officer is of opinion that the value of the asset has been correctly declared in the return made by the assessee under section 14 or section 15, he shall pass an order in writing to that effect and send a copy of his order to the [Assessing Officer] and to the assessee. (4) Where the Valuation Officer is of opinion that the value of the asset is higher than the value declared in the return made by the assessee under section 14 or section 15, or where the asset is not disclosed or the value of the asset is not declared in such return or where no such return has been made, the Valuation Officer shall serve a notice on the assessee intimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of net value of assets of business as a whole etc. This did not solve the problem to any appreciable extent, as the determination of the value in accordance with these rules was often challenged in the courts on the ground that such determination did not correspond to the market value concept envisaged in the Wealth-tax Act and, therefore, the rules were ultra vires the main provisions of the Act. Thus, it was held by several High Courts that the rules are not mandatory. Kusumben D Mahadevia v CWT (1980) 124 ITR 799 (Bom) and K.M. Mammen v WTO (1983) 139 ITR 357 (Mad). Such interpretations made the rules for valuation ineffective. Therefore, in order to eliminate litigation on the subject and also to make the said rules mandatory so that there is certainty and uniformity in the matter of valuation of assets, the Amending Act, 1989, has incorporated the rules for valuation in the Wealth-tax Act itself, by inserting a new Schedule III. Rules 1B to 1D and 2 to 2I of the Wealth-tax Rules, 1957, have been omitted. 18.2 It may also be pointed out that the rules for valuation of assets, as contained in the Wealth-tax Rules, 1957, did not provide for valuation of certain categories of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this rule to such a case; or (ii) where the difference between the unbuilt area and the specified area exceeds twenty per cent of the aggregate area; or (iii) where the house is built on leasehold land the lease expires within a period not exceeding fifteen years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease: (c)Provided that in a case referred to in clause (i) or clause (ii) or clause (iii) the valuation of the house shall be made by the Wealth-tax Officer with the prior approval of the Inspecting Assistant Commissioner. 22. While Rule 1BB was omitted by Wealth-tax (Second Amendment) Rules, 1989 w.e.f. 1.4.1989 but simultaneously Rule 8 was inserted vide Schedule III. Therefore, it cannot be said that after insertion of Schedule III to the Act the value on which the wealth tax is payable has no relevance in determining the fair market value of the asset or the price which the asset would fetch if sold in the open market on the valuation date. In case, AO is of the opinion that it is not practicable to apply the provisions of Rule 3, and the said asset is referred to Valuation Officer under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised. It must be reasonable, based on subjective satisfaction; the power must be shown to be objectively exercised and is open to judicial scrutiny. 26. In the present case, the AO refused to accept self assessment for the following reasons: (i) There is a wide variation between the market value and the valuation done by the assessee as per municipal taxes. (ii) The property is used as a guest house. (iii) The value for levy of municipal tax is very low, as the total ratable value of the assessee is done by the municipal authorities @ ₹ 6,573/- per annum. (iv) The assessee was a tenant of the property @ ₹ 500/- per month. After purchase of the property a lot of expenditure was incurred from time to time on improvement of the property which is very difficult to ascertain. (v) The value of the building is grossly understated as the assessee himself entered into an agreement to sell the same in the year 1995 for a sum of ₹ 10,26,00,000/-. Considering the above factors, the AO assessed the value of the property at ₹ 2,60,73,000/- as valued by the Departmental Valuation Officer. 27. The CWT held that the reference made by the AO to Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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