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Arvind Singhji v Wealth Tax Officer

Income Tax Appellate Tribunal

JAIPUR BENCH

5 July 1991

WTA No. 38/Jp/1989 : Asst. yr. 1983-84 Dt. 05 July 1991.

The Order of the Court was as follows :

J.K. VERMA, A.M.

The only dissolute in this appeal is that the learned CWT(A) has erred in setting aside the order of the WTO with the direction to refer the valuation of assessee’s property know as Shiv Niwas Palace to the Valuation Officer for valuation. In this context, the assessee has also objected to the maintainable rent being estimated by the WTO at Rs. 1, 02, 000 per annum against Rs. 18, 000 per annum disclosed by the assessee and consequently in WTO’s adopting its valuation at Rs. 12, 75, 000 against Rs. 2, 25, 000 disclosed by the assessee.

2. The Late assessee was a former ruler of Udapur State and owned the building in dispute which was exempt being a part of the palace of the former ruler. The assessee leased out the Shiv Niwas Palace to a Limited Company Known as M/s Lake Shore Plance Hotels (Pvt.) Ltd. of which he was himself the Managing Director. According to the lease deed, it was to be rented out at the rate of Rs. 1, 500 per month business the payment of rent was to commence w.e.f. the date when the Lake Shore Palace Hotel commenced its business and stared payment of the rent to the assessee. The WTO noted that the property under consideration consisted of 15 bedrooms with dressing rooms, toilets, stores and verandah in front, one central drawing hall, one dining room, one bar room, pantry, service room, fountain and open chowk, etc. and hence the rent at the rate of Rs. 1, 500 per month was every negligible particularly when the assessee himself was the Managing Director of the company with whom the assessee had executed the lease a reement. He, therefore, took the view that provisions of r. 1BB of the WT Rule were applicable in this case. He estimated the rent of the property at Rs. 8, 500 per month i.e., Rs. 1, 02, 000 per annum and multiplying it by the fraction of 100/8 assessed its value at Rs. 12, 75, 000.

3. When the assessee went in appeal before the CWT(A), it was argued before him that the WTO was led away by the present status of the building as a Five Star Hotel instead of considering the condition and the status of the building at the time when it was leased out and more particularly ignoring the fact that the building was of stone construction and more than 80 years old. A valuation report was also filed from a registered valuer who valued the property at Rs. 3, 27, 000 on Land & Building Cost Method. The learned CWT(A) after taking ITO consideration all the facts and circumstances of the case and the arguments advanced before him came to the conclusion that the rent fixed at Rs. 1, 500 per month by lease deed was not genuine and the valuation based on that lease rent was totally unrealistic and far below the market value. At the same time, be observed, there was no proper basis for estimating the rent at the rate of Rs. 8, 500 per month for the purposes of applying the rent capitalisation method. He fu ther observed that the registered valuer also has not given any basis for adopting plinth area rates at Rs. 27 per sq. ft. and the land rate at Rs.1 per sq. ft. He also took into account the fact that the registered valuer’s report was not submitted before the WTO during the course of assessment proceedings. He, therefore, set aside the assessment and restored it to the file of the WTO with the direction to have a report from the Departmental Valuation Officer

“as per the provisions of s. 16A and on due consideration of all relevant facts including reports of both valuers, investments made in additions, tariff charged by the hotel, nature and historic importance of the building, etc., he should determine the market value afresh according to law after affording due opportunity to the appellant”

. The assessee has left felt aggrieved by this order of the learned CIT(A) and is in appeal before us.

4. Shri Ranka vehemently argued that this property was let out by a registered document on 14th Dec., 1979 to the above mentioned limited company at the rate of Rs. 1, 500 per month, stamp duty on that basis was paid and the deed was stamped and registered. He argued that it was a registered document and it was the duty of the Registrar to see that it was rightly stamped according to correct valuation. He submitted that law makes it obligatory on the Registry on refer the matter to the District Collector if he was not satisfied about the correct valuation. He submitted that when a deed was duty registered, the value had to be accepted as such and not the value as may be estimated by the Valuation Officer. The learned counsel referred to the decision reported in CIT vs. Dr. V.K. Bhaskaran Nair 1978 Indlaw MAD 95 :1978 Indlaw MAD 95 (Mad) in order to support this proposition. He further submitted that in the income-tax assessment proceedings, the ITO had accepted the rent as disclosed by the assessee and th t there was no basis for estimate of rent made by the WTO. Moreover, as per the report of the registered valuer, the condition of the property had been deteriorating year after year. According to Shri Ranka, since the property had been to thoroughly renovated, it would not now be possible to find its shape and value as it was in 1978. He also emphasised that since the registered valuer had been appointed by the CBDT his report had to be given due weight.

5. The learned counsel further argued that the first appellate authorised could not direct the WTO to refer case under s. 16A to the Valuation Officer and this could not be done even by the CWT under s. 25 of the WT Act. For these propositions, Shri Ranka relied on the decision in the case of CWT vs. A.A. Patel 1989 Indlaw MP 111 : 1989 Indlaw MP 111 (MP), besides the case law which has been cited in the “grounds of appeal” itself. The learned counsel urged that in the case of let out property, the valuation had to be done according to r.1BB of the WT Rules and it could not be changed not be changed by the WTO or the CWT(A) or the Valuation Officer. For this proposition, the learned counsel referred to the decisions reported in 3 ITD 396 (SB) (sic) and Smt. Bella Cajeton Travasso vs. Third WTO & Ors. 1986 Indlaw MUM 4725 (Bom). The learned counsel clarified that since the value was not returned on the basis of the report of a registered valuer, the provisions of s. 16A (1 ) of the WT Act were not applicab e in this case. Similarly, the provisions of s. 16A(1)(b) were not applicable was circumstances did not exist to warrant them. Shri Ranka, vehemently argued that having himself given a finding in the assessment order that r.1BB was applicable in this case, it was mandatory on the WTO to follow r.1BB and there could be no other basis for working out the valuation.

6. The learned Departmental Representative submitted that since the matter had been set aside by the CWT(A), the Tribunal should not interfere with that order in view of the decision of the Hon’ble Rajasthan High Court in the case of Prem Agencies vs. CIT 1987 Indlaw RAJ 101 : 1987 Indlaw RAJ 101 (Raj). He further submitted that the learned CWT(A) had agreed with the finding of the WTO that rent at the rate of Rs. 1, 500 per month w as not realistic and genuine. At the same time, the rent estimated by the WTO at the rate of Rs. 8, 500 was also not genuine. He submitted that in fact it was a collusive transaction between the assessee and the limited company of which he was the Managing Director. He submitted that this was established by a supplementary deed according to which the rent was to be paid only when business of the company started. This according to the learned D.R. ment that the agreement with the company could be modified at any time to the convenience of the assessee. He vehemently supported th order of the CWT(A) arguing that the decision was according to provisions of law and there was nothing wrong if the CWT(A) set aside the order of the WTO with the direction to frame the assessment according to provisions of law. He submitted that the circumstances of this case were peculiar, inasmuch as, it was a case of palace and not of an ordinary house. Accordingly, instances could not be available of sale of similar properties. Further, in such a case, the marketability had to be presumed and not proved and encumbrances had to be allowed. The learned CWT(A) was very fair in mentioning that the report of registered valuer had also to be considered. He had also given guidelines that the potential of the property, taking its historic value into account, had also to be considered. He submitted that in the past, there was no rent from this building and the potential came only when the building was rented out.

7. Regarding the application of r.1BB, the learned Departmental Representative argued that it was the case of a commercial building and not residential building, as the rent was stipulated w.e.f. the date when the limited company started using it for its business. He submitted that in any case, the entire matter was now open before the WTO who had to frame the assessment order according to provisions of law.

8. Shri Ranka in his reply explained that the reliance of the learned Departmental Representative on the decision of the Hon’ble Rajasthan High Court in the case of Prem Agencies (supra), was misconceived because in that case the Tribunal had given a decision on a point which was not covered by the decision of the AAC whereas in the instant case, the CWT(A) had decided the issue by restoring it to the file of the WTO. He further argued that the objection regarding the applicability of r.1BB could not be raised at this stage. In any case so far as the assessee was concerned, it was a residential property and to whatever use it was put by a tenant could not change its character. The learned counsel claimed that, in any case, according to Schedule III, now the provisions or r.1BB apply to commercial property also. He referred to a decision of the Ahmedabad Bench of the Tribunal reported in Krishnadas Govinddas Parikh vs. WTO 1990 86 CTR (Trib) (Ahd) 76 according to which even Schedule III of WT Act was pro edural. He finally submitted that as per the decision of the Hon’ble Rajasthan High Court Smt. Sabita Mohan Nagpal vs. CWT 1985 Indlaw RAJ 129 : 1985 Indlaw RAJ 129 (Raj) when there was a rented property, its valuation had to be done by rent capitalisation method and not by land and building method.

9. We have carefully considered the arguments from both the sides, the material on record and the case law cited before us. However, we are unable to agree with arguments of the learned counsel for the assessee so far as they challenge the order of the learned CWT(A). We are, however, in agreement with him that the ratio of decision of the case of Prem Agencies (supra) is not applicable in this case. In the case of Prem Agencies their Lordships had held that when AAC had not decided a case on merits but had remanded it to the Assessing Officer, the Tribunal could not decide that issue on merits. Hence, we are proceedings to decide the appeal before us on the issues which are raised therein.

10. The facts and circumstances as discussed in the preceding paragraphs of this order, would show that the assessee had disclosed the value of the property under consideration at Rs. 2, 25, 000. The WTO was not satisfied with the valuation so disclosed for reasons given in his order and he, therefore, estimated its value at Rs. 12, 75, 000 on the basis of monthly rent Rs. 1, 500 per month disclosed by the assessee. The question which arises for considerations is whether the WTO could himself estimate the value of an asset at Rs. 12, 75, 000 the value of which was disclosed by the assessee at Rs. 2, 25, 000 and whether doing so was in conformity with the provisions of s. 16A of the WT Act. Sec. 16A of the WT Act reads as under.

“16A.(1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, (where under the provisions of s. 7 r/w the rules made under this Act or as the case may be the rues in Schedule III the market value of any asset is to be taken into account in such assessment ) the (Assessing Officer) may refer the valuation of any asset to a Valuation Officer

(a) In a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the (Assessing Officer) is of opinion that the value so returned is less that its fair market value ;

(b) in any other case, if the (Assessing Officer ) is opinion

(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned by more than such percentage of the value of the asset 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………….

(6) On receipt of the report under sub-s. (3) or sub-s. (5) from the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conform it with the estimate of the Valuation Officer).”

This would show that after introduction of s. 16A by Taxation Laws (Amendment) Act, 1972 w.e.f. 1st Jan., 1973, the powers of the WTO have been considerable restricted. In a case where the valuation of an asset is supported with the report of registered valuer and the WTO is of the opinion that the returned value is less than its fair market value, he is required to refer the matter to the Valuation Officer for his opinion according to provisions of s. 16A(1)(a) . Where the valuation of the asset is not supported with the report of a registered valuer and yet the WTO is of the opinion that the fair market value of the asset exceeds the value so returned by more than prescribed percentage (which is 331/3 per cent ) or by more than the prescribed amount (which is Rs. 50, 000, he is required to refer the matter to the Valuation Officer. The legal preposition that in such circumstances, it is mandatory and not discretionary for the WTO to refer this matter to the Valuation Officer for his opinion has been consi ered not only by the CBDT itself but has come up for consideration before judicial authorities also. To begin with, the CBDT in its Circular No. 36 dt. 25th Nov., 1972 in paragraph 35 of that Circular [since reported in 1973 (91) ITR(St) 1, 20] had directed

“In cases governed by s. 16A(1) , it will be incumbent upon the WTO to refer the valuation of asset in question to the Valuation Officer and it will not be open him to decide the question of valuation on his own.”

The Hon’ble Rajasthan High Court in the case of Brig. B. Lall vs. WTO 1980 Indlaw RAJ 37 : 1980 Indlaw RAJ 37 (Raj) on which the assessee himself has relied, has observed at page 328 of that report as under :

“A combined reading of sub-s. (1) and sub-s. (6) section 16A would show that no discretion has been given to the WTO to reject or vary the report of the Valuation Officer. Contrary to it, if the WTO decides not to make a reference to the Valuation Officer, he will have no option but to accept the position that the returned value of the asset is not less than is fair market value. The limited enhancement is only permissible under c. (b) of sub-s.(1) of the section”

11. In our opinion, If the provisions of s 16A to be interpreted in such a way that they vest a discretion in the WTO to make a reference to the Valuation Officer even when the case is covered by cl. (a) or cl. (b)(i) of sub-s. (1) of s. 16A , it would amount to giving arbitrary powers to the WTO in spite of the specific provisions in the WT Act and the Circular of the CBDT and that cannot be a correct interpretation. In our view, join fats, it would be a case of failure to exercise the jurisdiction mandated by the clear wordings of the statute. We may mention that our view is supported by the decision of the Hon’ble Punjab & Haryana High Court in the case of Raj Paul Oswal vs. CWT 1988 67 CTR (P&H) 60 : 1987 Indlaw PNH 36 (P&H) and the Hon’ble Delhi High Court in the case of Sharbati Devi Jhalani vs. CWT 1985 Indlaw DEL 115 : 1985 Indlaw DEL 115 (Del). In the facts and circumstances, we are of the opinion that when the WTO came to the conclusion that the value of the property disclosed by the assessee at Rs. 2, 25, 000 was less than its fair market value and in his opinion its value was working out to Rs. 12, 75, 000 (which was more than 331/3 per cent of the value disclosed by the assessee and was more than Rs. 50, 000, which are the limits prescribed under r. 3B of the WT Rules for this purpose) it was incumbent upon High Court to have referred the matter to the Valuation Officer in compliance with the provision of s. 16A of the WT Act r/w the Circular No. 96 of the CBDT referred to above. When the WTO failed to do so and he assessed the value of this asset at Rs. 12, 75, 000 it is obvious that he acted beyond the powers which he possessed under the provisions of the WT Act. In the circumstances, it is only natural that the first appellate authority, who by now is well recognised to have co-terminus powers with the assessing authority, should have interfered and should have restored the matter to the file of the WTO directing that to be done which the WTO omitted to do according to provisions of law. In the c rcumstances, we find nothing wrong with the decision of the learned CWT(A) which has to be upheld.

12. So far as case law cited by the assessee and the learned counsel for the assessee is concerned, we find that it is either not applicable to the facts and circumstances of the case or is distinguishable. Thus, for example, in the case of M.V. Kibe vs. CWT 1987 Indlaw MP 173 : 1987 Indlaw MP 173 (MP), it is not clear from the decision of the Hon’ble High Court as reported whether the additions made by the WTO to the returned value of the asset were more than 33 1/3 per cent of the value of the asset or Rs. 50, 000. In case the additions made by him were less than the prescribed percentage or amount, it meant that he had exercised his jurisdiction or with in the limits prescribed under the provision of s. 16A and hence their Lordships had rightly quashed the directions of the AAC for referring the matter to the Valuation Officer because in that case it should have been purely a question of the exercise of discretion by the WTO under s. 16A(1)(b)(ii) . Since in instant case, as we have also mentioned, th difference between the value estimated by the WTO and the value disclosed by the assessee was bout Rs. 10, 50, 000 and far exceeding the limit of 33 1/3 per cent or Rs. 50, 000 the failure of the WTO to refer the matter to the Valuation Officer and estimating value of the asset himself at Rs. 12, 75, 000 was against provisions of law and hence the appellate authority was fully justified in directing the Assessing Officer to frame a fresh assessment order after removing that defect. Another case of the Hon’ble Madhya Pradesh High Court in 1989 Indlaw MP 111 : 1989 Indlaw MP 111 (MP), namely that of CWT vs. A.A. Patel only follows the decision in the case of Kibe (supra) and hence that is also distinguishable. The case of Brig. B. Lall vs. WTO (supra), Smt. Uma Debi Jhawar vs. WTO 1982 32 CTR (Cal) (Cal) 16 : 1982 Indlaw CAL 56 (Cal) and Satyendra Chunder Chose vs. WTO 1979 Indlaw CAL 34 : 1979 Indlaw CAL 34 (Cal) deal with the cases where the WTO had mad reference after the completion of assessment proceedin s and hence their Lordships held in all these cases that such references to the Valuation Officer were not valid. It is obvious that such is not the situation in the case before us. In the case of Onkarji Kasturchand (HUF) vs. WTO 1980 Indlaw MP 108 (MP), a reference had been made to the Valuation Officer by the WTO when no proceedings were pending before him and on the basis of the report of the Valuation Officer, assessments were reopened, it was held by their Lordships that since no assessment proceedings were pending before the WTO, a reference under s. 16A was not valid. In the case before us, it is obvious that the matter was pending before the CWT (A) and it could not be said that no proceedings were pending. As already stated by us, the first appellate authority has co-terminus powers with those of the Assessing Officer and hence when the matter was still open before the CWT(A), he had rightly set aside the assessment order. Since, after being set aside that assessment order would still be pending b fore the Assessing Officer, there would be nothing wrong if a reference is made to the Valuation Officer for proper valuation of the asset.

13. So far as the reference of the decision reported in 1978 Indlaw MAD 95 : 1978 Indlaw MAD 95 (Mad) is concerned, we find that the ratio of the decision is not applicable in the present case because in that case proceedings for acquisition under the IT Act were involved and the Valuation Office had not been produced before the Tribunal and hence an adverse inference had been drawn by the Tribunal which was upheld by the Hon’ble High Court.

14. As far the reference to the decisions reported in 3 ITD 396 (SB) (sic), Smt. Bella Cajeton Travasso vs. Third WTO 1986 Indlaw MUM 100 : 1986 Indlaw MUM 4725 (Bom), 1990 86 CTR (Trib) (Ahd) 76 and 1985 Indlaw RAJ 129 : 1985 Indlaw RAJ 129 (Raj) and the arguments regarding the applicability or other wise of r.1BB and other factors to be considered for determining the value of the property, we may observe that since the matter is open before the Assessing Officer, these arguments may be submitted before him or the Valuation Officer and they may be considered by those authorities. However, so far as the claim of Shri Ranka to the effect that the provisions of r. 1BB only apply in this case because the WTO had made such observations in High Court assessment order are concerned, we are unable to agree with him because we have held that while assessing the value of the property under consideration, the Assessing Officer had ignored the provisions of s. 16A r/w Circular of the CBDT and hence the observa ions made by the WTO while assessing the value of this property were not in conformity with the provisions of law or the directions of the Board and hence cannot be final.

15. Taking all these factors into account, we uphold the decision of the CWT(A). The appeal filed by the assessee is, therefore, dismissed.