Commissioner of Wealth-tax,Chennai v. M/s.VGP Housing Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 02.07.2007Coram :THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) Nos.29 to 32 of 2007Commissioner of Wealth-tax,Chennai. ..Appellant in all the T.C.(A)s. Vs.M/s.VGP Housing Pvt. Ltd.,VGP Square, Saidapet,Chennai-600 015. ..Respondent in all the T.C.(A)s.Appeals under Section 27A of the Wealth-tax Act, 1957 againstthe order of the Income Tax Appellate Tribunal, Chennai Bench 'B',Chennai in W.T.A. Nos.2/Mds/2000, 83/Mds/96, 84/Mds/96 and146/Mds/95 dated 17.02.2006 for the assessment years 1985-86, 1990-91, 1991-92 and 1989-90 respectively against the order of theCommissioner of Wealth Tax (Appeals) II Chennai-34 dated 30.9.1999in W.T.A.Nos.89,90,91,92 and 93/ 92-93 and 8/96-97 for tehAssessment years 1984-85, 1985-86, 1986-87, 987-88, 1988-89, 1992-93 and order of Commissioner of Wealth Tax (Appeals) I Madras 34dated 8.12.1995 in ITA.Nos. 41 and 40/94-95 for the Assessmentyears 1990-91 and 1991-92 and dated 30.12.1994 in ITA.No15/94-5 forthe Assessment year 1989-90 respectively against the order of theAssistant Commissioner of wealth Tax Central III (2) Madras -34dated 30.12.1994 , 30.12.1994, 18-3.1994 and 30.6.1984 in PAN/GIR.No.47-033-CQ-3933 for the Assessment years 1991-92, 1990-911989-90 and 1985-86 respectively.For Appellant :Mr.J.Narayanaswamy, Standing Counsel forIncome-tax Department For Respondent :No appearance https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT(Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)These appeals are filed under Section 27A of the Wealth-taxAct, 1957 by the Revenue, against the order of the Income TaxAppellate Tribunal, Chennai Bench 'B', Chennai in W.T.A.Nos.2/Mds/2000, 83/Mds/96, 84/Mds/96 and 146/Mds/95 dated17.02.2006 raising the following common substantial question oflaw:- "Whether in the facts and circumstances of thecase, the Tribunal was right in directing theassessing officer to invoke specific rules 3, 4& 5 of Schedule III of the Wealth-tax Act whenthe transaction of lease is between sisterconcerns, without giving the assessing officerthe option of applying Rules 8 and 20, even ifthey are found to be relevant?"2.When the matter came up on 05.02.2007, notice was orderedby this Court returnable in two weeks. Private notice was alsopermitted. Inspite of the same, there is no appearance on behalfof the respondent. 3.The facts leading to the above substantial question oflaw are as under:-The assessee is a Private Limited Company dealing in thepurchase and sale of lands. The assessee purchases vast extent ofland, plots them out and later sells the same as house sites. Theassessee had not filed Return for the assessment years in questionon the ground that it is not subject to wealth-tax. Later, theassessment was reopened and the Assessing Officer included thevalue of 54 acres of land at Injambakkam owned by the assessee, inthe net wealth of the assessee. Aggrieved, the assessee filedappeals to the Commissioner of Wealth-tax (Appeals) and contendedthat the assessee is not subject to wealth-tax. The Commissionerof Wealth-tax (Appeals) held that the assessee is entitled toexemption from wealth-tax and allowed the appeals. Aggrieved, theRevenue filed appeals to the Income-tax Appellate Tribunal("Tribunal" in short). The Tribunal allowed the Revenue's appealsand held that the assets cannot be excluded from the levy ofwealth-tax in view of the provision of Section 40 of the FinanceAct, 1983. While allowing the appeals, the Tribunal also given adirection to the Assessing Officer to value the impugned propertyin view of Rules 3, 4 and 5 of Schedule III of the Wealth-tax Act.Hence the present appeals by the Revenue. https://hcservices.ecourts.gov.in/hcservices/

4.Learned Standing Counsel appearing for the Revenuesubmitted that the Tribunal has remanded the matter only with aspecific direction to invoke Rules 3, 4 and 5 of Schedule III ofthe Wealth-tax Act alone and hence the discretionary powers of theOfficer are restricted by the specific remand. Hence the Revenuemay not have the option to apply the Residuary Rules, Viz. Rules 8and 20, if situation warrants.5.Heard the counsel. The Tribunal held that the assesseeis subject to wealth-tax and for the purpose of determining thevalue of the immovable property, the Tribunal remanded the matterwith a direction to the Assessing Officer to apply Rules 3, 4 and 5of the Schedule III of the Wealth-tax Act. The order of theTribunal reads as under:-"13. We have gone through Schedule III whereinRule 3 Part B for determining the value of theimmovable property has been provided. First ofall, we have gone through the provisions ofRule 3, 4 and 5 of Schedule III and seen thatthe let out property is to be valued afterarriving at by multiplying the net maintainablerent at 12.5. In this case, the Assesseeadmitted that there is written lease agreementbut the Assessee has to clearly state beforethe Assessing Officer that as to how muchperiod, the property was on lease because forapplication of Rule 3, unexpired period oflease is to be calculated by valuing theproperty. Even in the case of Bharat HariSinghania v. CWT [1994] 207 ITR 1, the Hon'bleSupreme Court has held that "Where there is arule prescribing the manner in which aparticular property has to be valued, theauthorities under the Act have to follow it".In the present case, the property has to bevalued as per Schedule III which is mandatory.Hence, we direct the Assessing Officer to valuethe property in view of Rule 3, 4 & 5 ofSchedule III after taking the annual rent asthe property is let out the years ending on thevaluation date and the actual rent received bythe owner in respect of that year. In thiscase, the property i.e. land and superstructureare let out to its sister concern and the rentas assessed in the income-tax proceeding willbe taken as the annual rent and accordingly,the valuation of property be made by theAssessing Officer. In view of this, we setaside this issue to the file of the AssessingOfficer to value the property in view of the https://hcservices.ecourts.gov.in/hcservices/ provisions of Rule 3, 4 & 5 of Schedule III ofthe W.T. Act and direct the Assessing Officerto take the annual rent as declared in theincome-tax returns."The only grievance of the Revenue is that the Tribunal hasspecifically mentioned only the Rules 3, 4 & 5 to be invoked anddirected the Assessing Officer to determine the value of theproperty. Schedule-III of the Wealth-tax Act deals with rules fordetermining the value of assets. Part B of Schedule-III deals withimmovable property and Rule 3 deals with valuation of immovableproperty. Rule 4 deals with net maintainable rent how to becomputed. Rule 5 deals with gross maintainable rent how to becomputed. Rule 6 deals with adjustments to value arrived at underRule 3, for unbuilt area of plot of land. Rule 7 deals withadjustment for unearned increase in the value of the land. Rule 8deals with the rule not to apply in certain cases, which reads asunder:-"8. Rule 3 not to apply in certain cases.-Nothing contained in rule 3 shall apply,-(a) where, having regard to the facts andcircumstances of the case, the AssessingOfficer, with the previous approval of theDeputy Commissioner, is of opinion that it isnot practicable to apply the provisions of thesaid rule to such a case; or(b) where the difference between the unbuiltarea and the specified area exceeds twenty percent. of the aggregate area; or (c) where the property is constructed onleasehold land and the lease expires within aperiod not exceeding fifteen years from therelevant valuation date and the deed of leasedoes not give an option to the lessee for therenewal of the lease,and in any case referred to in clause (a) orclause (b) or clause (c), the value of theproperty shall be determined in the mannerlaid down in rule 20."From a reading of the above, it is clear that if Rule 3 is notpracticable to be applied to the facts of a case, the AssessingOfficer, with the approval of the Deputy Commissioner, apply Rule8. Rule 20 comes under Part H under the heading "Residuary", whichreads as follows:-"20. Valuation of assets in other cases.-(1)The value of any asset, other than cash, beingan asset which is not covered by rules 3 to 19,for the purposes of this Act, shall beestimated to be the price which, in the opinionof the Assessing Officer, it would fetch ifsold in the open market on the valuation date.(2) Notwithstanding anything contained in sub- https://hcservices.ecourts.gov.in/hcservices/ rule (1), where the valuation of any assetreferred to in that sub-rule is referred by theAssessing Officer to the Valuation Officerunder section 16A, the value of such assetshall be estimated to be the price which, inthe opinion of the Valuation Officer, it wouldfetch if sold in the open market on thevaluation date.(3) Where the value of any asset cannot beestimated under this rule because it is notsaleable in the open market, the value shall bedetermined in accordance with such guidelinesor principles as may be specified by the Boardfrom time to time by general or special order."The apprehension of the Revenue is that the Tribunal had given onlya specific direction to the Assessing Officer to apply only Rules3, 4 and 5. On a complete reading of Schedule-III, theirresistible conclusion is that the Assessing Officer shouldconsider and apply Rules 3, 4 and 5, and if he is of the opinionthat it is not practicable to apply the Rules 3, 4 and 5, he couldrely on Rule 8 or Rule 20 and the value of the property could bedetermined in the manner laid down under Rule 8 or Rule 20. Hence,there is no restriction for the Assessing Officer to apply therelevant Rules for determining the value of the immovable propertyand hence the apprehension of the Revenue has no basis and it is animaginary one. We make it clear that it is for the AssessingOfficer to apply first the Rules 3, 4 and 5 and if he feels thesame is not practicable to apply, he is at liberty to invoke Rule 8or Rule 20 and determine the value of the assets in accordance withSchedule-III of the Wealth-tax Act. 6.With the above observations, the tax cases are disposedof. Consequently, M.P.No.1 of 2007 in T.C.(A) No.30 of 2007,M.P.No.1 of 2007 in T.C.(A) No.31 of 2007 and M.P.No.1 of 2007 inT.C.(A) No.32 of 2007 are closed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.km https://hcservices.ecourts.gov.in/hcservices/ To1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench 'B', Chennai.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Wealth tax (Appeals) II, Chennai-34.4. The Commissioner of Wealth-tax (Appeals)-I, Madras-34.5. The Assistant Commissioner of Wealth-tax, Central Circle III(2), Madras-34.6. The Assistant Commissioner of Income-tax, Central Circle III(2), Madras-34.7. The Commissioner of Wealth Tax,Chennai.1 cc to Mrs. Pushya Sitaramanm SSC for Ir, Sr. 39869 T.C.(A) Nos.29 to 32 of 2007 SR (CO)kk 21/7