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C.W.T. v. Mohan Das - W.T.R. No. 76 of 1991  RD-AH 580 (1 March 2005)
W.T.R. No. 76 of 1991
Commissioner of Wealth Tax, Lucknow
Mohan Das, 89/331, Deputy Ka Purao, Kanpur.
Hon'ble R.K.Agarwal, J.
Hon'ble Prakash Krishna, J.
The Income Tax Appellate Tribunal, Allahabad i has referred the following two questions of law under section 27 (1) of the Wealth Tax Act, 1957 (here in after referred to as the Act) for opinion to this Court.
(1) Whether, on the facts and in the circumstances of the case, the I.T.A.T. was correct in law in holding that the assessments were reopened u/s 17 on the basis of change of opinion of the W.T.O.
(2) Whether on facts and in circumstances of the case the I.T.A.T. was correct in law in holding that assessment framed u/s 16 (1) of the W.T. Act cannot be reopened u/s 17 of the W.T. Act on the ground of change of opinion on the part of the W.T.O."
The reference relates to the assessment year 1982- 83 to 1985-86.
Briefly, stated the facts giving rise to the present reference are as follows :-
The respondent/assessee has been assessed to wealth tax in the status of an individual. He owns property no. 89/331, Deputy Ka Padao, Kanpur, which is being used for commercial purpose having been let out to Bank. For the assessment year in question assessment orders were framed under the Act determining the value of the said building by applying mode valuation as land and building method. All the assessments were reopened by the assessing officer under Section 17 of the Act on the ground that the wealth chargeable to tax had escaped assessment as according to the Wealth Tax Officer, the property ought to have been valued by applying the rent capitalization method. Feeling aggrieved the respondent preferred separate appeals before Deputy Commissioner (Appeals), Kanpur. The Deputy Commissioner (Appeals) had partly allowed the appeals by holding that it would be reasonable and act of fairness if the value of the property is determined by taking average of rent capitalization method of rent and building method.
We have heard Sri Shambhu Chopra, learned Standing Counsel for the Revenue. No body has appeared on behalf of the respondent/assessee.
Learned Standing Counsel submitted that as the building in question has been let out the proper method for determining a fair market value would be on the basis of rent capitalization, thus, the assessment based on land and building method was not correct method leading to escapement/under assessment of wealth. The submission is misconceived. Under Section 7 of the Act provisions have been made determining the value of the assets during the assessment year in question. Section 7 of the Act reads as under :-
"7. Value of assets, how to be determined - (1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date.
Explanation - For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date.
(2) Notwithstanding anything contained in sub section (1) -
(a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Assessing Officer may instead of determining separately the value of each asset of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustments therein as may be prescribed;
(b) where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance sheet drawn up for the affairs of such business in India, the Assessing Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year.
(3) Notwithstanding anything contained in sub section (1) where the valuation of any asset is referrerd by the Assessing Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuatioin Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in sub section (4), the valuation date referred to in that sub section.
(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 the option of the assessee, be taken to be the price which, in the opinion of the Assessing Officer, 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 relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later;
Provided that where more than one house belonging to the assessee is exclusively used by him for residential purposes, the provisions of this sub section shall apply only in respect of one of such houses which the assessee may, at his option, specify in this behalf in the return of net wealth.
Explanation - For the purposes of this sub section,-
(i) where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of such house was completed;
(ii) "house" includes a part of a house, being an independent residential unit."
From a reading of the aforesaid provision it would be seen that the value of any asset has to be estimated on the basis of the price, which in the opinion of the Assessing Officer it would fetch if sold in the open market on the valuation date. Separate provisions have been made for the business assets and residential house exclusively used for the residential purposes. As in the present case the building in question has been let out for commercial purpose no specific mode of valuation for determining the market value has been prescribed under the Act. It has to be the value, which it would fetch if sold in the open market on the valuation date. There are several modes of determining the value in the open market viz land and building method, income yield method, rent capitalization method, cost method etc. etc. In the present case the Assessing Officer while passing the original assessment had applied the land and building method for determining the value of the property in question, which is one of the accepted and well recognized mode of valuation. Merely because by applying another mode of valuation, the value would be a little higher which would not clothe the Wealth Tax Officer with the jurisdiction to proceed under Section 17 of the Act, specifically when no specific mode for valuation of the assets used for commercial purpose has been prescribed by Section 7 of the Act or the rules framed therein. Thus, initiating the proceedings under Section 17 of the Act on the ground that the valuation ought to have been done on the basis of rent capitalization method is a case of change of opinion and falls out side the purview of Section 17 of the Act. The reassessments have rightly been annulled by the Tribunal.
In view of the foregoing discussions, we answer both the questions referred to us in the affirmative i.e. in favour of the assessee and against the Revenue. There shall be no order as to costs.
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