Bimal Kishore Paliwal . vs Commissioner Of Wealth Tax

VERSUS 2

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3841 OF 2011

SHYAMLAL(D) BY LRS. ... APPELLANT

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT

J U D G M E N T

ASHOK BHUSHAN, J.

All these appeals raising common questions of law

have been heard together and are being decided by

this common judgment. The High Court vide its

separate judgments dated 21.10.2005 decided six

Wealth Tax References aggrieved by which, the

assessees have come up in the appeal. All the

assessees are partners in a firm M/s. G.D. & Sons.

One of the assets of the partnership Firm is a Cinema

building known as “Alpana Cinema” situate at Model

Town, New Delhi. The question which was referred to

the High Court for answer relates to the correct

method of the valuation of the property that is 3

Alpana Cinema for assessment under Wealth Tax Act.

Reference of facts and proceedings in C.A. NO.3836 of

2011 shall be sufficient to decide all these appeals.

2. M/s. G.D. & Sons of which firm the appellants are

partners, purchased land and building in semi­

constructed condition on 04.06.1965 for a sum of

Rs.8,00,000/­. The construction was completed and

Cinema Theatre, Alpana started running in the

premises. The Alpana Cinema property was valued by

assessment books of accounts. On pending assessment

of Wealth Tax of one of the partners, the Wealth Tax

Officer made a reference for valuation of the Alpana

Cinema to Department Valuation Officer, New Delhi by

Reference dated 29.04.1976. Valuation Officer after

inspecting the site submitted its report dated

26.04.1977 valuing the property for assessment year

1970­71, 1971­72, 1972­73, 1973­74 and 1974­75.

Notices under Section 17 of the Wealth Tax Act, 1957

were issued to the appellants on 30.03.1979.

Assessees got the property valued by an approved

Valuer adopting income capitalisation method. The 4

assessment order was passed by the Wealth Tax

Officer in March, 1983 making assessment for the

period from 1970­71 to 1974­75. The assessment was

completed as per percentage of the right of different

assessees which they have in the Firm. The Assessing

Officer relied on the Valuation Report submitted by

the Departmental Valuer. The assessee aggrieved by

the assessment order filed appeal before the

Appellate Assistant Commissioner of Wealth Tax. The

Appellate Authority by its detailed order dated

23.01.1986 affirmed the assessment made by the

Assessing Officer on the basis of valuation by land

and building method. The income capitalisation method

as was relied on by the assessee was not approved.

3. The aggrieved by the different assessment orders

the assessees filed Wealth Tax Appeal before the

Income Tax Appellate Tribunal (ITAT), Delhi Bench,

Delhi. The ITAT accepted the case of the assessee to

the effect that the proper basis for valuing the

Cinema building would be capitalisation of the

income. The ITAT held that since the building could 5

be used only for film exhibition and it cannot be

used for any other purpose the method of its

valuation has to be necessarily different from the

one normally adopted in the case of buildings which

are capable of being used as commercial buildings.

The Revenue aggrieved by the Tribunal's order filed

reference application through Department. Although,

initially the same was rejected by the Tribunal, on

the direction of the High Court following two

questions were referred to the High Court for

decision:

”1. Whether on the facts and in the circumstances of the case the Income­ tax Appellate Tribunal was right in law for the purpose of Section 7(1) of the Wealth Tax Act in determining the assessee’s interest in the partnership firm by adopting the fair market value of the assets in question namely, the cinema building on the income mobilization basis instead of land and building method adopted by Wealth Tax Officer?

2. If the answer to the above question is in the negative and against the assessee then what ought to be the correct fair market value of assets in question?” 6

4. The High Court vide its judgment and order dated

21.10.2005 answered the questions in favour of

Revenue and against the assessee. The High Court held

that Wealth Tax Officer was justified in adopting

the land and building method. The High Court held

that yield/rent capitalisation method would not be

correct method of valuation of the property in

question. The High Court relied on its decision in

Wealth Tax Reference 39 of 1985, Commissioner of

Wealth Tax (Central) Kanpur vs. Bankey Lal and others

decided on the same day, i.e., 21.10.2005. The

assessee aggrieved by the judgment of the High Court

dated 21.10.2005 has come up in the appeal. As noted

above, in all Wealth Tax References question was

answered in favour of the Revenue.

5. We have heard Shri Rohit Amit Sthalekar, learned

counsel for the appellants and learned counsel for

the Department.

6. Shri Sthalekar, learned counsel for the

appellants submits that Section 7(2)(a) of the Wealth

Tax Act begins with non obstante clause which is 7

stand alone provision prescribing the income

capitalisation method for assessing value of the

assets of a running business which was applied by the

ITAT. He further submits that the High Court did not

controvert findings of the fact returned by the

Tribunal. The Tribunal being final fact finding

authority, the High Court ought not to have

interfered with the order of the Tribunal. Each case

is to be decided on its own facts and the valuation

of the property is a question of fact which having

been correctly determined by the ITAT, the High Court

erred in interfering with the said judgment. It is

further submitted by the learned counsel for the

appellant that in case there are more than one method

of valuing the property, the valuation which is in

favour of the assessee has to be adopted which is a

well settled rule of statutory interpretation.

7. Learned counsel for the Department refuting the

submission of the learned counsel for the appellants

contends that Wealth Tax Officer has rightly

followed land and building method for assessing the 8

property. He submits that the provision of Section

7(1)(a) is an enabling provision which gives

discretion to the Wealth Tax Officer to apply the

income capitalisation method in case of running

business, if he so decides. It is submitted that it

is not mandatory for the Wealth Tax Officer to apply

income capitalisation method in all cases. It is

submitted that Cinema building was in the ownership

and possession of the assessee which without being

any encumbrances could have easily obtained the best

price in the open market and in such cases the land

and building method is appropriate method to be

adopted for valuing the property.

8. Learned counsel for the parties have relied on

various judgments which shall be referred while

considering their respective submissions.

9. We need to first notice the provisions of

Section 7 which fall for consideration in the present

case. Section 7 of the Wealth Tax Act, 1957 as it

stood at the relevant time reads as follows: 9

“7(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 Wealth Tax Officer it would fetch if sold in the open market on the valuation dated.

(2) Notwithstanding anything contained in sub­section(1)­

(a) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance­ sheet of such business as on the valuation date and making such adjustment 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 balance­sheet drawn up for the affairs of such business in India the Wealth Tax 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 10

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 sub­Section(1), where the valuation of any asset is referred by the Wealth Tax 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 Valuation Officer, it would fetch if sold in the open market on the valuation date.”

10. The normal rule for valuing an asset for the

purposes of Wealth Tax Act is the estimated price

which in the opinion of Wealth Tax Officer, the

asset would fetch if sold in the open market. Sub­

section (2) begins with non obstante clause. Sub­

clause (a) of sub­section (2) provides that where

the assessee is carrying on a business for which

accounts are maintained by him regularly, the Wealth

Tax Officer may, instead of determining separately

the value of each asset held by the assessee in such 11

business, determine the net value of the assets of

the business as a whole having regard to the balance­

sheet of such business as on the valuation date and

making such adjustment therein as may be prescribed.

11. Further sub­section (3) again begins with non

obstante clause providing that where the valuation of

any asset is referred under Section 16A, the value of

such asset shall be estimated to be the price which,

in the opinion of the Valuation Officer, it would

fetch if sold in the open market.

12. Under Section 16A Wealth Tax Officer can make a

reference to Valuation Officer for any asset for

valuation. Section 16A sub­clause (1) is as follows:

“16A Reference to Valuation Officer.

(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 section 7 read with the rules made under this Act or, as the case may be, the rules made 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 12

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 than its fair market value;

(b) in any other case, if the Assessing Officer is of 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 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.”

13. Present is a case where Assessing Officer has

made a reference for Alpana Cinema on 29.04.1976. It

has also come on the record that the order of

reference to the Valuation Officer was challenged by

the assessee by filing a writ petition in Delhi High

Court. The Appellate Authority in its order had noted

about the challenge to the reference made to the 13

Valuation Officer by the Assessing Officer. There is

nothing on record that the Delhi High Court

interfered with order of Assessing Officer referring

the Departmental Valuer to value the Alpana Cinema.

14. It is true that sub­section (2) of Section 7

begins with non obstante clause which enables the

Wealth Tax Officer to determine the net value of the

assets of the business as a whole instead of

determining separately the value of each asset held

by the assessee in such business. The language of

sub­section (2) provides overriding power to the

Wealth Tax Officer to adopt and determe the net value

of the business having regard to the balance­sheet of

such business. The enabling power has been given to

Wealth Tax Officer to override the normal rule of

valuation of the properties that is the value which

it may fetch in open market, Wealth Tax Officer can

adopt in a case where he may think it fit to adopt

such methodology. The appellants' submission is that

the provision of Section 7(2)(a) is a stand alone

provision and is to be applied in all cases where 14

assessee is carrying on a business. We do not agree

with the above submission.

15. Overriding power has been provided to override

the normal method of valuation of property as given

by sub­section 7(1) to arm the Wealth Tax Officer to

adopt the method of valuation as given in sub­section

(2)(a). The purpose and object of giving overriding

power is not to fetter the discretion. The Wealth Tax

Officer is not obliged to mandatorily adopt the

method provided in Section 7(2)(a) in all cases where

assessee is carrying on a business. The language of

sub­section (2)(a) does not indicate that the

provisions mandate the Wealth Tax Officer to adopt

the method in all cases of running business. Section

7 of the Act has also come for interpretation before

this Court in large number of cases. It is useful to

refer to some of the cases. In Commissioner of Wealth

Tax, Calcutta vs. Tungabadra Industries Ltd.,

Calcutta, 1969 (2) SCC 528, this Court had occasion

to consider Section 7 of the Act. In the aforesaid

case the following question came for consideration 15

before the Court:

“Whether on the facts and in the circumstances of the case, for the purpose of determining the net value of the assets of the assessee under Section 7(2) of the Wealth-tax Act, 1957 the Tribunal was right in directing that the written down value of the fixed assets of the assessee should be adopted as the value thereof, instead of their balance- sheet value?”

16. In paragraph 5 while considering Section 7

following was observed:

“5......In our opinion there is justification for this argument. Under sub-section(1) of Section 7 of the Act the Wealth-tax Officer is authorised to estimate for the purpose of determining the value of any asset, the price which it would fetch, if sold in the open market on the valuation date. But this rule in the case of a running business may often be inconvenient and may not yield a true estimate of the net value of the total assets of the business. The Legislature has, therefore, provided in sub-section(2)

(a) that where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may determine the net value of the assets of the business as a whole, having regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may 16

require......”

17. Learned counsel for the appellants has placed

reliance on State of Kerala vs. P.P. Hassan Koya, AIR

1968 SC 1201. The above case was a case of valuation

of property in reference to Land Acquisition Act,

1894. In the aforesaid case following observation was

made in paragraphs 6 and 7:

“6......An instance of a sale which is proximate in time to the date of the notification under Section 4(1) of the Land Acquisition Act in respect of land similarly situate and with similar advantages and which is proved to be a transaction between a willing vendor and a willing purchaser would form a reliable guide for determining the market value. The value which a willing vendor might reasonably expect to receive from a willing purchaser in respect of a house generally depends upon a variety of circumstances including the nature of the construction, its age situation, the amenities available, its special advantages and a host of other circumstances. When the property sold is land with building, it is often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to the date of the notification under Section 4. Therefore the method which is generally resorted to in determining the value of the land with buildings especially those used for 17

business purposes, is the method of capitalization of return actually received or which might reasonably be received from the land and the buildings.

7. That method was rightly adopted by the trial court and the High Court.

The unit under acquisition is used for business purposes and has a prominent situation in the town of Calicut.

There was clear evidence about the rental of the building, and the trial court proceeded to capitalize the net annual rental, having regard to the rate of return of 13 1/2 per cent from gilt-edged securities, by multiplying it by 35 times. The High Court has slightly reduced the multiple.”

18. The above observation made by the Court was

general observation not in the context of Section 7

of the Act. The method of valuing the building

property on the basis of rent capitalisation is no

doubt provided in various statutes especially in the

cases of rent fixation. The above observation does

not help the appellants in the present case.

19. More appropriate judgment of this Court which is

on the facts of the present case is the judgment in

Juggilal Kamlapat Bankers and another vs. Wealth­Tax

Officer, Special Circle, C­Ward, Kanpur and others,

1984 (145) ITR 485. In the above, case this Court had 18

occasion to consider and interpret the provisions of

Section 7. The Wealth Tax Officer had made a

reference to Valuation Officer for valuing certain

buildings belonging to the appellant Firm. The

appellant by means of writ petition challenged the

reference made by the Assessing Officer to the

Departmental Valuer for valuing the property. Two of

the submissions which were made before the High Court

as quoted in the judgment are as below:

“......(3)the interest of appellant No.2 in appellant No.1­firm had to be valued in accordance with r.2 of the W.T.Rules, 1957, and hence s.16A of the Act had no application; (4) the valuation of the concerned buildings forming part of the assets of the business of appellant No.1­firm had to be determined in accordance with the commercial principles under s.7(2)(a) and not under s.7(1) of the Act, and .......”

20. The High Court considered the submissions

of the parties and by rejecting the above two

submissions held following:

“.......With regard to the third and fourth contentions the High Court held that r.2, s.7 and s.16A(1)(b)

(ii) had to be read harmoniously and 19

r.2 did not exclude the application of ss.7 and 16A for valuing an asset of a partner in a partnership firm and that notwithstanding the non obstante clause contained in s.7(2) it was an enabling provision giving a discretion to the WTO either to value the assets of a business as a whole or valuing each asset thereof separately and in that behalf the WTO had the power to refer such valuation to the Valuation Officer under s.16A......”

21. Before this Court the appellants had raised two submissions. The second submission as noticed by this Court itself at page 490 of the judgment is as follows:

“......Secondly, counsel has urged that assuming that appellant No.2’s interest(as a karta of his HUF) in appellant No.1’s firm is exigible to the wealth­tax under the Act, the valuation of such interest being governed by s.7(2)(a) of the Act read with r.2A of the Wealth­tax Rules, 1957, it is not open to the WTO to refer the valuation of specific house properties belonging to the firm to the Valuation Officers under s.16A of the Act; in fact, according to him, the valuation of the assets of the partnership business of appellant No.1 as a whole having regard to its balance­sheets for the concerned years ought to have been undertaken by the WTO and as such the book values of the house properties as appearing in the balance­sheets ought to have been accepted by him and, 20

therefore, the reference made by the WTO to Valuation Officers as well as the notices issued by the latter, being incompetent and unjustified in law, are liable to be quashed. For the reasons which we shall presently indicate neither of the contentions has any substance and both are liable to be rejected......”

22. This Court after considering the above submission

as well as provisions of the Act including Section 7

of Wealth Tax Act, 1957 laid down following at page

495:

“......On a fair reading of the aforesaid provisions it will appear clear that the primary method of determining the value of assets for the purposes of the Act is the one indicated in s.7(1), inasmuch as it provides that the value of any assets, other than cash, for the purposes of this Act shall be estimated to be its market price on the valuation date. Then comes sub­s. (2) which provides that in the case of a business for which accounts are maintained by the assessee regularly the WTO may, instead of determining separately the valuation of each asset held by the assessee in such business, determine the net value of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustment therein as may be prescribed. It is true that sub­s.(2) 21

commences with a non obstante clause, but even so, the provision itself is an enabling one conferring discretion on the WTO to determine the net value of the assets of the business as a whole having regard to its balance sheets as on the valuation date, instead of proceeding under sub­s. (1). In other words, it is optional for the WTO to resort to either of the methods even in the case where the net value of the business carried on by the assessee is to be determined......”

23. Further it was laid down by this Court that “this

is apart from the position that the resort to Section

7(2) itself is discretionary and optional, the

provision being an enabling one”. This Court thus has

categorically laid down that resort to Section 7(2)

(a) is discretionary and enabling provision to Wealth

Tax Officer to adopt the method as laid down in Section 7(2)(a) for a running business but the above

enabling power cannot be held as obligation or

shackles on right of Assessing Officer to adopt an

appropriate method. In the present case reference was

made to the Departmental Valuer by Assessing Officer

under Section 7(3). Thus there is a conscious 22

decision of the Assessing Officer to obtain the

report from the Departmental Valuer. The above

conscious decision itself contains the decision of

Assessing Officer not to resort to Section 7(2)(a).

The Valuation report of Departmental Valuer has been

received which has been relied by the Assessing

Officer for assessing the assessee in the relevant

year. We, thus, do not find any error in the order of

the Assessing Officer in adopting the land and

building method by making a reference to Departmental

Valuer to value the property on the said method. The

Appellate Authority has considered in paragraph 17 of

the judgment the objection of assessee against the

land and building method and repelled the same by the

following reasons:

"17.i) The other objection which has been vehemently stressed is against the valuation of Alpana Theatre by applying land and building method. In this connection, it may not be an unwarranted repetition to state that Alpana Cinema was purchased by the firm M/S G.D. & Sons in semi finished condition from M/s Gill and Bros. Asaf Ali Road, New Delhi and thereafter it has been 23

uninterruptedly used by the firm for film exhibition. What has, therefore, to be appreciated is that the property in question has been used by the owners without any adverse riders which enjoin a property if it is let out. It has thus to be taken into account that the firm owning this theatre had no encumbrances in case it decided to dispose it off at any moment. This factor is of great consequence while arriving at fair Market value. At one point, it has also been agitated by the appellant that the land over which the Cinema building is situated could not be used for any purpose other than as Cinema Building, hence it was not proper for the Valuation Officer to consider it as an open piece of land and value it likewise. This objection if of no avail because the appellant's claim beaten from the very reasoning he has given. To make the matter more than clear, it may be remarked that it is a privilege to get a licence for film exhibition on an urban land. Such land use is only conducive to raise the value and odes not in any way depreciate its value as has been wrongly assumed by the appellant.”

24. Learned counsel for the appellants submits that

reasons given by ITAT for holding that income

capitalisation method is a more appropriate method

has not been adverted to by the High Court. We have 24

perused the order of the Tribunal. The Tribunal has

observed that once it is accepted that the property

is useable only as Cinema building then its method of

valuation has to be necessarily different from the

one normally adopted in the case of buildings which

are capable of being used for other commercial

purposes. The mere fact that the building is only

for the use of Cinema exhibition does not in any

manner diminish the marketable price. At the relevant

period uses of building as running Cinema were no

less valuable. The finding has been returned by the

Appellate Authority that it has not been further

challenged that the building was self­occupied and in

possession of assessee with no encumbrances.

25. It is true that the High Court in so many words

had not adverted to the reasons given by the ITAT.

However, the High Court has expressed opinion that

Wealth Tax Officer was justified in adopting the land

and building method. One of the reasons given by the

High Court is that if there is loss in the business

or in other words there is negative income, it cannot 25

be possible to say that the property in question has

no marketable value. Learned counsel for the

appellants has submitted that in the relevant year

the income was earned.

26. It is relevant to point out that the Appellate

Authority in its judgment has observed that there was

loss shown by assessee himself in the year 1969­70.

In paragraph 17 sub­paragraph (iv) following has been

observed by the Appellate Authority:

"iv)....Even in the case of the appellant there is a returned loss of Rs.1,16,845/­ in the first assessment year i.e. 1969­70. Thus if income capitalisation method is applied in such cases where the assessee may have unfortunately suffered losses in the initial years, the valuation of an asset will workout to a negative figure.

This will be certainly a situation far from reality and not in any way the intention of the legislature while directing in Section 7 of the W.T. Act for taking the fair market value of an asset.”

27. The above circumstances taken by the High Court

cannot be said to be irrelevant which apprehensions

were duly found proved by the facts as noticed by the

Appellate Authority.

26

28. Learned counsel for the appellants has further

submitted that in the event there are more than one

methods of valuation of an asset of an assessee, the

method under which the valuation is in favour of

assessee has to be accepted. He has relied on the

judgment of this Court in The Commissioner of Income

Tax, West Bengal, Calcutta vs. M/s. Vegetables

Products Ltd., (1973) 1 SCC 442. This Court in

paragraph 6 of the judgment has laid down the

following:

“6. There is no doubt that the acceptance of one or the other interpretation sought to be placed on Section 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. This is a well accepted rule of construction recognised by this Court in several of its decisions. Hence all that we have 27

to see is, what is the true effect of the language employed in Section 271(1)

(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty.”

29. The proposition which was laid down by this Court

was that if two reasonable constructions of taxing

statute are possible, that construction which favours

the assessee must be adopted. The above proposition

cannot be read to mean that under two methods of

valuation if the value which is favourable to

assessee should be adopted. Here in the present case,

the provisions of Section 7 are neither ambiguous nor

lead to two constructions. The construction of

Section 7 is clear as has already been elaborately

considered by this Court in the judgment of this

Court in Juggilal Kamlapat Bankers (supra).

30. The Wealth Tax Officer having referred the

Departmental Valuer to value the property, in

consequent to which reference for valuation report

having already been received on 26.07.1977 which has 28

relied in the assessment. Objections to the valuation

report were considered by the Appellate Authority and

having been rejected, we do not find any fault with

the assessment made by the Wealth Tax Officer. We are

of the view that the High Court did not commit any

error in interfering with the order of ITAT.

31. In view of the foregoing discussions all the

appeals are dismissed.

..........................J. ( A.K. SIKRI )

..........................J. ( ASHOK BHUSHAN ) NEW DELHI, OCTOBER 13, 2017.

29

REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3836 OF 2011

BIMAL KISHORE PALIWAL & ORS. ... APPELLANTS

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3837 OF 2011

RENUKA AGARWAL ... APPELLANT

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3838 OF 2011

MASTER RAHUL ... APPELLANT

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3839 OF 2011

SURENDRA KUMAR ... APPELLANT

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3840 OF 2011

JITENDRA KUMAR(HUF) ... APPELLANT

VERSUS 30

COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3841 OF 2011

SHYAMLAL(D) BY LRS. ... APPELLANT

VERSUS

COMMISSIONER OF WEALTH TAX ... RESPONDENT

J U D G M E N T

ASHOK BHUSHAN, J.

All these appeals raising common questions of law

have been heard together and are being decided by

this common judgment. The High Court vide its

separate judgments dated 21.10.2005 decided six

Wealth Tax References aggrieved by which, the

assessees have come up in the appeal. All the

assessees are partners in a firm M/s. G.D. & Sons.

One of the assets of the partnership Firm is a Cinema

building known as “Alpana Cinema” situate at Model

Town, New Delhi. The question which was referred to

the High Court for answer relates to the correct

method of the valuation of the property that is 31

Alpana Cinema for assessment under Wealth Tax Act.

Reference of facts and proceedings in C.A. NO.3836 of

2011 shall be sufficient to decide all these appeals.

2. M/s. G.D. & Sons of which firm the appellants are

partners, purchased land and building in semi­

constructed condition on 04.06.1965 for a sum of

Rs.8,00,000/­. The construction was completed and

Cinema Theatre, Alpana started running in the

premises. The Alpana Cinema property was valued by

assessment books of accounts. On pending assessment

of Wealth Tax of one of the partners, the Wealth Tax

Officer made a reference for valuation of the Alpana

Cinema to Department Valuation Officer, New Delhi by

Reference dated 29.04.1976. Valuation Officer after

inspecting the site submitted its report dated

26.04.1977 valuing the property for assessment year

1970­71, 1971­72, 1972­73, 1973­74 and 1974­75.

Notices under Section 17 of the Wealth Tax Act, 1957

were issued to the appellants on 30.03.1979.

Assessees got the property valued by an approved

Valuer adopting income capitalisation method. The 32

assessment order was passed by the Wealth Tax

Officer in March, 1983 making assessment for the

period from 1970­71 to 1974­75. The assessment was

completed as per percentage of the right of different

assessees which they have in the Firm. The Assessing

Officer relied on the Valuation Report submitted by

the Departmental Valuer. The assessee aggrieved by

the assessment order filed appeal before the

Appellate Assistant Commissioner of Wealth Tax. The

Appellate Authority by its detailed order dated

23.01.1986 affirmed the assessment made by the

Assessing Officer on the basis of valuation by land

and building method. The income capitalisation method

as was relied on by the assessee was not approved.

3. The aggrieved by the different assessment orders

the assessees filed Wealth Tax Appeal before the

Income Tax Appellate Tribunal (ITAT), Delhi Bench,

Delhi. The ITAT accepted the case of the assessee to

the effect that the proper basis for valuing the

Cinema building would be capitalisation of the

income. The ITAT held that since the building could 33

be used only for film exhibition and it cannot be

used for any other purpose the method of its

valuation has to be necessarily different from the

one normally adopted in the case of buildings which

are capable of being used as commercial buildings.

The Revenue aggrieved by the Tribunal's order filed

reference application through Department. Although,

initially the same was rejected by the Tribunal, on

the direction of the High Court following two

questions were referred to the High Court for

decision:

”1. Whether on the facts and in the circumstances of the case the Income­ tax Appellate Tribunal was right in law for the purpose of Section 7(1) of the Wealth Tax Act in determining the assessee’s interest in the partnership firm by adopting the fair market value of the assets in question namely, the cinema building on the income mobilization basis instead of land and building method adopted by Wealth Tax Officer?

2. If the answer to the above question is in the negative and against the assessee then what ought to be the correct fair market value of assets in question?” 34

4. The High Court vide its judgment and order dated

21.10.2005 answered the questions in favour of

Revenue and against the assessee. The High Court held

that Wealth Tax Officer was justified in adopting

the land and building method. The High Court held

that yield/rent capitalisation method would not be

correct method of valuation of the property in

question. The High Court relied on its decision in

Wealth Tax Reference 39 of 1985, Commissioner of

Wealth Tax (Central) Kanpur vs. Bankey Lal and others

decided on the same day, i.e., 21.10.2005. The

assessee aggrieved by the judgment of the High Court

dated 21.10.2005 has come up in the appeal. As noted

above, in all Wealth Tax References question was

answered in favour of the Revenue.

5. We have heard Shri Rohit Amit Sthalekar, learned

counsel for the appellants and learned counsel for

the Department.

6. Shri Sthalekar, learned counsel for the

appellants submits that Section 7(2)(a) of the Wealth

Tax Act begins with non obstante clause which is 35

stand alone provision prescribing the income

capitalisation method for assessing value of the

assets of a running business which was applied by the

ITAT. He further submits that the High Court did not

controvert findings of the fact returned by the

Tribunal. The Tribunal being final fact finding

authority, the High Court ought not to have

interfered with the order of the Tribunal. Each case

is to be decided on its own facts and the valuation

of the property is a question of fact which having

been correctly determined by the ITAT, the High Court

erred in interfering with the said judgment. It is

further submitted by the learned counsel for the

appellant that in case there are more than one method

of valuing the property, the valuation which is in

favour of the assessee has to be adopted which is a

well settled rule of statutory interpretation.

7. Learned counsel for the Department refuting the

submission of the learned counsel for the appellants

contends that Wealth Tax Officer has rightly

followed land and building method for assessing the 36

property. He submits that the provision of Section

7(1)(a) is an enabling provision which gives

discretion to the Wealth Tax Officer to apply the

income capitalisation method in case of running

business, if he so decides. It is submitted that it

is not mandatory for the Wealth Tax Officer to apply

income capitalisation method in all cases. It is

submitted that Cinema building was in the ownership

and possession of the assessee which without being

any encumbrances could have easily obtained the best

price in the open market and in such cases the land

and building method is appropriate method to be

adopted for valuing the property.

8. Learned counsel for the parties have relied on

various judgments which shall be referred while

considering their respective submissions.

9. We need to first notice the provisions of

Section 7 which fall for consideration in the present

case. Section 7 of the Wealth Tax Act, 1957 as it

stood at the relevant time reads as follows: 37

“7(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 Wealth Tax Officer it would fetch if sold in the open market on the valuation dated.

(2) Notwithstanding anything contained in sub­section(1)­

(c) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance­ sheet of such business as on the valuation date and making such adjustment therein as may be prescribed.

(d) 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 balance­sheet drawn up for the affairs of such business in India the Wealth Tax 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 38

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 sub­Section(1), where the valuation of any asset is referred by the Wealth Tax 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 Valuation Officer, it would fetch if sold in the open market on the valuation date.”

10. The normal rule for valuing an asset for the

purposes of Wealth Tax Act is the estimated price

which in the opinion of Wealth Tax Officer, the

asset would fetch if sold in the open market. Sub­

section (2) begins with non obstante clause. Sub­

clause (a) of sub­section (2) provides that where

the assessee is carrying on a business for which

accounts are maintained by him regularly, the Wealth

Tax Officer may, instead of determining separately

the value of each asset held by the assessee in such 39

business, determine the net value of the assets of

the business as a whole having regard to the balance­

sheet of such business as on the valuation date and

making such adjustment therein as may be prescribed.

11. Further sub­section (3) again begins with non

obstante clause providing that where the valuation of

any asset is referred under Section 16A, the value of

such asset shall be estimated to be the price which,

in the opinion of the Valuation Officer, it would

fetch if sold in the open market.

12. Under Section 16A Wealth Tax Officer can make a

reference to Valuation Officer for any asset for

valuation. Section 16A sub­clause (1) is as follows:

“16A Reference to Valuation Officer.

(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 section 7 read with the rules made under this Act or, as the case may be, the rules made 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 40

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 than its fair market value;

(b) in any other case, if the Assessing Officer is of 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 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.”

13. Present is a case where Assessing Officer has

made a reference for Alpana Cinema on 29.04.1976. It

has also come on the record that the order of

reference to the Valuation Officer was challenged by

the assessee by filing a writ petition in Delhi High

Court. The Appellate Authority in its order had noted

about the challenge to the reference made to the

Valuation Officer by the Assessing Officer. There is

nothing on record that the Delhi High Court

interfered with order of Assessing Officer referring

the Departmental Valuer to value the Alpana Cinema.

14. It is true that sub­section (2) of Section 7

begins with non obstante clause which enables the

Wealth Tax Officer to determine the net value of the

assets of the business as a whole instead of

determining separately the value of each asset held

by the assessee in such business. The language of

sub­section (2) which provides overriding power to the Wealth Tax Officer to adopt and determining the

net value of the business having regard to the

balance­sheet of such business. The enabling power

has been given to Wealth Tax Officer to override the

normal rule of valuation of the properties that is

the value which it may fetch in open market, Wealth

Tax Officer can adopt in a case where he may think it

fit to adopt such methodology. The appellants'

submission is that the provision of Section 7(2)(a)

is a stand alone provision and is to be applied in

all cases where assessee is carrying on a business.

We do not agree with the above submission.

15. Overriding power has been provided to override

the normal method of valuation of property as given

by sub­section 7(1) to arm the Wealth Tax Officer to

adopt the method of valuation as given in sub­section

(2)(a). The purpose and object of giving overriding

power is not to fetter the discretion. The Wealth Tax

Officer is not obliged to mandatorily adopt the

method provided in Section 7(2)(a) in all cases where

assessee is carrying on a business. The language of sub­section (2)(a) does not indicate that the

provisions mandate the Wealth Tax Officer to adopt

the method in all cases of running business. Section

7 of the Act has also come for interpretation before

this Court in large number of cases. It is useful to

refer to some of the cases. In Commissioner of Wealth

Tax, Calcutta vs. Tungabadra Industries Ltd.,

Calcutta, 1969 (2) SCC 528, this Court had occasion

to consider Section 7 of the Act. In the aforesaid

case the following question came for consideration

before the Court:

“Whether on the facts and in the circumstances of the case, for the purpose of determining the net value of the assets of the assessee under Section 7(2) of the Wealth-tax Act, 1957 the Tribunal was right in directing that the written down value of the fixed assets of the assessee should be adopted as the value thereof, instead of their balance- sheet value?”

16. In paragraph 5 while considering Section 7

following was observed:

“5......In our opinion there is justification for this argument. Under sub-section(1) of Section 7 of the Act the Wealth-tax Officer is authorised to estimate for the purpose of determining the value of any asset, the price which it would fetch, if sold in the open market on the valuation date. But this rule in the case of a running business may often be inconvenient and may not yield a true estimate of the net value of the total assets of the business. The Legislature has, therefore, provided in sub-section(2)

(a) that where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may determine the net value of the assets of the business as a whole, having regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may require......”

17. Learned counsel for the appellants has placed

reliance on State of Kerala vs. P.P. Hassan Koya, AIR

1968 SC 1201. The above case was a case of valuation

of property in reference to Land Acquisition Act,

1894. In the aforesaid case following observation was

made in paragraphs 6 and 7:

“6......An instance of a sale which is proximate in time to the date of the notification under Section 4(1) of the Land Acquisition Act in respect of land similarly situate and with similar advantages and which is proved to be a transaction between a willing vendor and a willing purchaser would form a reliable guide for determining the market value. The value which a willing vendor might reasonably expect to receive from a willing purchaser in respect of a house generally depends upon a variety of circumstances including the nature of the construction, its age situation, the amenities available, its special advantages and a host of other circumstances. When the property sold is land with building, it is often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to the date of the notification under Section 4. Therefore the method which is generally resorted to in determining the value of the land with buildings especially those used for business purposes, is the method of capitalization of return actually received or which might reasonably be received from the land and the buildings.

7. That method was rightly adopted by the trial court and the High Court.

The unit under acquisition is used for business purposes and has a prominent situation in the town of Calicut.

There was clear evidence about the rental of the building, and the trial court proceeded to capitalize the net annual rental, having regard to the rate of return of 13 1/2 per cent from gilt-edged securities, by multiplying it by 35 times. The High Court has slightly reduced the multiple.”

18. The above observation made by the Court was

general observation not in the context of Section 7 of the Act. The method of valuing the building

property on the basis of rent capitalisation is no

doubt provided in various statutes especially in the

cases of rent fixation. The above observation does

not help the appellants in the present case.

19. More appropriate judgment of this Court which is

on the facts of the present case is the judgment in

Juggilal Kamlapat Bankers and another vs. Wealth­Tax

Officer, Special Circle, C­Ward, Kanpur and others,

1984 (145) ITR 485. In the above, case this Court had

occasion to consider and interpret the provisions of

Section 7. The Wealth Tax Officer had made a

reference to Valuation Officer for valuing certain

buildings belonging to the appellant Firm. The

appellant by means of writ petition challenged the

reference made by the Assessing Officer to the

Departmental Valuer for valuing the property. Two of

the submissions which were made before the High Court

as quoted in the judgment are as below:

“......(3)the interest of appellant No.2 in appellant No.1­firm had to be valued in accordance with r.2 of the W.T.Rules, 1957, and hence s.16A of the Act had no application; (4) the valuation of the concerned buildings forming part of the assets of the business of appellant No.1­firm had to be determined in accordance with the commercial principles under s.7(2)(a) and not under s.7(1) of the Act, and .......”

20. The High Court considered the submissions

of the parties and by rejecting the above two

submissions held following:

“.......With regard to the third and fourth contentions the High Court held that r.2, s.7 and s.16A(1)(b)

(ii) had to be read harmoniously and r.2 did not exclude the application of ss.7 and 16A for valuing an asset of a partner in a partnership firm and that notwithstanding the non obstante clause contained in s.7(2) it was an enabling provision giving a discretion to the WTO either to value the assets of a business as a whole or valuing each asset thereof separately and in that behalf the WTO had the power to refer such valuation to the Valuation Officer under s.16A......”

21. Before this Court the appellants had raised two submissions. The second submission as noticed by this Court itself at page 490 of the judgment is as follows:

“......Secondly, counsel has urged that assuming that appellant No.2’s interest(as a karta of his HUF) in appellant No.1’s firm is exigible to the wealth­tax under the Act, the valuation of such interest being governed by s.7(2)(a) of the Act read with r.2A of the Wealth­tax Rules, 1957, it is not open to the WTO to refer the valuation of specific house properties belonging to the firm to the Valuation Officers under s.16A of the Act; in fact, according to him, the valuation of the assets of the partnership business of appellant No.1 as a whole having regard to its balance­sheets for the concerned years ought to have been undertaken by the WTO and as such the book values of the house properties as appearing in the balance­sheets ought to have been accepted by him and, therefore, the reference made by the WTO to Valuation Officers as well as the notices issued by the latter, being incompetent and unjustified in law, are liable to be quashed. For the reasons which we shall presently indicate neither of the contentions has any substance and both are liable to be rejected......”

22. This Court after considering the above submission

as well as provisions of the Act including Section 7

of Wealth Tax Act, 1957 laid down following at page

495:

“......On a fair reading of the aforesaid provisions it will appear clear that the primary method of determining the value of assets for the purposes of the Act is the one indicated in s.7(1), inasmuch as it provides that the value of any assets, other than cash, for the purposes of this Act shall be estimated to be its market price on the valuation date. Then comes sub­s. (2) which provides that in the case of a business for which accounts are maintained by the assessee regularly the WTO may, instead of determining separately the valuation of each asset held by the assessee in such business, determine the net value of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustment therein as may be prescribed. It is true that sub­s.(2) commences with a non obstante clause, but even so, the provision itself is an enabling one conferring discretion on the WTO to determine the net value of the assets of the business as a whole having regard to its balance sheets as on the valuation date, instead of proceeding under sub­s. (1). In other words, it is optional for the WTO to resort to either of the methods even in the case where the net value of the business carried on by the assessee is to be determined......”

23. Further it was laid down by this Court that “this

is apart from the position that the resort to Section

7(2) itself is discretionary and optional, the provision being an enabling one”. This Court thus has

categorically laid down that resort to Section 7(2)

(a) is discretionary and enabling provision to Wealth

Tax Officer to adopt the method as laid down in Section 7(2)(a) for a running business but the above

enabling power cannot be held as obligation or

shackles on right of Assessing Officer to adopt an

appropriate method. In the present case reference was

made to the Departmental Valuer by Assessing Officer

under Section 7(3). Thus there is a conscious

decision of the Assessing Officer to obtain the

report from the Departmental Valuer. The above

conscious decision itself contains the decision of

Assessing Officer not to resort to Section 7(2)(a).

The Valuation report of Departmental Valuer has been

received which has been relied by the Assessing

Officer for assessing the assessee in the relevant

year. We, thus, do not find any error in the order of

the Assessing Officer in adopting the land and

building method by making a reference to Departmental

Valuer to value the property on the said method. The Appellate Authority has considered in paragraph 17 of

the judgment the objection of assessee against the

land and building method and repelled the same by the

following reasons:

"17.i) The other objection which has been vehemently stressed is against the valuation of Alpana Theatre by applying land and building method. In this connection, it may not be an unwarranted repetition to state that Alpana Cinema was purchased by the firm M/S G.D. & Sons in semi finished condition from M/s Gill and Bros. Asaf Ali Road, New Delhi and thereafter it has been uninterruptedly used by the firm for film exhibition. What has, therefore, to be appreciated is that the property in question has been used by the owners without any adverse riders which enjoin a property if it is let out. It has thus to be taken into account that the firm owning this theatre had no encumbrances in case it decided to dispose it off at any moment. This factor is of great consequence while arriving at fair Market value. At one point, it has also been agitated by the appellant that the land over which the Cinema building is situated could not be used for any purpose other than as Cinema Building, hence it was not proper for the Valuation Officer to consider it as an open piece of land and value it likewise. This objection if of no avail because the appellant's claim beaten from the very reasoning he has given. To make the matter more than clear, it may be remarked that it is a privilege to get a licence for film exhibition on an urban land. Such land use is only conducive to raise the value and odes not in any way depreciate its value as has been wrongly assumed by the appellant.”

24. Learned counsel for the appellants submits that

reasons given by ITAT for holding that income

capitalisation method is a more appropriate method

has not been adverted to by the High Court. We have

perused the order of the Tribunal. The Tribunal has

observed that once it is accepted that the property

is useable only as Cinema building then its method of

valuation has to be necessarily different from the

one normally adopted in the case of buildings which

are capable of being used for other commercial

purposes. The mere fact that the building is only

for the use of Cinema exhibition does not in any

manner diminish the marketable price. At the relevant

period uses of building as running Cinema were no

less valuable. The finding has been returned by the Appellate Authority that it has not been further

challenged that the building was self­occupied and in

possession of assessee with no encumbrances.

25. It is true that the High Court in so many words

had not adverted to the reasons given by the ITAT.

However, the High Court has expressed opinion that

Wealth Tax Officer was justified in adopting the land

and building method. One of the reasons given by the

High Court is that if there is loss in the business

or in other words there is negative income, it cannot

be possible to say that the property in question has

no marketable value. Learned counsel for the

appellants has submitted that in the relevant year

the income was earned.

26. It is relevant to point out that the Appellate

Authority in its judgment has observed that there was

loss shown by assessee himself in the year 1969­70.

In paragraph 17 sub­paragraph (iv) following has been

observed by the Appellate Authority:

"iv)....Even in the case of the appellant there is a returned loss of Rs.1,16,845/­ in the first assessment year i.e. 1969­70. Thus if income capitalisation method is applied in such cases where the assessee may have unfortunately suffered losses in the initial years, the valuation of an asset will workout to a negative figure.

This will be certainly a situation far from reality and not in any way the intention of the legislature while directing in Section 7 of the W.T. Act for taking the fair market value of an asset.”

27. The above circumstances taken by the High Court

cannot be said to be irrelevant which apprehensions

were duly found proved by the facts as noticed by the

Appellate Authority.

28. Learned counsel for the appellants has further

submitted that in the event there are more than one

methods of valuation of an asset of an assessee, the

method under which the valuation is in favour of

assessee has to be accepted. He has relied on the

judgment of this Court in The Commissioner of Income

Tax, West Bengal, Calcutta vs. M/s. Vegetables

Products Ltd., (1973) 1 SCC 442. This Court in

paragraph 6 of the judgment has laid down the

following:

“6. There is no doubt that the acceptance of one or the other interpretation sought to be placed on Section 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. This is a well accepted rule of construction recognised by this Court in several of its decisions. Hence all that we have to see is, what is the true effect of the language employed in Section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty.”

29. The proposition which was laid down by this Court

was that if two reasonable constructions of taxing

statute are possible, that construction which favours

the assessee must be adopted. The above proposition cannot be read to mean that under two methods of

valuation if the value which is favourable to

assessee should be adopted. Here in the present case,

the provisions of Section 7 are neither unambiguous

nor lead to two constructions. The construction of

Section 7 is clear as has already been elaborately

considered by this Court in the judgment of this

Court in Juggilal Kamlapat Bankers (supra).

30. The Wealth Tax Officer having referred the

Departmental Valuer to value the property, in

consequent to which reference for valuation report

having already been received on 26.07.1977 which has

relied in the assessment. Objections to the valuation

report were considered by the Appellate Authority and

having been rejected, we do not find any fault with

the assessment made by the Wealth Tax Officer. We are

of the view that the High Court did not commit any

error in interfering with the order of ITAT.

31. In view of the foregoing discussions all the

appeals are dismissed.

..........................J. ( A.K. SIKRI )

..........................J. ( ASHOK BHUSHAN ) NEW DELHI, OCTOBER 13, 2017.