Amrit Banaspati Co. Ltd. vs. CIT [2014] 365 ITR 515 (SC)
The dispute before the Supreme Court related to wealthtax return of the appellant-assessee for the assessment year 1993-94. The assessee filed its return of taxable wealth at Rs.1,31,76,000 against which the assessment was completed at net wealth of Rs. 3,90,93,800. The dispute was about the valuation of the property in question being a residential flat situated in Worli, Bombay, which was owned by the assessee and used as a guest house. The immovable property was acquired by the assessee before 1st April, 1974, and the assessee filed return on self-assessment as per rules 3 to 7 of Schedule III to the Wealth-tax Act, 1957 (hereinafter referred to as the “Act”). In the course of assessment proceedings, the Assessing Officer (for short, “AO” ) was of the opinion that the value of the said flat as disclosed in the return (as Rs.1,55,139) did not appear to be in consonance with the market value for a similar size flat in Mumbai and referred the matter to the Departmental Valuation Officer under Rule 20 of Schedule III who valued the flat at Rs. 2,60,73,000. The Assessing Officer also relied upon the agreement to sell of the said flat dated 15th September, 1995, entered by the assessee with its vendor. In the said agreement, the price of the flat was shown at Rs.10,26,000. The Assessing Officer was of the opinion that due to wide variation between the alleged market value as determined by the Departmental Valuation Officer and the value as disclosed by the assessee, it was not practicable to value the property as per rules 3 to7 hence, rule 8(a) was attached.
The Assessing Office further observed that as the assessee had taken plea that it was paying rent at Rs. 500 per month prior to the purchase of the flat and incurred expenditure on the improvement of the said flat, it was difficult for the Assessing Officer to ascertain the price and, therefore, it would be impracticable to apply rule 3.
On appeal, preferred by the assessee, the Commissioner of Wealth-tax (Appeals) dismissed the appeal. The appellate order was confirmed by the Income-tax Appellate Tribunal. Thereafter, the assessee preferred a miscellaneous application u/s. 35 of the Act seeking rectification of mistakes of fact and law apparent from the Tribunal’s order. It was rejected by the Income-tax Appellate Tribunal. Finally, the High Court also affirmed the view taken by the Revenue.
Further on appeal, the Supreme Court, after referring to various provisions held that a conjoint reading of the various provisions makes it clear that the Legislature has not laid down a rigid directive on the Assessing Officer that the valuation of an asset is mandatorily required to be made by applying rule 3; the Assessing Officer has the discretionary power to determine whether rule 3 or rule 8 is applicable in a particular case. If the Assessing Officer is of the opinion that it is not practicable to apply rule 3, the Assessing Officer can apply rule 8 and value of the asset can be determined in the manner laid down in rule 20 or section 16A.
The word ‘practicable’ is to be construed widely. In the present context if in the opinion of the Assessing Officer, if the value determined by the taxpayer on the basis of rules 3 to 7 is absurd or has no correlation to the fair market value or otherwise not practicable, in such a case, it is open to the Assessing Officer to invoke rule 8 of Schedule III and determine the value of the asset either under rule 20 or refer u/s. 16A, for determination of the valuation of the asset.
The Supreme Court held that the invocation of rule 8(a) cannot be based on ipse dixit of the Assessing Officer. The discretion vested in the Assessing Officer to discard the value determined as per rule 3 has to be judicially exercised. It must be reasonable, based on subjective satisfaction; the power must be shown to be objectively exercised and is open to judicial scrutiny.
The Supreme Court observed that in the present case, the Assessing Officer refused to accept self-assessment for the following reasons:
(i) T here was a wide variation between the market value and the valuation done by the assessee as per the municipal taxes.
(ii) T he property was used as a guest house.
(iii) T he value for levy of municipal tax was very low, as the total rateable value of the assessee was done by the municipal authorities at Rs.6,573 per annum.
(iv) T he assessee was a tenant of the property at Rs.500 per month. After purchase of the property a lot of expenditure was incurred from time to time on improvement of the property which was very difficult to ascertain.
(v) T he value of the building was grossly understated as the assessee himself entered into an agreement to sell the same in the year 1995 for a sum of Rs.10,26,000.
Considering the above factors, the Assessing Officer assessed the value of the property at Rs. 2,60,73,000 as valued by the Department Valuation Officer.
The Commissioner of Wealth-tax held that the reference made by the Assessing Officer to the Department Valuation Officer was justified. The Income-tax Appellate Tribunal also justified the action of the Assessing Officer and on appeal, the same was affirmed by the High Court, vide the impugned judgment.
The Supreme Court after careful consideration of the facts and circumstances of the case and the submission made by the learned counsel for the parties, was of the opinion that the Assessing Officer was justified in holding that it was not practicable to apply rule 3 in the instant case and rightly referred the matter to the Valuation Officer u/s. 16A for determination of the value of the asset. The Assessing Officer, thereafter, has rightly assessed the wealth-tax on the basis of such value determined by the Valuation Officer. The Supreme Court did not find any merit in this appeal and the same was accordingly, dismissed.
