Supreme Court of India
AMRIT BANASPATI CO. LTD.versusCOMMISSIONER OF WEALTH-TAX, GHAZIABAD
- Citation
- 2014 INSC 978
- Decided
- 30 June 2014
- Disposal
- Dismissed
- Bench
- S MUKHOPADHAYA
Holding
An Assessing Officer may, when it is not practicable to apply Rule 3, validly invoke Rule 8(a) and determine the asset’s value under Rule 20 or refer it to a Valuation Officer, provided the discretion is exercised reasonably and is open to judicial review.
Summary
The appellant, Amrit Banaspati Co. Ltd., owned a residential flat in Mumbai and declared its value under self‑assessment rules (Rule 3‑7) of Schedule III of the Wealth Tax Act, 1957. The Assessing Officer (AO) found a large disparity between the declared value and the market value estimated by the Departmental Valuation Officer under Rule 20, and held that applying Rule 3 was not practicable, invoking Rule 8(a) to refer the matter to a Valuation Officer under Section 16A. The Commissioner of Wealth Tax, the Wealth‑Tax Tribunal and the Allahabad High Court upheld the AO’s decision and the assessed wealth tax. On appeal, the Supreme Court examined whether the AO’s discretion to deem Rule 3 impracticable and to use Rule 8 was valid and subject to judicial review. The Court held that the term “practicable” must be given a wide construction and that the AO’s discretion, exercised reasonably, is permissible and reviewable only on the basis of reasonableness. Consequently, the Court found the AO’s action justified and dismissed the appeal.
Issues considered
- The scope and meaning of ‘practicable’ under Rule 8(a) of Schedule III of the Wealth Tax Act, 1957.
- Whether an Assessing Officer can discard the self‑assessment value under Rules 3‑7 and invoke Rule 8(a) to determine value under Rule 20 or refer to a Valuation Officer under Section 16A.
- Whether the discretion exercised by the AO is subject to judicial scrutiny and what standard of review applies.
Legislation cited
- Direct Tax Laws (Amendment) Act, 1989
- Wealth Tax Act, 1957s. Section 16A, s. Section 7
- Wealth Tax Rules, 1957s. Rule 20, s. Rule 3, s. Rule 4, s. Rule 5, s. Rule 6, s. Rule 7, s. Rule 8
Subjects
wealth taxvaluation of immovable propertyRule 3Rule 8practicablediscretion of assessing officerjudicial reviewSection 16ARule 20
Judgment
[2014] 8 S.C.R. 46
A AMRIT BANASPATI CO. LTD.
v.
COMMISSIONER OF WEALTH-TAX, GHAZIABAD
(Civil Appeal No. 938 of 2003)
JUNE 30, 2014
B
[SUDHANSU JYOTI MUKHOPADHAYA AND
KURIAN JOSEPH, JJ.]
Wealth Tax Act, 1957 - Schedule Ill, Rules 8, 20, 3 to 7
C - Valuation of residential flat - Wide variation between alleged
market value as determined by the Departmental Valuation
Officer ulr 20 and the value as disclosed by the assessee in
the return filed on self assessment as per Rule 3 to 7 -
Assessment Officer holding that due to wide variation, not
D practicable to value property as per Rule 3 to 7, hence r. B(a)
attracted - Said order upheld by Commissioner of Wealth :r:ax,
tribunal as also High Court - On appeal, held: If in the opinion
of AO, the value. determined by tax payer on the basis of Rule
3 to 7 is absurd or has no correlation to the fair market value
E or otherwise not practicable, it is open to AO to -invoke Rule
8 and determine the value of thEJ asset either under Rule 20
or refer under Section 16A, for determination of the valuation
of the asset - Discretion vested in the AO to discard the value
determined as per Rule 3 has to be judicially exercised - It is
F open to judicial scrutiny- On facts, AO justified in holding that
it was not practicable to apply Rule 3 and rightly referred the
matter to the Valuation Officer uls 16A for determination of
value of the a$set and rightly assessed the wealth tax on the
basis of such value.
G Words and Phrases: Word 'Practicable - Construction of,
in the context of Rule 8 of Schedule Ill of the Wealth- Tax Act,
1957 - Held: Is to be construed widely.
Dispute arose with regard to valuation of property,
H 46
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 4 7
TAX, GHAZIABAD
residential flat owned by the appellant-assessee. There A
w.as wide variation betwee'n the value of the flat as
disclosed in the return filed by the assessee on self
assessment as per Rule 3 to 7 of Schedule Ill of the
Wealth Tax Act, 1957; and that determined by the
Departmental Valuation Officer under Rule 20 of B
Schedule Ill of the Wealth Tax Act. The Assessment
Officer held that it was not practicable to value the
property as per Rule 3 to 7, hence, 8(a) was attracted and
referred the matter to the Valuation Officer u/s. 16A for
determination of value of the asset. The Commissioner C
of Wealth Tax upheld the order of the AO. Thereafter, the
tribunal as also the High Court upheld the view taken by
the respondent-Revenue. Hence, the instant appeal.
Dismissing the appeal, the Court
D
HELD: 1.1. Rule 8(a) of the Schedule Ill of Wealth Tax
Act, 1957 carves out an exception to Rule 3 that while the
Assessment Officer (AO), with the previous approval of
the Joint Commissioner is of opinion that it is not
practicable to apply Rule 3 to a particular case, then Rule E
3 shall not be made applicable. In such case, the AO may
invoke Rule 8 and determine the value of an asset in the
manner laid down in Rule 20. As per Rule 20 the value of
any asset shall be estimated to be the price which, in the
opinion of the AO would fetch, if sold in the open market F
on the date of valuation.[Para 16, 17] [60-C; 61-A]
1.2. While Rule 1 BB was omitted by Wealth-tax
(Second Amendment) Rules, 1989 w.e.f. 1.4.1989 but
simultaneously Rule 8 was inserted vide Schedule Ill.
Therefore, it cannot be said that after insertion of G
Schedule Ill to the Act the value on which the wealth tax
is payable has no relevance in determining the fair
market value of the asset or the price which the asset
would fetch if sold in the open market on the valuation
date. [Para 22] [65-G-H] H
48 SUPREME COURT REPORTS [2014] 8 S.C.R.
A 1.3. A conjoint reading of the various provisions
makes it clear that the legislature has not laid down a rigid
directive on the AO that the valuation of an asset is
mandatorily required to be made by applying Rule 3; the
AO has the discretionary power to determine whether
B Rule 3 or Rule 8 is applicable in a particular case. If the
AO is of the opinion that it is not practicable to apply Rule
3, the AO can apply Rule 8 and value of the asset can be
determined in the manner laid down in Rule 2Q or
Sec.16A, the value of such asset shall be estimated tO' be
C the price which, in the opinion of the Valuation Officer,
would fetch if sold in the open market on the date of
valuation. Therefore, the word "practicable" is to be
construed widely. In the instant context if in the opinion
of the AO, if the value determined by the tax payer on the
basis of Rules 3 to 7 is absurd or has no correlation to
0
the fair market value or otherwise not practicable, in such
a case, it is open to the AO to invoke Rule 8 of Schedule
Ill and determine the value of the asset either under Rule
20 or refer under Section 16A, for determination of the
valuation of the asset. The invocation of Rule S(a) cannot
E be based on the AO. The discretion vested in the AO to
discard the value determined as per Rules 3 has to be
judicially exercised. It must be reasonable, based on
subjective sati~faction; the power must be shown to be
objectively exercised and is open to judicial scrutiny.
F [Paras 22, 23, 24, 25] [67-B-D]
Black's Law Dictionary Eighth Edn p 121 O;
Advanced Law Lexicon 3rd Edition 2005 page 3660 -
referred to.
G
2.1. In the instant case, the AO refused to accept self
assessment for the following reasons:that there is a wide
variation between the market value and the valuation
done by the assessee as per municipal taxes; that the
property is used as a guest house; that the value for levy
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 49
TAX, GHAZIABAD
of municipal tax is very low, as the total ratable value of A
the assessee is done by the municipal authorities @
Rs.6,573/- per annum; that the assessee was a tenant of
the property @ Rs.500/- per month; that after purchase
of the property a lot of expenditure was incurred from
time to time on improvement of the property which is B
very difficult to ascertain; that the value of the building
is grossly understated as the assessee himself entered
into an agreement to sell the same in the year 1995 for a
sum of Rs.10,26,00,000/-. Considering the said factors,
the AO assessed the value of the property at c
Rs.2,60,73,000/- as valued by the Departmental Valuation
Officer. [Para 26] [67-E-H; 68-A-B]
2.2. The AO was justifiej in holding that it was not
practicable to apply Rule 3 in the instant case and
referred the matter to the Valuation Officer under Section D
16A for determination of value of the asset. The AO,
thereafter, rightly assessed the wealth tax on the basis
of such value determined by the Valuation Officer. [Para
28] [68-D-E]
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No.938
of 2003
From the Judgment and Order dated 08.03.2002 of the
High Court. of Judicature at Allahabad in WTR No. 374 of 2000.
F
Ajay Vohra, Kavita Jha, Bhargava V. Desai, Shreyas
Mehrotra for the Appellant.
Arijit Prasad, N. Annapoorni, S.A. Haseeb, B. V. Balaram
Das, Anil Katiyar for the Respondent. G
The Judgment of the Court was delivered by
SUDHANSU JYOTI MUKHOPADHAYA, J. : 1. This
appeal is directed against judgment dated 8th March, 2002
H
50 SUPREME COURT REPORTS (2014) 8 S.C.R.
A passed by the High Court of Judicature at Allahabad in Wealth
Tax Appeal No.374 of 2000 filed by the appellant-assessee.
By the impugned judgment, the High Court upheld the order
dated 12th June, 2000 passed by the Income Tax Appellate
Tribunal, New Delhi (hereinafter referred to as the, 'ITAT').
B
2. The dispute relates to wealth-tax return of appallant-
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 is about the valuation of the
C property in question being a residential flat situated in Worli,
Bombay which is 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 Rule 3 to 7 of Schedule Ill of the Wealth-
D 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
E Mumbai and referred the matter to Departmental Valuation
Officer under Rule 20 of Schedule Ill who valued the flat at
Rs.2,60,73,000/-. The AO 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
F the flat was shown at Rs.10,26,000/-. The AO was of the opinion
that due to wide variation between 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 to 7 hence Rule 8(a) is attracted.
G
The A.O. further observed that as the assessee had taken
plea that it was paying rent @ 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 AO to
H
AMRIT 8ANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 51
TAX, GHAZIA8AD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
ascertain the price and, therefore, it would be impracticable A
to apply Rule 3.
3. On appeal, preferred by assessee, the Commissioner
of Wealth-tax (Appeals) dismissed the appeal vide order dated
31st December, 1996. The appellate order was confirmed by
8
ITAT vide order dated 12th June, 2000. 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 ITAT by its order
dated 11th July, 2001. Finally, by the impugned judgment the
High Court also affirmed the view taken by the Revenue. C
4. According to learned counsel for the assessee the
provisions of Rule 3 is applicable on the facts of the case. On
the other hand, according to learned counsel for the revenue it
is not practicable to apply Rule 3 and hence Rule 8 (a) was D
rightly applied by Revenue.
5. In order to appreciate the submission made by the
parties it may be just and necessary to notice the relevant
provisions.
E
6. Section 7 of the Act deals with 'method of determination
of value of assets'. Prior to amendment made by the Direct Tax
Laws (Amendment) Act, 1989 the value of any asset was to
be estimated to be the price which in the opinion of the AO, it
would fetch if sold in the open market on the valuation date. F
The method of determination of value of assets under
Section 7 was amended by the Direct Tax Laws (Amendment)
Act, 1989 w.e.f. 1.4.1989. Schedule Ill was incorporated in the
Act by the said Direct Tax Laws (Amendment) Act, 1989 w.e.f. G
1.4.1989 providing rules for determining the value of assets.
Simultaneously Rule 188 of the Wealth Tax Rules, 1957 was
deleted by the Wealth Tax (Second Amendment) Rules, 1989
w.e.f. 1.4.1989. As the dispute relates to Assessment Year
H
52 SUPREME COURT REPORTS [2014] 8 S.C.R.
A 1993-94, amended Section 7 is applicable in the present case,
which is as follows:
"7. Value of assets how to be determined.-
(1) Subject to the provisions of sub-section (2), the value
B of any asset, other than cash, for the purposes of this Act
shall be its value as on the valuation date determined in
the manner laid down in Schedule Ill.
(2) The value of a house belonging to the assessee and
c 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 value determined in the manner laid down
in Schedule Ill as on the valuation date next following the
D date on which he became the owner of the house or the
valuation date relevant to the assessment year
commencing on the 1st day of April, 1971, whichever
valuation date is later.
Explanation.--For the purposes of this sub-section,-
E
(i) Where the house has been constructed by the assessee,
he shall be d~emed to have become the owner thereof on
the date on which the construction of such house was
completed:
F
(ii) "house" includes a part of a house being an
independent residential unit."-
7. Rules 3 to 8 of the Schedule Ill lay down rules for
valuation of immovable property whether let out or self
G occupied. Rule 3 relates to valuation of immovable property as
under:
"3. Valuation of immovable property.- Subject to the
provisions of rules 4, 5, 6, 7 and 8 for the purposes of sub-
section (1) of section 7, the value of any immovable
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 53
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
property, being a building or land appurtenant thereto, or A
part thereof, shall be the amount arrived at by multiplying
the net maintainable rent by the figure 12.5:
Provided that in relation to any such property which is
constructed on lease hold land, this rule shall have effect 8
as if for the figure 12.5
(a) where the unexpired period of the lease of such land
is fifty years or more, the figure 10.0 had been substituted;
and
c
(b) where the unexpired period of the lease of such land
is less than fifty years, the figure 8.0 had been substituted:
Provided further that where such property is acquired or
construction of which is completed after the 31st day of ·
0
March, 1974, if the value so arrived at is lower than the
cost of acquisffion or the cost of construction, as
increased, in either case, by the cost of any improvement
to the property, the cost of acquisition or, as the case may
be, the cost of construction, as so increased, shall be
taken to be the value of the property under this rule: E
Provided also that the provisions of the second proviso
shall not apply for determining the value of one house
belonging to the assessee, where such house is acquired
or the construction whereof is completed after the 31st day F
of March, 1974, and the house is exclusively used by the
assessee for his own residential purposes throughout the
period of twelve months immediately preceding the
valuation date and the cost of acquisition or, as the case
may be, the cost of construction, as increased, in either G
case, by the cost of any improvement to the house, does
not exceed,--
(a) if the house is situate at Bombay, Calcutta, Delhi or
Madras, fifty lakh rupees;
H
54 SUPREME COURT REPORTS [2014] 8 S.C.R.
A (b) if the house is situate at any other place, twenty-five lakh
rupees:
Provided also that where more than one house belonging
to the assessee is exclusively used by him for residential
purposes, the provisions of the third proviso shall apply
B
only in respect of one of such houses which the assessee
may, at his option, specify in this behalf."
8. Rule 4 deals with computation of net maintainable rent
which is follows:
c
"4. Net maintainable rent how to be computed. -For the
purposes of rule 3, "net maintainable rent" in relation to an
immovable property referred to in that rule, shall be the
amount of gross maintainable rent as reduced by
D (i) the amount of taxes levied by any local authority in
respect of the property; and
(ii) a sum equal to fifteen per cent, of the gross
maintainable rent."
E
9. Rule 5 deals with computation of gross maintainable
rent in the following manner:
"5. Gross maintainable rent how to be computed. -
For the purposes of rule 4, "gross maintainable rent', in
F relation to any immovable property referred to in rule 3,
means--
(i) where the property is let, the amount received or
receivable by the owner as annual rent or the annual value
G assessed by the local authority in whose area the property
is situated for the purposes of levy of property trx or any
other tax on the basis of such assessment, whichever is
higher;
(ii) where the property is not let, the amount of annual rent
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 55
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
assessed by the local authority in whose area the property A
is situated for the purpose of levy of property tax or any
other tax on the basis of such assessment, or, if there is
no such assessment or the property is situated outside the
area of any local authority the amount which the owner can
reasonably be expected to receive as annual rent had such B
property been let.
Explanation. -In this rule;
(1) "annual rent" means, -
c
(a) where the property is let throughout the year ending on
the valuation date (hereinafter referred to as "previous
year"), the actual rent received or receivable by the owner
in respect of such year;
(b) where the property is let for only a part of the previous D
year, the amount which bears the same proportion to the
amount of actual rent received or receivable by the owner
for the period for which the property is let as the period of
twelve months bears to the number of months (including
part of a month) during which the property is let during the E
previous year:
Provided that in the following cases, such actual rent under
·sub-clauses (a) and (b) shall be increased in the manner
specified below: - F
(i) where the property is in the occupation of a tenant and
taxes levied by any local authority in respect of the property
are borne wholly or partly by the tenant, by the amount of
the taxes so borne by the tenant; ·
G
(ii) where the property is in the occupation of a tenant and
expenditure on repairs in respect of the property is borne
by the tenant, by one-ninth of the actual rent;
(iii) where the owner has accepted any amount as deposit H
56 SUPREME COURT REPORTS [2014] 8 S.C.R.
A (not being advance payment towards rent for a period of
three months or less}, by the amount calculated at the rate
of 15 per cent, per annum on the amount of deposit
outstanding from month to month, for the number of months
(excluding part of a month} during which such deposit was
B held by the owner in the previous year, and if the owner is
. liable to pay interest on such deposit, the increase to be
made under this clause shall be limited to the sum by which
the amount calculated as aforesaid exceeds the interest
actually paid;
c (iv) where the owner has received any amount by way of ·
premium or otherwise as consideration for leasing of the
property or any modification of the terms of the lease, by
the amount obtained by dividing the premium or other
amount by the number of year of the period of the lease;
D
(v) where the owner derives any benefit or perquisite
whether cohvertible into money or not, as consideration for
leasing of the property or any modification of the terms of
the lease, Wy the value of such benefit or perquisite;
E
(2) "rent received or receivable" shall include all payments
for the use of the property, by whatever name called, the
value of all benefits or perquisites whether convertible into
money or not, obtained from a tenant or occupier of the
property and any sum paid by a tenant or occupier of the
F property in respect of any oblig~tion which, but for such
payment, would have, been payable by the owner."
10. Adjustments to value arrived at under rule 3 for uhbuilt
area of plot of land to be made as per Rule 6 which reads as
G follows:
"6. Adjustments to value arrived at under rule 3, for unbuilt
area of plot of land. - Where the unbuilt area of the plot of
land on which the property referred to in rule 3 is
constructed exceeds the specified area, the value arrived
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 57
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
· at in accordance with the provisions of rule 3 shall be A
increased by an amount calculated in the following manner,
namely: -
(a) where the difference between the unbuilt area and the
specified are·a exceeds five per cent, but does not exceed 8
ten per cent, of aggregate area, by an amount equal to
twenty per cent, of such value;
(b) where the difference between the unbuilt area and the
specified area exceeds ten per cent, but does not exceed
fifteen per cent, of the aggregate area by an amount equal C
to thirty per cent, of such value;
(c) where ttie difference between the unbuilt area and the
specified area exceeds fifteen per cent, but does not
exceed twenty per cent, of the aggregate area by an . D
amount equal to forty per cent, of such value.
Explanation. -For the purposes of this rule and rule 6;
(a) ''aggregate area", in relation to the plot of land on which
the property is constructed, means the aggregate of the E
area on which the property is constructed and the unbuilt
area;
(b) "specified area", in relation to the plot of land on whic;h
the property is constructed, means
F
(i) where the property is situate at Bombay, Calcutta, Delhi
or Madras, sixty per cent, of the aggregate area;
(ii) where the property is situate at Agra, Ahmedabad,
Allahabad, Amritsar, Bangalore, Bhopal, Cochin, G
Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur,
Lucknow, Ludhiana, Madurai, Nagpur, Patna, Pune,
Salem, Sholapur, Srinagar, Surat, Tiruchirapalli,
Trivandrum, Vadodara (Baroda) or Varanasi (Banaras),
sixty-five per cent, of the aggregate area; and H
58 SUPREME COURT REPORTS [2014] 8 S.C.R ..
- A (iii) where the property is situate at any other place, seventy
per cent, of the aggregate area:
Provided that where, under any law for the time being in
force, the minimum area of the plot of land required to be
kept as open space for the enjoyment of the property
B
exceeds the specified area, such minimum area shall be
deemed to be the specified area;
(c) "unbuilt area", in relation to the aggregate area of the
plot of land on which the property is constructed, means
c that part of such aggregate area on which no building has
been erected."
11. Adjustment for unearned increase in the value of the
land prescribed under Rule 7 as quoted hereunder:
D "7. Adjustment for unearned increase in the value of
the land. -Where the property is constructed 0\1 land
obtained on lease from the Government, a local authority
or any authority referred to in Clause (20A) of section 10
· of the Income-tax Act, and the Government or any such
E authority is, under the terms of the lease, entitled to claim
and recover a specified part of the unearne·d increase in
the value of the land at the time of the transfer of the
property, the value of such property as determined under
rule 3 shall be reduced by the amount so liable to be
F claimed and recovered or by an amount equal to fifty per
cent, of the value of the property as so determined,
whichever is less, as if the properly had been transferred
on the valuation date.
G Explanation.--For the purpose of this rule, "unearned
increase" means the difference between the value of such
land on the valuation dale as determined by the
Government or such authority for the purpose of calculating
such increase and· the amount of the premium paid or
H
-AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 59
TAX, GHAZIABAD [SUOHANSU JYOTI MUKHOPADHAYA, J.]
payable to the Government or such authority for the lease A
of the land."
12. The cases in which Rule 3 is not applicable is shown
in Rule 8 and reads as follows:-
"8. Rule 3 not to apply in certain cases. -Nothing contained 8
in rule 3 shall apply, -
(a) where having regard to the facts and circumstances of
the case, the Assessing Officer, with the previous approval
of the 1[Joint Commissioner], is of opinion that it is not C
practicable to apply the provisions of the said rule to such
a case; or
(b) where the difference between the unbuilt area and the
specified area exceeds twenty per cent, of the aggregate
0
area; or
(c) where the property is constructed on leasehold land and
the lease expires within a period ·not exceeding fifteen
years from the relevant valuation date and the deed of
lease does not give an option to the lessee for the renewal E
of the lease,
and in any case referred to in clause (a) or clause (b) or
clause (c), the value of the property shall be determined
in the manner laid down in rule 20."
F
13. It is submitted on behalf of the appellant that the
purpose of the amendment of Sec.7, if read it can be stated
that the intention of the legislature, behind the amendment of
Section 7(1) and deletion of Rule 1BB was to bring in uniformity
and provide relief to the tax payers by bringing down litigation. G
It nowhere provided that the levy of the wealth tax after the
amendment would be based on a value that does not have any
correlation with the fair market value of an asset.
14. According to learned counsel for the assessee since H
60 SUPREME COURT REPORTS [2014] 8 S.C.R.
A the property in question was acquired prior to 1.4.1974, second
proviso to Rule 3 is not applicable. However, such submission
has been refuted by the learned counsel for the Revenue.
15. As there is a dispute as to whether Rule 3 is applicable
or Rule 8, it is also desirable to notice Rule 20 and Section
8
16A of the Act.
16. Rule 8(a) carves out an exception to Rule 3 that while
the AO, with the previous approval of the Joint Commissioner
is of opinion that it is not practicable to apply Rule 3 to a
C particular case, then Rule 3 shall not be made applicable. In
such case, the AO may invoke Rule 8 and determine the value
of an asset in the manner laid down in Rule 20.
17. Rule 20 deals with valuation of assets in ctr.er cases,
0 as follows:
"20. Valuation of assets in other cases. - (1) The value
of any asset, other than cash, being an asset which is not
covered by rules 3 to 19, for the purposes of this Act, shall
be estimated to be the price which, in the opinion of the
E Assessing Officer, it would fetch if sold in the open market
on the valuation date.
(2) Notwithstanding anything contained in sub-rule (1 ),
where the valuation of any asset referred to in that sub-rule
F referred 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
Valuation Officer, it would fetch if sold in the open market
on the valuation date.
G (3) Where the value of any asset cannot be estimated
under this rule because it is not saleable in the open
market, the value shall be determined in accordance with
such guidelines or principles as may be specified by the
Board from time to time by general or special order."
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 61
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA J.]
As per Rule 20 the value of any asset shall be estimated A
to be the price which, in the opinion of the AO would fetch, if
sold in the open market on the date of valuation.
18. Section 16A is relevant for the purposes of Rule 8, the
said provision is extracted below: 8
"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 C
section 7 read with the rules made under this Act or, as
the case may be, the rules in Schedule Ill, 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- D
(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 34[Assessing] Officer is of opinion that the value so
returned is less than its fair market value; E.
(b) in any other case, if the [Assessing Officer] is of
opinion-
(i) that the fair market value or the asset exceeds the value
of the asset as returned by more than such percentage of F
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.
G
(2) Fort the purpose of estimating the value of any asset
in pursuance of a reference under sub-section(1 ), the
Valuation Officer may serve on the assessee a notice
requiring him to produce or cause to be produced on a date
specified in the notice such accounts, records or otlier H
62 SUPREME COURT REPORTS [2014] 8 S.C.R.
A documents as the Valuation Officer may require.
(3) Where the Valuation Officer is of opinion that the value
of the asset has been correctly declared in the return made
by the assessee under section 14 or section 15, he shall
pass an order in writing to that effect and send a copy of
B
his order to the [Assessing Officer] and. to the assessee.
(4) Where the Valuation Officer is of opinion that the value
of the asset is higher than the value declared in the return
made by the assessee under section 14 or section 15, or
c where the asset is not disclosed or the value of the asset
is not declared in such return or where no such return has
been made, the Valuation Officer shall serve a notice on
the assessee intimating the value which he proposes to
estimate and giving the assessee an opportunity to state,
D on a date to be specified in the notice, his objections
either in person or in writing before the Valuation Officer
and to produce or cause to be produced on that date such
evidence as the assessee may rely in support of his
objections. (5) On the date specified in the notice under
E sub-section (4), or as soon thereafter as may be, after-
hearing such evidence as the assessee may produce and
after considering such evidence as the Valuation Officer
may require on any specified points and after taking into
account all relevant material which he has gathered, the
F Valuation Officer shall, by order in writing, estimate the
value of the asset and send a copy of his order to the
[Assessing Officer] and to the assessee.
(6) On receipt of the order under sub-section (3) or sub-
section (5) from the Valuation Officer, the [Assessing
G Officer] shall, so far as the valuation of the asset in question
is concerned, proceed to complete the assessment in
conformity with the estimate of the Valuation Officer."
19. Rationale behind Schedule Ill of the Act as has been
H explained by the Central Board of Direct Taxes, vide Circular
.. AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 63
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
No.559, dated 4th May, 1990, relevant portion of which reads A
as follows:
"Incorporation of Rules for valuation of Assets in 'the.
Wealth Tax Act-Insertion of Schedule Ill.
B
18.1. Reasons for incorporating rules for valuation of
assets in the Wealth-tax Act. In the past one of the main
areas of litigation under the Wealth-tax Act was the
valuation of assets for the purposes of inclusion in the net
wealth of the assessee. Section 7 of the Wealth-tax Act
laid down the general principle that for purposes of the Act, C
the value of an asset shall be taken to be its market value
on the valuation date, i.e., the price it would fetch if sold in
the open market on the date. Since the concept of "open
market value" led to prolonged litigation on various issues,
an attempt was made to reduce the litigation by D
prescribing rules of valuation in respect of certain assets.
Thus, rules 1B to 1D and 2 to 21 of the Wealth-tax Rules,
1957, provided for determination of the value of life interest,
residential house, unquoted preference shares, unquoted
equity shares of companies other than investment E
companies, interest in partnership or association of
persons, determination of net value of assets of business
as a whole etc. This did not solve the problem to any
appreciable extent, as the determination of the value in
accordance with these rules was often challenged in the F
courts on the ground that such determination did not
correspond to the market value concept envisaged in the
Wealth-tax Act and, therefore, the rules were ultra vires the
main provisions of the Act. Thus, it was held by several
High Courts that the rules are not mandatory. G
Kusumben D Mahadevia v CWT (1980) 124 ITR 799
(Bom) and K.M. Mammen v WTO (1983) 139 ITR 357
(Mad). Such interpretations made the rules for valuation
ineffective.Therefore, in order to eliminate litigation on the
subject and also to make the said rules mandatory so that H
64 SUPREME COURT REPORTS [2014] 8 S.C.R.
A there is certainty and uniformity in the matter of valuation
of assets, the Amending Act, 1989, has incorporated the
rules for valuation in the Wealth-tax Act itself, by inserting
a new Schedule Ill. Rules 18 to 1D and 2 to 21 of the
Wealth-tax Rules, 1957, have been omitted.
B
18.2. It may also be pointed out that the rules for valuation
of assets, as contained in the Wealth-tax Rules, 1957, did
not provide for valuation of certain categories of assets like
commercial house property, quoted equity shares or
preference shares of companies, unquoted equity shares
c of investment companies, jewellery etc. Therefore, draft
rules for valuation of these assets were notified for eliciting
public opinion, as Draft Rules, 1986- Notification
No.149(E), dated March 31, 1986. These Draft Rules also
contained proposals for appropriate amendments in the
D existing rules. After considering the comments and
suggestions in this respect, these Draft Rules, with
necessary modifications, have also been incorporated in
the said Schedule Ill to the Wealth-tax Act.
E 18.3. Thus, the said Schedule 111 to the Wealth-tax Act,
consisting of Parts A to H (Rules 1 to 21 ), provides for the
method of determining the value of each category of
assets. The provisions of these rules are discussed in
detail in the following paras."
F 20. According to counsel for the assessee the wealth tax
is payable on the value of the asset as computed in accordance
with the provisions of Act, i.e. Schedule Ill of the Act, which
provides the basis for computation of the value of the asset.
The value of the asset, on which wealth tax is payable is totally
G disassociated from the fair market value of the asset, i.e., the
value which the asset would fetch if sold in the open market on
the valuation date. It is contended that if the legislatures had
intended wealth tax to be payable on the fair market value of
immovable property, being building or land appurtenant thereto,
H Section 2 (m), Section 7(1) and the rules contained in Schedule
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 65
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.)
Ill to the Act would have specifically provided so. For levy of A
wealth tax, the value of assets exigible to wealth tax is computed
as per relevant rules to Schedule Ill to the Act applicable to such
assets. In other words, the relevant rules in Schedule Ill to the
Act is only the basis for determining the value of asset on which
wealth tax is payable. But we are not inclined to accept the B
aforesaid submission made by the counsel for the assessee.
21. Provision similar to Rule 8(a) of Schedule Ill was
contained in sub Rule 5 of Rule 1 BB as under:
"(5) Nothing contained in this rule shall apply- (i) C
where, having regard to the facts and circumstances of the
case, the Wealth-tax Officer, with the previous approval of
the Inspecting Assistant Commissioner, is of opinion that
it is not practicable to apply the provision of this rule to
such a case; or D
(ii) where the difference between the unbuilt area and the
specified area exceeds twenty per cent of the aggregate
area; or
(iii) where the house is built on leasehold land the lease E
expires within a period not exceeding fifteen years from
the relevant valuation date and the deed of lease does not
give an option to the lessee for the renewal of the lease:
'(c) Provided that in a case referred to in clause (i) or F
clause (ii) or clause (iii) the valuation of the house shall be
made by the Wealth-tax Officer with the prior approval of
the Inspecting Assistant Commissioner."
22. While Rule 1BB was omitted by Wealth-tax (Second
Amendment) Rules, 1989 w.e.f. 1.4.1989 but simultaneously G
Rule 8 was inserted vide Schedule Ill. Therefore, it cannot be
said that after insertion of Schedule Ill to the Act the value on
which the wealth tax is payable has no relevance in determining
the fair market value of the asset or the price which the asset
would fetch if sold in the open market on the valuation date. In H
66 SUPREME COURT REPORTS [2014] 8 S.C.R.
A case, AO is of the opinion that it is not practicable to apply the
provisions of Rule 3, and the said asset is referred to Valuation
Officer under Section 16A for assessment, the value of such
asset shall be estimated to be the price which, in the opinion
of the Valuation Officer, would fetch if sold in the open market
s on the date of valuation .
.
23. A conjoint reading of the various provisions reproduced
above makes it clear that the legislature has not laid down a
rigid directive on the AO that the valuation of an asset is
mandatorily required to be made by applying Rule 3; the AO
C has the discretionary power to determine whether Rule 3 or Rule
8 is applicable in a particular case. If the AO is of the opinion
that it is not practicable to apply Rule 3, the AO can apply Rule
8 and value of the asset can be determined in the manner laid
down in Rule 20 or Sec.16A.
D
24. The word "practicable" is defined in Black's Law
Dictionary Eighth Edition page 1210 as follows:
"Practicable, adj (of a thing) reasonably capable of being
accomplished; feasible."
E
The ordinary meaning of the word "practicable" as defined
in Advanced Law Lexicon: 3rd Edition 2005 page 3660 is:
"The expression "practicable" means possible or feasible
F with due diligence ........... .
Though the word "practicable" has a number of
significances, yet its meaning depends largely on context.
Ordinarily, it means that which may be practiced or
performed; capable of being put into practice, done or
G accomplish. The word "such" appearing in Section 132(3)
refers to the money, bullion etc., mentioned in Section
132(1) (c). Therefore, it is only when the nature or location
of the particular asset found on a search does not allow,
or the circumstances of a given case do not permit, the
H
AMRIT BANASPATI CO. LTD. v. COMMISSIONER OF WEALTH 67
TAX, GHAZIABAD [SUDHANSU JYOTI MUKHOPADHAYA, J.]
immediate seizure of the same, that the provisions of A
Section 132(3) may be resorted to ..... "
Therefore, the word "practicable" is to be construed widely.
In the present context if in the opinion of the AO, if the value
determined by the tax payer on the basis of Rules 3 to 7 is
B
absurd or has no correlation to the fair market value or
otherwise not practicable, in such a case, it is open to the AO
to invoke Rule 8 of Schedule Ill and determine the value of the
asset either under Rule 20 or refer under Section 16A, for
determination of the valuation of the asset.
c
25. It is true that the invocation of Rule 8(a) cannot based
on ipsi dipsi of the AO. The discretion vested in the AO to
discard the value determined as per Rules 3 has to be judicially
exercised. It must be reasonable, based on subjective
satisfaction; the power must be shown to be objectively D
exercised and is open to judicial scrutiny.
26. In the present case, the AO refused to accept self
assessment for the following reasons:
(i) There is a wide variation between the market value E
and the valuation done by the assessee as per
municipal taxes.
(ii) The property is used as a guest house.
F
(iii) The value for levy of municipal tax is very low, as
the total ratable value of the assessee is done by
the municipal authorities @ Rs.6,573/- per annum.
(iv) The assessee was a tenant of the property @
Rs.500/- per month. Afte·r purchase of the property G
a lot of expenditure was incurred from time to time
on improvement of the property which is very
difficult to ascertain.
(v) The value of the building is grossly understated as H
68 SUPREME COURT REPORTS [2014] 8 S.C.R.
A the assessee himself entered into an agreement to
sell the same in the year 1995 for a sum of
Rs.10,26,00,000/-. .
Considering the above factors, the AO assessed the value
of the property at Rs.2,60, 73,000/- as valued by the
8
Departmental Valuation Offi9er.
27. The CWT held that the refererce made by the AO to
Departmental Valuation Officer was justified. ITAT also justified
the action of the AO and on appeal, the same was affirmed by
C the High Court vide impugned judgment.
28. After careful consideration of the facts and
circumstances of the case and the submission made by the
learned counsel for the parties, we are of the opinion that the
D AO 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 under Section 16A for determination of value
of the asset.
I
The AO, thereafter, has rightly assessed the wealth
tax on the basis of such value determined by the Valuation
E Officer. W,e find no merit in this appeal and the same is,
accordingly, dismissed.
Nidhi Jain Appeal Dismissed
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