Supreme Court of India
BIMAL KISHORE PALIWAL & ORSversusCOMMISSIONER OF WEALTH TAX
- Citation
- 2017 INSC 1041
- Decided
- 13 October 2017
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
Section 7(2)(a) is a discretionary, enabling provision and does not compel the Wealth Tax Officer to adopt the income‑capitalisation method; the officer’s use of the land‑and‑building method via a Section 16A reference is valid.
Summary
The appellants, partners in the firm G.D. & Sons, owned a cinema building (Alpana Cinema) that was assessed for wealth tax. The assessing officer referred the valuation to a Departmental Valuer under Section 16A of the Wealth Tax Act, 1957 and adopted the land‑and‑building (open‑market) method. The ITAT held that the income‑capitalisation method was the proper basis, but the High Court upheld the assessing officer’s approach. The Supreme Court examined whether Section 7(2)(a) of the Wealth Tax Act obliges the officer to use the income‑capitalisation method for a running business and whether, when multiple valuation methods exist, the one favoured by the assessee must be chosen. The Court held that Section 7(2)(a) is an enabling, discretionary provision, not a mandatory rule, and that the officer was correct in using the land‑and‑building method via the Valuer’s report. Consequently, the High Court’s decision was affirmed and the appeals were dismissed.
Issues considered
- Whether Section 7(2)(a) of the Wealth Tax Act, 1957 obliges the Wealth Tax Officer to adopt the income‑capitalisation method for valuation of assets of a running business.
- Whether, when more than one method of valuation is available, the method that favours the assessee must be adopted.
- Whether the assessing officer’s reference to a Departmental Valuer under Section 16A and adoption of the land‑and‑building method was lawful.
Legislation cited
- Wealth Tax Act, 1957s. 16A, s. 7
Subjects
Wealth TaxAsset valuationSection 7Income capitalization methodLand and building methodStatutory interpretationDiscretionary power
Judgment
[2017) 14 S.C.R. 597
BIMAL KISHORE PALIWAL & ORS. A
v.
COMMISSIONER OF WEALTH TAX
(Civil Appeal No.3836 of201 l)
OCTOBER 13, 2017 B
IA. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Wealth Tax Act. 195 7 - ss. 7 and 16-A - Valuation of asset -
Method of valuation - Assessees-appellants were partners in a firm
- One of the assets of the partnership firm was a Cinema building - C
Assessing officer made a reference u/s. J 6A to the Department
Valuation Officer for valuation of Cinema .building - On the basis
thereof. Assessing officer assessed the Cinema building adopting
the land and building method - Appellate Authority affirmed the
assessment made by Assessing Officer - Income Tax Appellate
Tribunal (!TAT) accepted the case of the assesses that the proper · D
basis for valuing the Cinema building .was income capitalization
meth~d - Revenue filed reference application - High Court on
reference answered the questions against .the assessees holding that
Wealth Tax Officer was justified in adopting the land and building
method - Plea of assessees be.fore Supreme Court thats. 7(2)(a) is a E
non obstantc clause prescribing the inco_me capitalization method
for assessing value of the assets of a running business and thus is
to be applied in all cases where assessee is canying 011 a business
- Held: Wealth Tax Officer is not obliged to mandatori/y adopt the
method provided in s. 7(2)(a) ·in all cases where assessee is carrying
011 a business - s. 7(2}(a) is an enabling provision and resort to it is F
discretionary - Such enabling power cannot be held as obligation
· or shackles on the right ofAssessing Officer to adopt an appropriate
method - No error found in the order of Assessing Officer in
adopting the land and building method by making a reference to
Departmental Valuer to value the property on the said method - G
-High Court did not err in interfering with the order of !TAT.
Interpretation of Statutes - Taxing Statutes - Plea of assessees
that !f there are· more than methods of valuation of an asset. .then
the method under which valuation is in favour of assessee must be
adopted - Held: Not tenable - In the instant case. the provision,s of
H
597
598 SUPREME COURT REPORTS [2017] 14 S.C.R.
A s. 7 are neither ambiguous nor lead to two constructions - Wealth
Tax Act, 1957 - s.7.
Dismissing the appeals, the Court
HELD: 1.1 The normal rule for valuing an asset for the
purposes of Wealth Tax Act, 1957 is the estimated price which in
B the opinion of Wealth Tax Officer, the asset would fetch if sold in
the open market. Sub-section (2) begins with 11011 obsta11te clause.
Sub-clause (a) of sub-section (2) provides that-where the assessec
is carrying on a business for which accounts arc maintained by
him regularly, the Wealth Tax Officer may, instead of determining
c separatclv the value of each asset held by the assessce 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. Further sub-section (3) again begins with
11011 obstante clause providing that where the valuation of any asset
D 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. Under Section
16A Wealth Tax Officer can·make a reference to Valuation Officer
for any asset for valuation. [Paras 10-12) [604-E-H)
E l.2 It is true that sub-section (2) of Section 7 begins with
11011 obstlmte 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 asscssce in such business. The language of sub-section (2)
provides overriding power to the Wealth Tax Officer to adopt
F and determine the net value of the business having regard to the
balance-sheet 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
G think it fit to adopt such methodology. The appellants' submission
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 .is not acceptable. [Para 14) [605-G-H; 606-A-B)
Commissioner of Wealth Tax. Calcutta v. Tungahadra
Industries Ltd., Calcutta (1969) 2 SCC 528 : [1970]
H 1 SCR 789 - relied on.
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 599
WEALTH TAX
1.3 0Ycrriding power has ·been provided to override the A
normal method of valuation of property as given by sub-section
· 7(1) to arm the ·Wealth T_ax Officer to adopt the method of
vafoation as given in sub-section (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 B
provided in Section 7(2)(a) in all cases where assessec is carrying
on a business. The language of sub~scction (2)(a) docs not indicate
that the provisions mandate the Wealth Tax Officer to adopt the
method in all' cases of running business . 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 C
business but such 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 was a conscious decision of the Assessing Officer to D
obtain the report from the Departmental Valuer. The said
conscious decision itself contained the decision of Assessing
. Officer not to resort to Section 7(2)(a). The Valuation report of
Departmental Valuer was received which was relied by the
Assessing Officer for assessing the assessee in the relevant year.
No error is found in the order of the Assessing Officer in adopting E
the land and building method by making a reference to
Departmental Valuer to value the property on the said method.
[Paras 15, 23.J (606-C-D; 610-C-F)
1.4 .The appellants has further submitted relying on The
. Commissioner of Income Tax, West Bengttl, Calcutta v. Mis. F
Vegetttbles Products Ltd. that in the event there are more than
one methods of' valuation of an asset of an assessee, the method
under which the valuation fs in favour of asscssec has to be
accepted. The proposition which "'.as laid down by this Court in
that case was that if two reasonable constructions ohaxingstatute
are possible, that construction which favours the assessee must G
be adopted. The said proposition cannot be read to mean that
under two methods of valuation if the value which is favourable
to assessee should be adopted. In the. present case, the provisions
of Section 7 arc· neither ambiguous nor lead to two constructions.
H
600 SUPREME COURT REPORTS [2017] 14 S.C.R.
A The construction of Section 7 is clear. [Paras 28, 29] (612-E;
613-B-C]
The Commissioner of Income Tax. West Bengal. Calcutta
v. Mis. Vegetables Products Ltd. (1973) 1 SCC 442 :
11973) 3 SCR 448 - held inapplicable.
B State of Kera/av. PP. Hassan Koya AIR 1968 SC 1201:
I1968] SCR 459 - distinguished.
Juggi!al K amlapat Bankers and another v. Wealth-Tax
q(Jicer. Special Circle. C-Ward. Kanpur ahd others 1984
(145) JTR 485 - relied on.
C Commissioner of Wealth Tax (Central) Kanpur v. Bankey
Lal and others (Decision dated 21.10.2005 of
Allahabad High Court in Wealth Tax Reference 39 of
1985) - referred to.
Case Law Reference
D [1970) 1 SCR 789 relied on Para 15
[1968] SCR 459 distinguished Para 17
1984 (145) ITR 485 relied on Para 18
. [1973) 3 SCR 448 held inapplicable Para 28
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3836
E of2011.
From the Judgment and Order dated 21.10.2005 passed by the
High Court of Allahabad in Wealth Tax Reference No. 27of1991.
WITH
F C. A. NOS. 3837, 3839, 3838, 3840 and 3841 of2011
Ro hit Amit Sthalckar, Kamlcndra Mishra, Advs. for the Appellants.
Sanjai Kumar Pathak, Ms. Rashmi Malhotr'd, Rupesh Kumar, Ms.
Gargi Khanna. Ms. Anil Katiyar, Advs. for the Respondent.
G The Judgment of the Court was delivered by
ASHOK BHUSHAN, J. 1. All these appeals raising common
questions oflaw have been heard together and are being decided by this
common judgment. The High Court vi de its separate judgments dated
21. 10.2005 decided six Wealth Tax References aggrieved by which. the
H assessees have come up in the appeal. All the assessees are partners in
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 601
WEALTH TAX [ASHOKBHUSHAN, J.J
afirm M/s. G.D. & Sons. One of the assets of the partnership FirJ'n is a A
Cinema building known as "Alpana Cinema" situate at Model Tow11,
New Delhi. The question which was rcfcn-cd to the High Court for
answer relates to the con-ect method of the valuation of the j1~opcrty
that is Alpana Cinema for assessment under Wealth Tax Act: R'cfcrcncc
of facts and proceedings in C.A. N0.3836 of2011 shall be sufficient to B
decide all these appeals. .
2. Mis. G.D. & Sons of which firm the appellants are partners,
purcha~ed land and building in semi-constructed condition on 04.06.1965
for a sum ofRs.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
c
assessment ofWealth Tax ofonc 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 1970-71, 1971-72, 1972-73, D
1973-74 and 1974-75. 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 assessment order was passed by the Wealth Tax Officer
in March, 1983 making assessment for the period from 1970-71 to 1974-
75 ..The assessment was completed as per percentage of the right of E
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 ~ffirmed the assessment F
made by the Assessing Otlicer 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 G
(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 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
H
602 SUPREME COURT REPORTS [2017] 14 S.C.R.
A the one no1111ally 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:
B
''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 W/Jalth Tax Act in
determining the assessee 5· interest in the partnership firm
by adopting the fair market value of the assets in question
c namely. the cinema building on the income mobilization basis
instead of land and building method adopted by Wealth Tax
Officer?
2. {f the answer to the above question is in the negative r;;nd
against the assessee then what ought to he the correct fair
D market value of assets in question?"
4. The High Court vi de its judgment and order dated 21. l 0.2005
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
.E 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 .~9 of 1985, Commissioner of Wealth Tax (Central)
Kanpur vs. Bankey Lal and others decided on the same day, i.e.,
21.l 0.2005. The assessee aggrieved by the judgment of the High Court
F 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
G Section 7(2)(a) of the Wealth Tax Act begins with non ohstante clause
which is 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
H
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 603
WEALTH TAX [ASHOK BHUSHAN, J.]
the order of the Tribunal. Each case is to be decide·d on its own facts A
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 arc more than one method of valuing the
·property, the valuation which is in favour ofthc asscssce has to be adopted B
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
property. He submits that the provision of Section 7( I)(a) is an enabling C
provision which gives discretion to the Wealth Tax Officer to apply the
income capitalisation method in ca5e of running business, ifhe 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 asscssec which
without being any encumbrances could have easily obtained the best D
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 counselfor 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 faH E
for consideration in the present case. Section 7 of the Wealth Tax Act,
1957 as it stood at the relevant time reads as follows:
''7(J)Su~ject to any rules made in this beha?f. 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 F
the H'ealth Tax Officer it wouldfelch !f sold in the open
market on the valuation dated.
(2) Notwithstanding anything contained in sub-section(l)-
(a) Where the assessee is carrying oil a business for which
G
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 .
H
604 SUPREME COURT REPORTS [2017] 14 S.C.R·.
A as on the valuation date and making such adjustment
therein as may be prescribed. 1
(b) Where the assessee carrying on the ku~iness is. a company
not restdent in India and a computation in accordance with
clai1se(a) cannot be made by reasmi°of the absence of any
8 separate balance-sheet 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 aforesaid as
the income arising from the business in India during the
c year ending with the valuatiOn date bears to the aggregate
income fimn the business wherever arising during that yea1:
(3) Notwithstanding anything contained in sub-Section(I).
where the valuation of any asset is referred by the Wealth
Tax Officer to the Valuation Officer under Section 16-A,
D 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. "
l 0. 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,
·E the asset would fetch if sold in the open market. Sub-section (2) begins
. with non obstante clause. Sub-clause (a) of sub-section (2) provides
that where the assessce is carrying on a business for which accounts
are maintained by him regularly, the Wealth Tax Officer may, instead of
detennining separately the value of each asset held by the assessee in
F such business, detennine 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.
l I. Further sub-section (3) again begins with non obstante clause
providing that where the valuation of any asset is referred under Section
G l 6A, 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 t6A Wealth Tax Officer can make a reference
to Valuation Officer for any asset for valuation. Section l 6A sub-clause
(I) is as follows:
H
"
• BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 605
WEALTH TAX [ASHOK BHlJSHAN, J.]
"16A Reference to Valuation Officer. A
(l)'For the purpose of making an assessment (including an
assessment in respect of any assessment year commencing·
before the date of coining iilto 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 B
rules made in Schedule Ill, the market value of any a5set is
to be taken into account in such assessment. the Assessing
Officer mcry refer the valuation of any asset to a Valuation
Officer-:-
(a) in a case where the value of the asset as returned is in C
a1;corda11ce with the estimate lnade 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 D
<?f 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 circtimstances, it is necessary so to do." E
13.Prcscnt is a case where Assessing Officer has made a
' reference for Alpana Cinema on 29 .04.1976. It has also coine on the
· record that the order of reference to the Valuation Ofticer was challenged ·
· by the assesscc by filing: a \\.Tit petition in Delhi High Court. The Appellate
Authority in its order had noted about the challenge to the reference F
.made to the Valuation Ofticcr 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 sub-section (2) of Section 7 begins with non
ohstante clause which enables the Wealth Tax Ofticer to determine the G
.'net value of the assets of the business as a whole instead of determining
separately the value of each asset held by the asscssce in such business.
The language of sub-section (2) provides overriding power to the Wealth
.Tax Officer to adopt and detcm1ine the net value of the business having
regard to the balance-sheet of such business. The enabling power has
H
606 SUPREME COURT REPORTS [2017] 14 S.C.R.
A been given to Wealth Tax Offieer'to ovenide 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
B cases where asscssce is canying on a business. We do not agree with
·the above submission.
15. Overriding power has been provided to ovenide the normal
method of valuation of property as given by sub-section 7(1) to arm the
Wealth Tax Officer to adopt the method of valuation as given in sub-
section (2)(a). The purpose and object of giving oveniding power is not
c 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 canying on a business. The language of sub-section
(2)(a) does not indicate that the provisions mandate the Wealth Tax
Officer to adopt the method in all cases ofrunning business. Section 7 of
D 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
Wea/tit Tax, Calcutta vs. T1111gabadra btdustries Ltd., Calcutta, 1969
(2) SCC528, this Court had occasion to consider Section 7 of the Act.
In the aforesaid ca~e the following question came for consideration before
the Court:
E
"Whether on the facts and in the circumstances of the
case. for the pwpose of determining the net value of the
assets of the assessee under Section 7(2) of the Wealth-tax
Act. 195 7 the Tribunal was right in directing that the written
down value of the fixed assets of the assessee should he
F adopted as the value thereof. instead of their balance-sheet
value?"
16. In paragraph 5 while considering Section 7 following was
observed:
G "5 ...... ln our opinion there is justification for this
argumelll. Under suh-section(l) of Section 7 of the Act the
Wealth-tax Officer is authorised 10 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 ojien he
H inconvenient and may not yield a true estimate of rhe net
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 607
WEALTH TAX [ASHOK BHUSHAN, J.]
value of' the total assets of the business. The Legislature has. A
therefo1·e. provided in sub-section(2)(a) that where the
assessee is carrying on a business for which accounts are
maintained by him regularZv. the Wealth-tax Officer may
determine the net value of the assets of the business as a
whole. having regard to the bala1'f'r:e-sheet of such business
B
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 Kera/a 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
c
paragraphs 6 and 7:
"6...... An instance of a sale which is pi·oximate in time
to the date of the notification under Section 4(1) of the Land
Acquisition Act in re5pect of land similarly situate and with
similar advantages and which is proved to be a transaction D
between a willing vendor and a willing purchaser vFozildfonn
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 varie_ty of circumstances including ihe nature E
of the construction. its age situation. the amenities available.
its special advantages and a host of other circumstances.
When the proper~y sold is land with building. it is often
d![ficult to secure reliable evidence of instances of sale of
similar land~ with buildings proximate in· time to the date of
·the notification under Section 4. Therefore the method which F
is gc11eral~v resorted to in dete1mining 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. G
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 H
608 · SUPREME COURT REPORTS [2017] 14 S.C.R.
A annual rental, having regard to the rate of return of 13 112
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
B valuing the building property on the basis of rent capitalisation is no doubt
provided in various statutes especially in the cases ofrent 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
C and another vs. Wealth-Tax Officer, Special Circle.• C-Ward, Kanpur
and others, 1984 (145) JTR 485. In the above, case this Court had
occasion to consider and inte1vret 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
D Departmental Valuer for valuing the property. Two of the submissions
which were made before the High Court as quoted in the judgment arc
as below:
"...... (3)the interest of appellant No.2 in appellant No.I-firm
had to be valued in accordance with r.2 of the W.T.Rules,
E 1957. and hence s. J6A of the Act had no application; (4)
the valuation of the concerned buildings forming part of
the assets of the business of appellant No.I-firm 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 ....... "
F 20. The High Court considered the submissions of the parties and
by rejecting the above two submissions held following:
"....... T¥ith regard to the third andfourth contentions the High
Court held that r.2. s. 7 ands. J6A(l)(b}(ii) had to be read
harmoniously and 1:2 did 11ot exclude the application of ss. 7
G a11d J6A 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 TITO had the power to refer rnch valuation
H to the Valuation Officer under s. l 6A ...... "
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 609
WEALTH TAX [ASHOK BHUSHAN, J.]
21. Before this Court the appellants had raised two submissions. A
The second submission as noticed by this Court itself at page 490 of the
judgment is as follows:
" ...... Secondly. counsel has urged that a~·suming that
appellant No.2 .~ interest(as a karta of his HUF) in appellant
No.I ~'.firm is exigible to the wealth-tax under the Act. the B
valuation of such interest being governed by s. 7(2)(a) of
the Act read with 1:2A of the Wealth-tax 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 ·c
valuation of the assets of the partnership business of
· appellant No.I as a whole having regard to its halance-
sheets for the conceri1ed years ought to have been
undertaken by the WTO and as such the book values of the
house prope1·ties as appearing in the balance·sheets ought
to have been accepted hy him and. therefore, the reference D
made by the WTO to Valuation Officers as well as the notices
issued hy the latter. heiilg incompetent and unjustified in
latt; 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 rejei:ted. ..... "
. . E
22. This Court after considering the above submission as well as
provisions of the Act including Section 7 ofWcalth 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 F ·
value of a~sets 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 oi this Acts hall be estimated
to he its n:zarket price on the valuation date. Then comes
suh-s.(2) which provides that in the case of a business for
·. which accounis are maintained by the assessee regularly the G
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 011 the·
valuation date and making such aqjustment therein as 1iiay H
610 SUPREME COURT REPORTS (2017] 14S.C.R.
A he prescribed. It is -true that suh-s.(2) commences with a non
ohstante clause. hut even so. the provision itself is an enabling
one conferring discretion on the WTO to determine the net
value of the assets of the husiness as a whole having regard
lo its halance sheets as on the valuation date. instead of
proceeding under suh-s.(l). Jn other words. it is optional
B
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 he 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
c 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
D 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 ofAssessing Officer not to resort to
Section 7(2)(a). The Valuation report of Departmental Valuer has been
E
received which has been relied by the Assessing Officer for assessing
the assessee in the relevant year. We, thus, do not find ,, any en-or 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
F 17 of the judgment the objection of asscsscc against the land and building
method and repelled the same by the following reasons:
"17. i) The other objection which has he en vehemently
stressed is against the valuation of Alpana Theatre by
applying land and building method. In this connection. it
G may not he an unwarranted repetition to state that Alpana
Cinema was purchased by the firm MIS GD. & Sons in semi
finished condition from Mis Gill and Bros. Asa/ 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
H
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF 611
WEALTH TAX [ASHOK BHUSHAN, J.]
hy the owners without any adverse riders which enjoin a A
property_ ((it is let out. It has thus to he 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 hee11 agitated hy the appellant that B
the land over which the Cinema building is situated could
not he used for any purpose other than as Cinema Building.
hence it was 11ot proper for the Valuation Officer to consider
it as a11 open piece of land and value it likewise. This
objection if of no avail because the appella11t .~ claim beaten
from the very reasoning he has given. To make the matter C
more than elem; it may he remarked that it is a privilege to
get a licence for film exhibition on an urban land. Such land
use i~ on(J! conducive to raise the value and odes not in any
way depreciate its value as has been wrongly assumed hy
the appell~nt. "
D
24. Learned counsel for the appellants submits that reasons given
by !TAT 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 uscablc only as Cinema building
then its method of valuation has to be.necessarily different rromthe one E
normally adopted in the ease of buildings which are capable of being
used for other commercial pu11wscs. The mere fact that the building is
only for the use of Cinema exhibition docs 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 oy the F
Appellate Authority that it has not been further challenged that the building
was self-occupied and in possession of asscssce with no encumbrances.
25. lt 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 G
building method. One of the reasons given by the High Court is that if
there is Joss 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.
H
-
612 SUPREME COURT REPORTS [2017] 14 S.C.R.
A 26. It is relevant to point out that the Appellate Authority in its
judgment has observed that there was loss shown by asscsscc himself
in the year 1969-70. In paragraph 17 sub-paragraph (iv) following has
been observed by the Appellate Authority:
"iv) .... Even in the case of the appellant there is a returned
B loss of Rs.1.16.8451- in the.first assessmei1t year i.e. 1969-
70. 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
c 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.
D
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 assessec, 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
E vs. Mis. 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 011 Section 271 (l)(a)(i)
by the parties would lead to some inconvenient result. but
F 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 he taken into account
· in interpreting a provision. It is for the Legislature to step in
G 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
H
BIMAL KISHORE PALIWAL & ORS. v. COMMISSIONER OF· 6I3
WEALTH TAX [ASHOK BHUSHAN, J.]
language employed in Section 27/(l)(a)(i). If we.find that A.
·1a11guage 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 o.f'penalty. ··
29. The proposition which was laid down bY. this Court was that if B
two reasonable constructions of taxing statute are possible, that
construction which favours the assesscc must be adopted. The above
proposition cannot be read to mean that under two methods of valuation
if the value-which is favourable to assesscc should be adopted. Herc in
.. the present case,.the provisions ofSei::tion 7 arc neither ambiguous nor
lead to two constructions. The construction of Section 7 is clear as has C
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 D
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 ofITAT. E
31. In view of the foregoing discussions all the appeals are
dismissed.
Divya Pandey Appeals dismiss.ed.
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