SRI S.N. WADIYAR (DEAD) THROUGH LRversusCOMMISSIONER OF WEALTH TAX, KARNATAKA

                   (2015] 9 S.C.R. 1059


         SRI S.N. WADIYAR (DEAD) THROUGH LR                  A
                             v.
     COMMISSIONER OF WEALTH TAX, KARNATAKA
           (Civil Appeal Nos. 6873-~881 of2005)
                                                             B
                  SEPTEMBER 21, 2015
           [A. K. SIKRI AND R. F. NARIMAN, JJ.]
        Wealth Tax Act, 1957: ss. 7, 10 - Valuation of vacant
 land - Proceedings in respect of property in question under c
 the Ceiling Act - Maximum compensation payable to
 assessee in respect of excess land declared under the
 Ceiling Act assessed at Rs.2 lakhs - Whether the value of
 the vacant land, appurtenant to the property, should be taken
 at Rs. 2 lakhs for the purpose of wealth tax assessment as D
 having regard to the provisions of the Urban Land Ceiling
 Act, the maximum amount of compensation payable to the
 assessee is only Rs. 2 lakhs- Held: If the property is covered
 by the Ceiling Act, it would depress the value of the property
 - Thus, value could not be more than Rs. 2 lakhs which was E
 the maximum compensation payable under the Ceiling Act
 for wealth tax assessment for the relevant assessment years
 - Urban Land Ceiling Act, 1962.

       Allowing the appeals, the Court                       F
         HELD: 1. It is clear that the valuation of the asset
. in question has to be in the manner provided under
  Section 7 of the Act. Such a valuation has to be on the
  valuation date which has reference to the last day of the G
  previous year as defined under Section 3 of the Income
  Tax Act if an assessment was to be made under that Act
  for that year. In other words, it is 31st March immediately
  preceding the assessment year. The valuation arrived
  at as on that date of the asset is the valuation on which H
                              1059
1060      SUPREME COURT REPORTS               [2015] 9 S.C.R.

 A wealth tax is assessable. It is clear from the reading of
   Section 7 of the Act that the Assessing Officer has to
   keep hypothetical situation in mind, namely, ifthe asset
   in question is to be sold in the open market, what price it
   would fetch. Assessing Officer has to form an opinion
 B about the estimation of such a price that is likely to be
   received ifthe property were to be sold. There is no actual
   sale and only a hypothetical situation of a sale is to be
   contemplated by the Assessing Officer. Thus, the Tax
   Officer has to form an opinion about the estimated price
 C if the asset were .to be sold in the assumed market and
   the estimated price would be the one which an assumed
   willing purchaser would pay for it. On these reckoning,
   the asset has to be valued in the ordinary way. The High
   Court has accepted, and rightly so, that since the
 0
   Property in question came within the mischief of the
   Ceiling Act it would have depressing effect insofar as
   the price which the assumed willing purchaser would
   pay for such property. [Paras 22, 24 and 25] (1074-C-F;
 E 1075-E-G]
           2. The combined effect of the provisions, in the
   context of instant appeals, is that the vacant land in
   excess of ceiling limit was not acquired by the State
 F Government as notification under Section 10(1) of the
   Ceiling Act had not been issued. However, the process
   had started as the assessee had filed statement in the
   prescribed form as per the provisions of Section 6(1) of
   the Ceiling Act and the Competent Authority had also
 G prepared a draft statement under Section 8 which was
   duly served upon the assessee. Fact remains that so long
   as the Act was operative, by virtue of Section 3 the
   assessee was not entitled to hold any vacant land in
   excess of the ceiling limit. Order was also passed to the
 H effect that the maximum compensation payable was Rs.2
   lakhs. [Para 29] [1081-G-H; 1082-A-B]
 SRI S.N. WADIYAR(DEAD)THROUGH LR v. COMMNR.                    1061
            OF WEALTH TAX, KARNATAKA

       3. The Assessing Officer took into consideration         A
the price which the property would have fetched on the
valuation date, i.e. the market price, as if it was not under
the rigors of Ceiling Act. Such estimation of the price
which the asset would have fetched if sold in the open
market on the valuation date(s), would clearly be wrong         B
even on the analogy/rationale given by the High Court
as it accepted that restrictions and prohibitions under
the Ceiling Act would have depressing effect on the value
of the asset. Therefore, the valuation as done. by the
Assessing Officer could not have been accepted. When            C
the asset is under the clutches of the Ceiling Act and in
respect of the said asset/vacant land, the Competent
Authority under the Ceiling Act had already determined
the maximum compensation of Rs.2 lakhs then such a
                                                                0
property would not fetch more than Rs.2 lakhs as the
assumed buyer knows that the moment this property is
taken over by the Government, he will receive the
compensation of Rs.2 lakhs only. [Paras 30, 31] [1082-
C-D, F-G]                                                       E
       4. When such a presumed buyer is not going to
offer more than Rs.2 lakhs, obvious answer is that the
estimated price which such asset would fetch if sold in
the open market on the valuation date(s) would not be F
more than Rs.2 lakhs. Having said so, one aspect needs
to be pointed out, which was missed by the
Commissioner (Appeals) and the Tribunal as well while
deciding the case in favour of the assessee. The
compensation of Rs.2 lakhs is in respect of only the G
"excess land" which is covered by Sections 3 and 4 of
the Ceiling Act. The total vacant land for the purpose of
Wealth Tax Act is not only excess land but other part of
the land which would have remained with the assessee
in any case. Therefore, the valuation of the excess land, H
which is the subject matter of Ceiling Act, would be Rs.2
1062         SUPREME COURT REPORTS                [2015] 9 S.C.R.


 A     lakhs. To that market value of the remaining land will have
       to be added for the purpose of arriving at the valuation
     · for payment of Wealth Tax. [Para 31] [1082-G-H; 1083-A-
       D]
B           AhmedG H.Ariffv. CommissionerofWealth Tax
            76. ITR 471; Commissioner of Wealth Tax v.
            Prince Muffkham Jah Bahadur Chamlijan 247
            ITR 351 - referred to.

 c                       Case Law Reference
             76 ITR 471           referred to.        Para 22
             247 ITR 351          referred to.        Para 23
         CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
 D 6873-6881 of 2005

             From the Judgment and Order dated 13.06.2005 of the
       High Court of Karnataka in Tax Referred Case No. 124of1998
       C/W TRC Nos. 125 to 132 of 1998

 E                               WITH
            C.A. Nos. 6882 of 2005, 1338 of 2006, 7251 of 2015
       and 7377-7378 of2005

 F            lndu Malhotra, Arvind P. Dattar, S. Annamalai, Vikas
       Mehta, Varun Singh, Rajat Sehgal, Prashant Singh, Apoorva
       Bhumesh, Tanvir Nayar, Esha Mahapatra, Lalita Kaushik for
       the Appellant.

          K. Radhakrishnan, Niranjana Singh, S. A. Haseeb, Anil
 G Katiyar, B.V. Balaram Das for the Respondent.

             The Judgment of the Court was delivered by

         A. K. SIKRI, J. 1. Leave granted in SLP(C) No. 18960
 H of2006.
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                    1063
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

    2. The question of law that falls for determination is        A
common to all these appeals, which is the following:

     Whether, for the purposes of Wealth Tax Act (hereinafter
     referred to as the 'Act'), the market value of the vacant
     land belonglng to the assessee should be taken at the B
     price which is the maximum compensation payable to
     the assessee under the Urban Land Ceiling Act, 1962?

      3. For the purposes of understanding the circumstances
under which this question has arisen, we are taking note of the   c
facts of Civil Appeal Nos. 6873-6881/2005:

      The appellant herein is assessed to wealth ~x under the
Act. The Assessment Years in these appeals are 1977-1978
to 1986-1987. The valuation of the. property which is the subject D
matter of wealth tax under the Act is the urban land appurtenant
to Bangalore Palace (hereinafter referred to as the 'Property').
The total extent of the property is 554 acres or 1837365.36
sq. mtr. It comprises of residential units, non-residential units
and land appurtenant thereto, roads and masonary structures E
along the contour and the vacant land. The vacant land
measures 11,66,377.34 sq. mtr. The aforesaid Property was
the private property of late Sri Jaychamarajendra Wodeyar,
the former ruler of the princely state of Mysore. He died on
23.09.197 4. There were disputes with regard to the wealth tax F
assessments pertaining to the Assessment Years 1967-1968
to 1976-1977. After the death of Sri Jayachamarajendra
Wodeyar, his son Sri Srikantadatta Wodeyar, the assessee
applied to Settlement Commission to get the dispute settled
with regard to valuation of Property and lands appurtenant G
thereto for Assessment Years 1967-1968 to 1976-1977. While
this application was still pending, the Urban Land (Ceiling and
Regulation) Act, 1976 (hereinafter referred to as the 'Ceiling
Act') came into force w.e.f. 17 .02.1976. It was adopted by the
State of Karnataka. The property area is within the Bangalore H
1064         SUPREME COURT REPORTS                 [2015] 9 S.C.R.


 A    Urban Agglomeration, hence fell within the purview of the Act.
      The assesseefiled statement as required under Section 6(1)
      of the Ceiling Act on 10.09.1976. On 16.09.1976, he filed an
      application under Section 20 of the Act for exemption of his
     ·lands under the Ceiling Act to the State Government.
 B
            4. From the aforesaid, it is clear that the Property in
       question, namely, the Bangalore Palace came within the
       purview of the Ceiling Act.

 c         5. The application of the assessee before the Settlement
     Commission for the Assessment Years 1967-1968 to 1976-
     1977 was disposed of on 29.09.1988, laying down norms for
     valuation of the property. The Wealth Tax Officer adopted the
     value as per Settlement Commission for Assessment Years
 o 1976-1977, 1977-1978 and 1978-1979 at Rs.13.18 crores
     (for both land and buildings). For the Assessment Year 1979-
     1980, since there was no report of the Valuation Officer, the
     Commissioner of Appeals worked out the value of the Property
     at Rs.19.96 crores for the Assessment Year 1979-1980, which
 E · was adopted by Wealth Tax Officer for Assessment Year 1980-
     1981 as well. For the Assessment Years 1981-1982, 1982-
     1983 and 1983-1984, the Wealth Tax Officer fixed the value of
     land and building at Rs.18.78 crores, Rs.29.85 crores and
     Rs.29.85 crores respectively. For Assessment Year 1984··
 F 1985, the Wealth Tax Officer took the value at Rs.31.22 crores
     on th~ basis of the order passed by the Commissioner
     (Appeals) for ·earlier years.

         6. On the other hand, in the proceedings under the
 G Ceiling Act, the Competent Authority passed an order
   No.ULC(A){Z) 440/85-86 dated 27.07.1989 determining
   vacant land in excess of the ceiling limits, and ordered action
   be taken to acquire excess land under the Karnataka Town &
   Country Planning Act, 1961. In accordance with Section 30 of
 H the Ceiling Act, the declaration dated back to 17.02.1976 on
  SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                1065
      OF WEALTH TAX, KARNATAKA (A. K. SIKRI, J.]

 which date the Ceiling Act was promulgated in Karriataka. The A
 Bangalore Development Authority prepared a master plan and
 the planning report for development of District No.1 in which
 the property area is included. As per this proposal no part of
 the vacant area could be commercially exploited nor colonised
 for residential purposes. The vacant land area was also not B
 transferable under the Act. Any sale was null and void. As per
 Section 11 (6) of the Urban Land Ceiling Act, the maximum
 compensation that could be received by the assessee was
 Rs.21akhs.
                                                                c
       7. Before any Notification could be issued under Section
 10(1) of the Ceiling Act, the assessee questioned the aforesaid
 order passed by the Competent Authority under Sections 8
 and 9 of the Ceiling Act before the Karnataka Appellate
 Tribunal.                              ·                        D

        8. Simultaneously, the orders of the Wealth Tax Officer
  passed under the Act fixing the value of the land for different
  Assessment Years for the purpose of Act was also challenged
  by the assessee before the Commissioner (Appeals). In these E
  appeals, the contention of the assessee was that the value of
. the property was covered by the CeilingActforwhich maximum
  compensation that could be received by the assessee was
  only Rs.2 lakhs. The appeals filed for the Assessment Years,
  namely, 1980-1981, 1982-1983 and 1983-1984 were F
  disposed off by the Commissioner of Income Tax (Appeals}
  by a common order dated 09.01.1990 in which he made slight
  modifications to value adopted for Assessment Years 1981-
  1982 and confirmed the valuation of Wealth Tax Officer for
  Assessment Years 1982-1983 and 1983-1984. However, in G
  respect of appeals relating to Assessment Years 1977-1978
  to 1980-1981, the Commissioner (Appeals) passed the orders
  dated 31.07.1990 accepting that the urban land appurtenant
  to Property be valued at Rs.2,00,000/-. Similar orders came H
1066      SUPREME COURT REPORTS                  [2015] 9 S.C.R.


 A to be passed by the Commissioner of Income Tax (Appeals)
   for the Assessment Years 1984-1985 and 1985-1986 also.
   Against these orders of Commissioner (Appeals) dated
   09.06.1990, 31.07.1990 and 14.08.1990, both the assessee
   as well as the Revenue/Department went up in appeals before
 B the Income Tax Appellate Tribunal, Bangalore Bench,
   Bangalore. The appeals filed by the assessee and the Revenue
   Department were heard together by the Tribunal.

         9. The issue before the Income Tax Appellate Tribunal
 C was only with regard to valuation of yacant land attached to
   the Property, since the assessee had accepted the valuation
   in regard to residential and non-residential structures within
   the said property area and appurtenant land thereto.

 D        10. The Income TaxAppellate Tribunal, Bangalore passed
   the order dated 02.11.1993 directing the vacant land be valued
   at Rs.2 lakhs for each year from Assessment Years 1977-1978
   to 1985-1986. Its reasoning was that the CompetentAuthority
   under the Ceiling Act had passed an order determining that
 E the vacant land was in excess of the ceiling limit, and had
   ordered that action be taken to acquire the excess land under
   the Kamataka Town and Country Planning Act, 1901. And under
   the Land Ceiling Act, an embargo was placed on the assessee
   to sell the subject land and exercise full rights. The assessee
 F was only eligible to maximum compensation of Rs.2 lakhs
   under the. Ceiling Act. Hence given these facts and
   circumstances the subject land could only be valued at Rs.2
   lakhs for wealth tax purposes on the valuation date for the
   Assessment Years 1977-1978 to 1985-1986.
 G
        11. Against the order of the Tribunal, the Commissioner
   of Wealth Tax sought reference before the Karnataka High
   Court in respect of Assessment Years, namely, 1977-1978 to
   1985-1986 arising out of the consolidated order of the Tribunal
 H in WTA Nos.315 to 317 and 485 to 490/1990 dated
  SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                    1067
      OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

  02.11.1993. The Tribunal made a Statement for reference to       A
  the High Court. The question that was raised for adjudication
· before the High Court was whether on the facts and in the
  circumstances of the case, the Tribunal was right in holding
  thatthe value of the vacant land, appurtenant to the Property,
  should be taken at Rs.2 lakhs for the purpose of wealth tax      B
  assessment for the years in question, as having regard to the
  provisions of the Urban Land Ceiling Act, the maximum amount
  of compensation payable to the assessee is only Rs.2 lakhs.

       12. When the aforesaid reference was pending C
 adjudication by the High Court, certain important developments
 took place in relation to the proceedings under the Ceiling Act.
 The appeal which was filed by the assessee before the
 Karnataka Appellate Tribunal ~gainst the order dated
 27.07.1989 passed by the Competent Authority under the D
 Ceiling Act was dismissed by the Tribunal on 15. 07 .1998. The
 assessee took up the matter further before the High Court in
 the form of a writ petition. In this writ petition, the assessee
 also challenged the constitutional validity of the provisions of
 the Ceil!ng Act and made an interim prayer to the effect that E
 pending disposal of the writ petition notification under Section
 10( 1) of the Ceiling Act be not issued. Fact of the matter is
 that such a Notification was not issued by the Government.
 When this writ petition was still pending, the Ceiling Act was F
 repealed by Legislature with the enactment of the Urban Land
 (Ceiling and Regulation) Repeal Act, 1999(Act15of1999).

       13. The factual position which existed at the time when
 the reference cases were to be decided by the High Court
 under the Act is recapitulated below:                         G

 (i) The Assessment Years in respect of which question was to
 be determined were 1977-1978 to 1986-1987.

 (ii) Ceiling Act had come intoforcew.e.f. 17.02.1976 and was      H
 in operation during the aforesaid Assessment Years.
1068         SUPREME COURT REPORTS                  [2015) 9 S.C.R.


 A (iii) The Competent Authority under the Ceiling Act had passed
   orders to the effect that as per Section 11 (6) of the Ceiling
   Act, the maximum compensation that could be received by
   the assessee was Rs.2 lakhs. In accordance with Section 30
   of the Ceiling Act, the declaration dates back to 17.02.1976
 B on which date the Ceiling Act was promulgated in Karnataka.

   (iv) The order of the Competent Authority was challenged by
   the assessee by filing appeal before the Karnataka Appellate
   Tribunal. This appeal was, however, dismissed on 15.07.1998.
 C Against that order, writ petition was filed wherein provisions of
   the Ceiling Act were also challenged. Because of the pendency
   of these proceedings or due to some other reason, notification
   under Section 10(1) of the Ceiling Act was not passed.

 o (v) In the year 1999, Ceiling Act was repealed. At that stage,
       the writ petition filed by the assessee was still pending. The
       effect of this Repealing Act was that the Property in question
       remained with the assessee and was not taken over by the
       Government.
 E
         14. We may remind ourselves that there 1s no dispute
   with regard to valuation in respect of residential and non-
   residential structures within the said Property and appurtenant
   land thereto. The assessee has paid the wealth tax accepting
 F the valuation. The dispute of valuation has arisen only with
   regard to valuation of the vacant land attached to the Property
   which had come within the mischief of the Ceiling Act.

         15. In the aforesaid factual background, the reference
 G was answered by the High Court vide impugned order dated
   13.06.2005 holding that although the prohibition and restriction
   contained in the Ceiling Act had the effect of decreasing the
   value of the Property still the value of the land cannot be the
   maximum compensation that is payable under the provisions
 H of the Ceiling Act. Thus, the question referred has been
   answered against the assessee.
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                          1069
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

       16. The High Court, in its impugned order, took note of          A
the aforesaid facts and accepted the position that the Property
in question which is within the Bangalore urban agglomeration
was covered by the Ceiling Act and the provisions of the said
Act applied to this Property. It also noted that by virtue of Section
4 of the Repeal Act, all legal proceedings pending under the            B
Ceiling Act immediately before the commencement of the
Repeal Act stood abated except those proceedings which are
relatable to the land possession whereof has been taken over
by the State ·Government or any person authorized by the State
Government or by the CompetentAuthority. Since, in the instant          C
case, admittedly possession had not been taken, which
remained with the assessee for want of notification under
Section 10, the proceedings abated and the said vacant land
remained with the assessee. Thereafter, the High Court took             D
note of certain relevant provisions of the Act and we may also
capture the position contained in those provisions:

      Section 2(e) ·of the Act defines the meaning of the
expression 'asset' to include property of every description, both
movable and immovable, except the few kinds of property E
specified therein for the purpose of ascertaining the net wealth
of an individual.

       Section 2(m) of the Act defines the meaning of the
expression 'net wealth' to mean the amount by which the                 F
aggregate value computed in accordance with the provisions
of this Act of all the assets, wherever located, belonging to the
assessee on the valuation date.

      Section 2(q) of the Act defines 'valuation date' in relation G
to any year for which an assessment is to be made under this
Ar.t, means the last day of the previous year as defined in
Section 3 of the Income Tax Act, if an assessment were to be
made under that Act for that year. ·
                                                                   H
1070         SUPREME COURT REPORTS                     [2015] 9 S.C.R.


 A          Section 3 of the Act is the charging Section which
       imposes a liability to pay wealth tax on the net wealth as on the
       valuation date of every individual and Hindu Undivided Family.

              Section 7 of the Act is a machinery provision and lays
 B     down the method of valuation of an asset for the purpose of
       computation of net wealth of an assessee. Sub-sections (1)
       and (2) provide two methods of valuation of assets. To our
       purpose, provisions of sub-section (1) of Section 7 of the Act
       is relevant and Section 7(1) of the Act prior to its substitution
 C     by the Direct' Laws (Amendment) Act, 1989 w.e.f. 01.04.1989
       was as under:

            "Section 7: Value of assets l:lowto be determined:-
            ( 1) Subject to any rules made in this behalf, the value
 D          of any asset, other than cash, for the purpose of
            this Act, shall be estimated to be the price which in
            the opinion of the Assessing Officer, it would fetch
            if sold in the open market on the valuation date."

 E          Explanation to sub-section (1) was inserted by Finance
       (No.2)Act, 1980 w.e.f. 01.04.1980. The explanation is as under:

            "Explanation: For the removal of doubts, it is hereby
            declared that the price or other consideration for
            which any property may be acquired by or
 F
            transferred to any person under the terms of a deed
            of trust or through or under any restrictive covenant
            in .any instrument of transfer shall be ignored for the
            purpose of determining the price such property
 G          would fetch if sold in the open market on the
            valuation date."

             17. Section 3 of the Act is the charging Section, whereas
       Section 7 of the Act is the machinery provision which provides
 H     for procedure for determining the value of assets that are
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                       1071
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

subject to wealth tax. The High Court observed that as per A
Section 7 of the Act, the value of the asset shall be estimated
to the price, which in the opinion of the Wealth Tax Officer, the
asset would fetch if sold in the open market on the valuation
date. The words "price it would fetch if sold in the open market"
do not contemplate actual sale or the actual state of the market, B
but only enjoins that it should be assumed that there is an open
market and the property can be sold in the open market and,
on that basis, the value has to be found out. The Court noted
that though the rules, namely, Wealth Tax Rules, 1957 were
framed, they did not provide for valuation of urban land and, C
therefore, the asset must be valued in the ordinary way by
determining what it would fetch if it were sold in the assumed
market and what willing purchaser would pay for it. The Court
also accepted that in view of Ceiling Act coming into force, the
                                                                     0
restrictions and prohibitions contained in the Ceiling Act would
have the effect of depressing the value which the lands would
fetch if they were free from the said restrictions and prohibitions.
Thus, the willing purchaser would definitely take these factors
into account, which could affect the price of such an asset. E
Therefore, the Wealth Tax Officer cannot ignore such restricted
provisions contained in the Ceiling Act and it is for him to find
out what price the asset would fetch if it is sold in the open
market on the valuation date, keeping in view, certain
restrictions in the Ceiling Act which will have depressing effect F
on the value of the asset.

      18. Having said so, which legal position even the
assessee accepts, the High Court went on to observe that it
would not mean that the valuation has to be the compensation          G
which the assessee would be getting inasmuch as the valuation
as per Section 7 has to be the price which the property would
fetch if sold in the open market. Significantly, the High Court
also noted the effect of Ceiling Act in the context of the present
case and the legal proceedings which had been initiated               H
1072         SUPREME COURT REPORTS                      [2015] 9 S.C.R.


 A     pursuant thereto whereby orders passed by the Competent
       Authority under Sections 8 and 9 were challenged and no
       Notification under Section 10 had been issued. In this regard,
       it observed as under:

 B          "29 .... It is not in dispute, that in the present case,
            the competent authority has neither issued any
            notification under Section 10(1) nor under Section
            10(3) of the Act.· it is relevant at this stage itself to
            notice that between the period of first notification
 c          under Section 10(1) of the Act and the second
            notification under Section 10(3) of the Act, the owner
            of the land can neither alter the use, nor transfer the
            land, if any, and if it is done, the same would be
            void.After the publication of the second notification,
 D          the land is deemed to have been acquired by the
            Government and what the assessee owns is the
            right to compensation and the right to compensation
            will be assessed as a movable asset and maximum
            compensation payable under Section 11 (6) of the
 E          Ceiling Act is Rs.2,00,000/- only."

         19. It also categorically accepted that after coming into
   force of the Ceiling Act, since the vacant land was covered by
   the said Act, it was not open to the assessee to sell the land in
 F the open market, and whenever there is any restriction on the
   transfer of any land, it is common knowledge that the value of
   the property or the land, as the case may be, would normally
   be reduced. However, it did not accept that since it is not open
   to the assessee to sell the land, therefore, the value of the land
 G could not be more than what the Government was to offer to
   the assessee under the provisions of the Ceiling Act. The High
   Court concluded its answer in the penultimate para as under:

             "36. Before we conclude, we once again
 H           emphasise that it sale of the land or the property is
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                   1073
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

     subject to restrictions under Central or State              A
     legislation's such as the Urban Land Ceiling Act,
     Karnataka Land Reforms Act, etc., the property or
     the land has to be valued only after taking note of
     the restrictions and prohibitions which will have the
     effect of depressing the value, which the land would        B
     fetch if sold free from any restrictions and
     prohibitions, for the reason, if there are such
     restrictions, the valufoftheproperty or land would
     be normally be reduced, but at the same time, it
     cannot be said that it would fetch only the maximum     ~
                                                                 c
     compensation payable under the urban Land
     Ceiling Act. As stated earlier, Section 7 of the
     Wealth Tax Act, assumes that there is a hypothetical
     open market and there are hypothetical purchasers
                                                                 D
     and hypothetical bids and hypothetical sale to a
     person prepared to give the highest value, subject
     to all such restrictions and prohibitions contained
     in the Ceiling Act."

      20. Challenging the aforesaid approach of the High E
Court, it was argued by learned senior counsel appearing for
the appellants in these appeals that once it is accepted that
the property is covered by the Ceiling Act and it would depress
the value of the property, then the value could not be more than F
Rs.2 lakhs which was the maximum compensation payable
under the Ceiling Act. It was also argued that provisions of the
Ceiling Act did not impose only 'restrictions' but there was
categorical 'prohibition' from selling the land. This land,
therefore, had to be treated as not saleable on the '.valuation G
date' and, therefore, as on that date, the price it could fetch
would not be more than Rs.2 lakhs. Learned senior counsel
also referred extensively to the orders passed by the
Commissioner (Appeals) under the Act giving detailed
reasons while accepting the valuation of the property at Rs.2 H
1074         SUPREME COURT REPORTS                      [2015) 9 S.C.R.


 A     lakhs and submitted that there was no reason to take a 9ontrary
       view by the High Court.

            21. Learned counsel for the Revenue, on the other hand,
       emphasized the reasons which have been given by the High
 s     Court in support of its opinion and submitted that no case was
       made out to interfere with the said proceedings.

             22. We have considered the wspective submissions by
       giving our deep thoughts thereto with reference to the record
 c     of the case. It is clear that the valuation of the asset in question
       has to be in the manner provided under Section 7 of the Act.
       Such a valuation has to be on the valuation date which has
       reference to the last day of the previous year as defined under
       Section 3 of the Income Tax Act if an assessment was to be
 o     made under that Act for that year. In other words, it is 31st
       March immediately preceding the assessment year. The
       valuation arrived at as on that date of the asset is the valuation
       on which wealth tax is assessable. It is clear from the reading
       of Section 7 of the Act that the Assessing Officer has to keep
 E     hypothetical situation in mind, namely, ifthe assetin question
       is to be sold in the open market, what price it would fetch.
       Assessing Officer has to form an opinion about the estimation
       of such a price that is likely to be received if the property were
       to be sold. There is no actual sale and only a hypothetical
 F     situation of a sale is to be contemplated by the Assessing
       Officer. It is so held by this· Court in Ahmed G.H. Ariff v.
       Commissioner of Wealth Tax1 in the following words:

             "... it does not contemplate actual sale or the actual
 G           state of the market, but only enjoins that it should
             be assumed that there is an open market and the
             property can be sold in such a market and, on that
             basis, the value has to be found out. It is a
             hypothetical case, which is contemplated, and the
 H     - --
       '76 ITR 471
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                     1075
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

     Tax Officer must assume that there is an open                 A
     market in which the asset can be sold. It is well
     settled that where the legislature uses a legal term,
     which has received judicial interpretation, the
     Courts must assume that the term has been u·sed
     in the sense, in which has been judicially                    B
     interpreted."

      23. Following guidelines provided in the case of
Commissioner of Wealth Tax v. Prince Muffkham Jah
Bahadur Chamlijan2 als.o needs to be noted as it becomes C
very handy for our purposes:

     "... in the absence of a rule which can apply to the
     valuation of a particular asset, that asset must be
     valued in the ordinary way, by determining what it            D
     would fetch if it were sold in an assumed market,
     the value being what an assumed willing purchaser
     would pay for it."

      24. Thus, the Tax Officer has to form an opinion about        E
the estimated price ifthe asset were to be sold in the assumed
market and the estimated price would be the one which an
assumed willing purchaser would pay for it. On these reckoning,
the asset has to be valued in the ordinary way.
                                                                    F
      25. The High Court has accepted, and rightly so, that
since the Property in question came within the mischief of the
Ceiling Act it would have depressing effect insofar as the price
which the assumed willing purchaser would pay for such
property.                                                        G

     26. However, the question is as to what price the willing
purchaser would offer in such a scenario?

     27. In order to provide an answer to this question, we
may take note of certain relevant provisions of the Ceiling Act,   H
2 247 ITR 351
1076         SUPREME COURT REPORTS                       [2015] 9 S.C.R.


 A     which, are even noticed by the High Court. We will reproduce
       here Sections 3, 5, 10(1) and 10(3) and narrate the scope of
       the other relevant provisions without reproducing the text
       thereof.

 B          3. Persons not entitled to hold vacant land in
            excess of the ceiling limit.- Except as otherwise
            provided in this Act, on and from the
            commencement of this Act, no person shall be
            entitled to hold any vacant land in excess of the
 c          ceiling limit in the territories to which this Act applies
            under sub-section (2) of section 1.
            5. Transfer of vacant land.-
            (1) In any State to which this Act applies in the first
            instance, where any person who had held vacant
 D          land in excess of the ceiling limit at any time during
            the period commencing on the appointed day and
            ending with the commencement of this Act, has
            transferred such land or part thereof by way of sale,
            mortgage, gift, lease or otherwise, the extent of the
 E
            land so transferred shall also be taken into account
            in calculating the extent of vacant land held by such
            person and the excess vacant land in relation to
            such person shall, for the purposes of this Chapter,
 F          be selected out of the vacant land held by him after
            such transfer and in case the entire excess vacant
            land cannot be so selected, the balance, or where
            no vacant land is held by him after the transfer, the
            entire excess vacant land, shall be selected out of
 G          the vacant land held by the transferee:
            Provided that where such person has transferred
            his vacant land to more than one person, the
            balance, or, as the case may be, the entire excess
            vacant land .aforesaid, shall be selected out of the
 H          vacant land held by each of the transferees in the
SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                 1077
    OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

   same proportion as the area of the vacant land             A
   transferred to him bears to the total area of the land
   transferred to all the transferees.
   (2) Where any excess vacant land is selected out
   of the vacant land transferred under sub-section (1),
                                                              B
   the transfer of the excess vacant land so selected
   shall be deemed to be null and void.
   (3) In any State to which this Act applies in the first
   instance and in any State which adopts this Act
   under clause (1) of article 252 of the Constitution,       c
   no person holding vacant iand in excess of the
   ceiling limit immediately before the commencement
   of this Act shall transfer any such land or part thereof
   by way of sale, mortgage, gift, lease or otherwise.
   until he has furnished a statement under section 6         D
   and a notification regarding the excess vacant land
   held by him has been published under sub-section
   (1) of section 1O; and any such transfer made in
   contravention of this provision shall be deemed to
   be null and void.                                          E
    10. Acquisition of vacant land in excess of
    ceiling limit. - (1) As soon as may be after the
  . service of the statement under section 9 on the
    person concerned, the competent authority shall
                                                               F
    cause a notification giving the particulars of the
    vacant land held by such person in excess of the.
    ceiling limit and stating that-
   (i) such vacant land is to be acquired by the
   concerned State Government; and                            G
   (ii) the claims of all person interested in such vacant
   land may be made by them personally or by their
   agents giving particulars of the nature of their
   interests in such land,
   to be published for the information of the general         H
1078       SUPREME COURT REPORTS                      [2015] 9 S.C.R.


 A        public in the Official Gazette of the State concerned
          and in such other manner as may be prescribed.
           (3) At any time after the publication of the
           notification under sub-section (1) the competent
           authority may, by notification published in the Official
 B
           Gazette of the State concerned, declare that the
           excess vacant land referred to in the notification
           published under sub-section (1) shall, with effect
           from such date as may be specified in the
           declaration, be deemed to have been acquired by
 c         the State Government and upon the publication of
           such declaration, such land shall be deemed to
           have vested absolutely in the State Government free
           from all encumbrances with effect from the date so
 D         specified."
            28. Section 3 of the Ceiling Act, as is clear from its
     reading, is the main provision. It categorically provides that
     the person shall not be entitled to hold any vacant land in excess
     of the ceiling limit in the territories to which this Act applies,
 E . except as otherwise provided under the Act itself, from the date
     of commencement of the Act. Act came into force on
     17 .02.1976. The effect of this Section was that on and from
     17.02.1976, the assessee was not entitled to hold the vacant
     land in question, which was in excess of the ceiling limit.
 F Section 4 of the Act provides for the manner in which the ceiling
   · limit of the person is to be ascertained.

            Section 5(1) of the Ceiling Act deals with transfer of the
     vcicant land in excess of the ceiling limit at any time during the
 r'
 0
     period commencing on the appointed day i.e. 28th January
     1976 and, ending with the commencement of this Act, i.e. 17th
     February. 1976. Under this sub-section, if any person has
     t: :msferred such land, the extent of the land so transferred shall
 , , aiso be taken into account in calculating the extent of vacant
 r,
 SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                   1079
     OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

land held by such person. Sub-section (3) of Section 5 of the A
Ceiling Act contains a prohibition to transfer any vacant land
held by a person in excess of the ceiling limit immediately
before the commencement of the Act till a statement under
Section 6 is furnished and a notification regarding excess land
has been published under Section 10(1) oftheAct.Anytransfer B
made in contravention of this sub-section shall be deemed to
be null and void.

       Section 6(1) of the Ceiling Act statutorily obligates that
every person holding vacant land in excess of the ceiling limit C
as on or after the 17th day February 1976 is required to file a
statement in the prescribed form, specifying the vacant land
within the ceiling limit which he desires to retain. The first
proviso to Section 6(1) of the Ceiling Act makes the operation
of the Act retrospective in fixing 17th February 1975, as the D
date to determine whether a person holds vacant land in
excess of the ceiling limit. If for any reason, the statement is
not filed by the person holding vacant land in excess of the
ceiling limit, the competent authority may direct him to file such
statement within a fixed period.                                   E

       Under Section 8 of the Ceiling Act, on the basis of the
statement filed under Section 6 of the Ceiling Act, a draft
statement is prepared by the competent authority and the same
is served on the applicantfperson, who is given an opportunity F
to file his objections, if any. After considering the objections
that may be filed within the time prescribed, the competent
authority shall determine the vacant land held by the person
concerned in excess of the ceiling limit and serve the draft
statement so altered on the person concerned. The altered G
draft statement is also known as final statement under the Act.

      Section 10 of the Ceiling Act provides for acquisition of
vacant land in excess of the ceiling limit. Section 10(1) of the
act envisages that the competent authority as soon as possible H
1080         SUPREME COURT REPORTS                      [2015] 9 S.C.R.


 A     after the final statement is served on the concerned person, to
       issue a notification giving the particulars of the vacant land
       held by such person in excess of the ceiling limit, and further
       notify that such vacant land is to be acquired by the concerned
       State Government and invite claims from all persons interested
 B     in such land, giving particulars of the nature of their interest in
       such land. The notification requires to be published in the
       official gazette of the state concerned and also in such other
       manner prescribed in the rules. Under sub-section (2), the
       competent authority is expected to consider any claims that
 C     may be filed by the persons interested in the vacant land
       notified under sub-section (1) and determine the nature and
       extent of such claims and pass s.uch Order as he deems fit.

             Sub-section (3) of Section 10 of the Ceiling Act provides
 D     for issuance of notification vesting vacant land in the State
       Government free from all encumbrances. Under this sub-
       section, the competent authority after the publication of
       notification in the official gazette concerned, declare that
       excess vacant land referred in sub-section (1) shall with effect
 E     from such date as may be specified in the declaration, be
       deemed to have been acquired by the State Government. Once
       notification is published, and declaration is made, such land
       shall be deemed to have vested absolutely in the State
 F     Government free from all encumbrances with effect from the
       date specified.

        Sub-section (4) of Section 10 of the Ceiling Act provides
   for maintenance of status quo in respect of excess vacant land
   proposed to be acquired during the period commencing on
 G the date of publication under sub-section (1) and ending with
   the date specified in the declaration made under sub-section
   (3).

         Sub-section (5) of Section 10 of the Ceiling Act provides
 H that the competent authority shall issue a notice in writing to
  SRI S.N. WADIYAR (DEAD)THROUGH LR v. COMMNR.                       1081
      OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

  any person who may be in position to surrender or deliver A
  possession to the State Government or to the person duly
  authorised in this behalf. The person to whom the notice is
  issued is given 30 days time to comply with the notice. Under
. sub-section (6), if a person fails to deliver possession within
  that period, the competent authority will take necessary steps B
  to take possession itself.                       ·

      Sections 11 and 14 of the Ceiling Act provide for
determination of the amount payable to the person concerned
for the vacant land acquired and for the mode of payment of C
the amount to such person.

       Section 18 of the Ceiling Act lays down the penalty that
may be imposed for concealment of particulars in the statement
filed under Section 6 of the Act.                               D
       Section 20 of the Ceiling Act confers Gn the State
 Government the power to exempt any person holding vacant
 land in excess of the ceiling limit from the provisions of the
 Act.                                                                E
       Under Section 33 ofthe Ceiling Act, any person
 aggrieved by an Order passed by the competent authority
 under the Act may file an appeal before a forum created under
 the Act, except against those Orders made under Section 11           F
 or an Order made under sub-section ( 1) of Section 30.

        29. The combined effect of the ~foresaid provisions, in
 the context of instant appeals, is that the vacant land in excess
 of ceiling limit was not acquired by the State Government as
 notification under Section 10(1) of the Ceiling Act had not been    G
 issued. However, the process had started as the assessee
 had filed statementin the prescribed form as per the provisions
 of Section 6( 1) of the Ceiling Act and the Competent Authority
 had also prepared a draft statement under Section 8 which           H
1082       SUPREME COURT REPORTS                   [2015] 9 S.C.R.


 A  was duly served upon the assessee. Fact remains that so long
   ·as the Act was operative, by virtue of Section 3 the assessee
    was not entitled to hold any vacant land in excess of the ceiling
    limit. Order was also passed to the effect that the maximum
    compensation payable was Rs.2 lakhs. Let us keep these
 B factors in mind and on that basis apply the provisions of
    Section 7 of the Wealth Tax Act.

         30. The Assessing Officer took into consideration the
   price which the property would have fetched on the valuation
 C date, i.e. the market price, as if it was not under the rigors of
   Ceiling Act. Such estimation of the price which the asset would
   have fetched if sold in the open market on the valuation date(s),
   would clearly be wrong even on the analogy/rationale given by
   the High Court as it accepted that restrictions and prohibitions
 D under the Ceiling Act would have depressing effect on the value
   of the asset. Therefore, the valuation as done by the Assessing
   Officer could not have been accepted.

         31. Let us proceed on the same lines as delineated/
 E drawn by the High Court itself, namely, one has to assume that
   the property in question is saleable in the open market and
   estimate the price which the assumed willing purchaser would
   pay for such a property. When the asset is under the clutches
   of the Ceiling Act and in respect of the said asset/vacant land,
 F the Competent Authority under the Ceiling Act had already
   determined the maximum compensation of Rs.2 lakhs, how
   much price such a property would fetch if sold in the open
   market? We have to keep in mind what a reasonably assumed
   buyer would pay for such a property if he were to buy the same.
 G Such a property which is going to be taken over by the
   Government and is awaiting notification under Section 10 of
   the Act for this purpose, would not fetch more than Rs.2 lakhs
   as the assumed buyer knows that the moment this property is
 H taken over by the Government, he will receive the
  SRI S.N. WADIYAR (DEAD) THROUGH LR v. COMMNR.                     1083
      OF WEALTH TAX, KARNATAKA [A. K. SIKRI, J.]

  compensation of Rs.2 lakhs only. We are not oblivious of those A
  categories of buyers who may buy "disputed properties" by
  taking risks with the hope that legal proceedings may ultimately
  be decided in favour of the assessee and in such a eventuality
  they are going to get much higher value. However, as stated
  above, hypothetical presumptions of such sales are to be B
  discarded as we have to keep in mind the tonduct of a
  reasonable person and "ordinary way" of the presumptuous
• sale. When such a presumed buyer is not going to offer more
  than Rs.2 lakhs, obvious answer is that the estimated price
  which such asset would fetch 1f sold in the open market on the C
  valuation date(s) would not be more than Rs.2 lakhs. Having
  said so, one aspect needs to be pointed out, which was missed
  by the Commissioner (Appeals) and the Tribunal as well while
  deciding the case in favour of the assessee. The compensation
                                                                   0
  of Rs.2 lakhs is in respect of only the "excess land" which is
  covered by Sections 3 and 4 of the Ceiling Act. The total vacant
  land for the purpose of Wealth Tax Act is not only excess land
  but other part of the land which would have remained with the
  assessee in any case. Therefore, the valuation of the excess E
  land, which is the subject matter of Ceiling Act, would be Rs.2
  lakhs. To that market value of the remaining land will have to
  be added for the purpose of arriving at the valuation for
  payment of Wealth Tax. The question formulated is answered
  in the aforesaid manner.                                         F

      32. In the result, the appeals succeed and are hereby
 allowed. There shall, however, be no order as to costs.

 Devika Gujral                                   Appeals allowed.