2013 (9) TMI 185 - HC - Wealth-tax

High Court upholds ITAT decision on property valuation & wealth tax treatment.

Commissioner of Wealth Tax Versus M/s. Southern Roadways Ltd.

The High Court of Madras upheld the Income Tax Appellate Tribunal's decision to value properties at Rs.2,500/- per cent for assessment years 1995-96 to ... Valuation of Property – Nature of Wealth Tax Payable - Whether the Tribunal was right in directing the AO to value the properties for the A.Y. 1995-96 to 1998-99 and in holding that wealth tax payable by the assessee was to be treated as debt and the same had to be excluded from the wealth for the purpose of wealth tax assessment - Held that:- The rules on valuation of the immovable property were framed as a matter of State policy and when there were rules they had to be followed - Thus, the assessee cannot disregard Schedule III to the Wealth Tax Act, which was mandatory and as such, the question of adopting the value as by way of enhancing at certain particular percentage cannot be upheld by the Court - When it was purely a question of law as to the method of valuation to be adopted, not valuation as such for consideration – Relying upon CWT Vs. Sharvan Kumar Swarup and Sons [1994 (9) TMI 2 - SUPREME Court ] - there was no hesitation in rejecting the assessee's plea for a remand – Revenue’s plea was accepted and the matter was restored to the files of the AO to adopt Schedule III to Wealth Tax Act in valuing the property - To that extent the order of the ITAT was set aside. Commissioner of Wealth-Tax, Gujarat Vs. Vimlaben Vadilal Mehta [1983 (10) TMI 3 - SUPREME Court] - The tax liability under the Income Tax Act, Gift Tax Act and the Wealth Tax Act were debt owed by the assessee on a valuation date - even though such determination might be subsequent after the valuation date - Where there was no tax liability there was no debt owed by the assessee on the valuation date. The ITAT allowed the assessee's appeal based on the valuation determined in the assessee's own case for the assessment years 1984-85 and 1985-86 - Thus, the Tribunal directed the Assessing Officer to adopt the rate for all the assessment years under consideration - While considering the valuation of the property the ITAT held that the immovable property had to be valued as per Schedule III to Wealth Tax Act - CWT Vs. Sharvan Kumar Swarup and Sons [1994 (9) TMI 2 - SUPREME Court ] - the property at Kodaikanal was to be valued as per Schedule III to Wealth Tax Act, the same yardstick ought to have been extended while considering the valuation of the Kochadai property. - Decided in favor of revenue. Issues:1. Valuation of properties for assessment years 1995-96 to 1998-99.2. Treatment of wealth tax payable as debt for wealth tax assessment.Analysis:Issue 1: Valuation of PropertiesThe Income Tax Appellate Tribunal directed the Assessing Officer to value the properties at Rs.2,500/- per cent for the assessment years under consideration. The Revenue contended that the Tribunal's decision was based on the valuation determined in the assessee's own case for the assessment years 1984-85 and 1985-86. The Revenue further argued that the property at Kodaikanal should be valued as per Schedule III to the Wealth Tax Act, similar to the approach taken for the Kochadai property. The counsel for the assessee disputed the relevance of Schedule III in this case, stating it was not raised before the Tribunal or the Assessing Officer. However, the Court disagreed with this argument, emphasizing the importance of following the valuation rules set by State policy. The Court held that the assessee cannot disregard Schedule III, which is mandatory, and rejected the plea for remand. Consequently, the matter was restored to the Assessing Officer to adopt Schedule III for valuing the property at Kodaikanal, setting aside the Tribunal's order.Issue 2: Treatment of Wealth Tax Payable as DebtThe Tribunal upheld the assessee's claim for the deduction of wealth tax liability from the net wealth, following the decision in the assessee's own case for the assessment year 1984-85 to 1987-88. The Revenue argued that the Wealth Tax Act did not allow such deduction until the amendment to Section 2(m) effective from 01.04.1993. The Revenue contended that the assessee was ineligible to claim the deduction post-amendment. In contrast, the counsel for the assessee relied on various Supreme Court decisions emphasizing that tax liability under different tax acts constituted debt owed by the assessee. The Court analyzed the pre and post-amendment provisions of Section 2(m) of the Wealth Tax Act and concluded that the amendment did not alter the essence of 'debts owed by the assessee.' Therefore, the Court upheld the Tribunal's decision that wealth tax payable by the assessee should be treated as a debt for calculating the net wealth.In conclusion, the High Court of Madras addressed the valuation of properties and the treatment of wealth tax payable as debt in a comprehensive manner, providing detailed analysis and legal interpretations for each issue raised by the Revenue in the Tax Case (Appeals).