AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (7) TMI 543
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....e Not Verified a guest house. The immovable property was acquired by the assessee Digitally signed by Rajni Mukhi Date: 2014.06.30 17:47:29 IST Reason: before 1st April, 1974 and the assessee filed return on self assessment as per Rule 3 to 7 of Schedule III of the Wealth-Tax Act, 1957 (hereinafter referred to as the, `Act'). In the course of assessment proceedings, the Assessing Officer (for short, `AO') was of the opinion that the value of the said flat as disclosed in the return (as Rs. 1,55,139/-) did not appear to be in consonance with the market value for a similar size flat in Mumbai and referred the matter to Departmental Valuation Officer under Rule 20 of Schedule III who valued the flat at Rs. 2,60,73,000/-. The AO also relied upon the agreement to sell of the said flat dated 15 th September, 1995 entered by the assessee with its vendor. In the said agreement the price of the flat was shown at Rs. 10,26,000/-. The AO was of the opinion that due to wide variation between alleged market value as determined by the Departmental Valuation Officer and the value as disclosed by the assessee, it was not practicable to value the property as per Rules 3 to 7 hence Rule 8(a)....
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....ue of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date, may, at the option of the assessee, be taken to be the value determined in the manner laid down in Schedule III as on the valuation date next following the date on which he became the owner of the house or the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later. Explanation.---For the purposes of this sub-section,- (i) Where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of such house was completed: (ii) "house" includes a part of a house being an independent residential unit."-- 7. Rules 3 to 8 of the Schedule III lay down rules for valuation of immovable property whether let out or self occupied. Rule 3 relates to valuation of immovable property as under: "3. Valuation of immovable property.- Subject to the provisions of rules 4, 5, 6, 7 and 8 for the purposes of sub-section (1) of section 7, the value of any immovable property, being a building ....
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.... to fifteen per cent, of the gross maintainable rent." 9. Rule 5 deals with computation of gross maintainable rent in the following manner: "5. Gross maintainable rent how to be computed. - For the purposes of rule 4, "gross maintainable rent', in relation to any immovable property referred to in rule 3, means-- (i) where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, whichever is higher; (ii) where the property is not let, the amount of annual rent assessed by the local authority in whose area the property is situated for the purpose of levy of property tax or any other tax on the basis of such assessment, or, if there is no such assessment or the property is situated outside the area of any local authority the amount which the owner can reasonably be expected to receive as annual rent had such property been let. Explanation. -In this rule; (1) "annual rent" means, - (a) where the property is let throughout the year ending on the valuation date (here....
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....r of the property in respect of any obligation which, but for such payment, would have, been payable by the owner." 10. Adjustments to value arrived at under rule 3 for unbuilt area of plot of land to be made as per Rule 6 which reads as follows: "6. Adjustments to value arrived at under rule 3, for unbuilt area of plot of land. - Where the unbuilt area of the plot of land on which the property referred to in rule 3 is constructed exceeds the specified area, the value arrived at in accordance with the provisions of rule 3 shall be increased by an amount calculated in the following manner, namely: - (a) where the difference between the unbuilt area and the specified area exceeds five per cent, but does not exceed ten per cent, of aggregate area, by an amount equal to twenty per cent, of such value; (b) where the difference between the unbuilt area and the specified area exceeds ten per cent, but does not exceed fifteen per cent, of the aggregate area by an amount equal to thirty per cent, of such value; (c) where the difference between the unbuilt area and the specified area exceeds fifteen per cent, but does not exceed twenty per cent, of the aggregate area by an amount equal ....
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....ned by the Government or such authority for the purpose of calculating such increase and the amount of the premium paid or payable to the Government or such authority for the lease of the land." 12. The cases in which Rule 3 is not applicable is shown in Rule 8 and reads as follows:- "8. Rule 3 not to apply in certain cases. -Nothing contained in rule 3 shall apply, - (a) where having regard to the facts and circumstances of the case, the Assessing Officer, with the previous approval of the 1[Joint Commissioner], is of opinion that it is not practicable to apply the provisions of the said rule to such a case; or (b) where the difference between the unbuilt area and the specified area exceeds twenty per cent, of the aggregate area; or (c) where the property is constructed on leasehold land and the lease expires within a period not exceeding fifteen years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease, and in any case referred to in clause (a) or clause (b) or clause (c), the value of the property shall be determined in the manner laid down in rule 20." 13. It is submitted on behalf of the appella....
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....is relevant for the purposes of Rule 8, the said provision is extracted below: "16A. Reference to Valuation Officer.- (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, [where under the provisions of section 7 read with the rules made under this Act or, as the case may be, the rules in Schedule III, the market value of any asset is to be taken into account in such assessment,] the [Assessing Officer] may refer the valuation of any asset to a Valuation Officer- (a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer if the 34[Assessing] Officer is of opinion that the value so returned is less than its fair market value; (b) in any other case, if the [Assessing Officer] is of opinion- (i) that the fair market value or the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, i....
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.... Schedule III. 18.1 Reasons for incorporating rules for valuation of assets in the Wealth-tax Act. In the past one of the main areas of litigation under the Wealth-tax Act was the valuation of assets for the purposes of inclusion in the net wealth of the assessee. Section 7 of the Wealth-tax Act laid down the general principle that for purposes of the Act, the value of an asset shall be taken to be its market value on the valuation date, i.e., the price it would fetch if sold in the open market on the date. Since the concept of "open market value" led to prolonged litigation on various issues, an attempt was made to reduce the litigation by prescribing rules of valuation in respect of certain assets. Thus, rules 1B to 1D and 2 to 2I of the Wealth-tax Rules, 1957, provided for determination of the value of life interest, residential house, unquoted preference shares, unquoted equity shares of companies other than investment companies, interest in partnership or association of persons, determination of net value of assets of business as a whole etc. This did not solve the problem to any appreciable extent, as the determination of the value in accordance with these rules was often ch....
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....o be payable on the fair market value of immovable property, being building or land appurtenant thereto, Section 2 (m), Section 7(1) and the rules contained in Schedule III to the Act would have specifically provided so. For levy of wealth tax, the value of assets exigible to wealth tax is computed as per relevant rules to Schedule III to the Act applicable to such assets. In other words, the relevant rules in Schedule III to the Act is only the basis for determining the value of asset on which wealth tax is payable. But we are not inclined to accept the aforesaid submission made by the counsel for the assessee. 21. Provision similar to Rule 8(a) of Schedule III was contained in sub Rule 5 of Rule 1 BB as under: "(5) Nothing contained in this rule shall apply- (i) where, having regard to the facts and circumstances of the case, the Wealth-tax Officer, with the previous approval of the Inspecting Assistant Commissioner, is of opinion that it is not practicable to apply the provision of this rule to such a case; or (ii) where the difference between the unbuilt area and the specified area exceeds twenty per cent of the aggregate area; or (iii) where the house is built on leasehol....
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....oney, bullion etc., mentioned in Section 132(1) (c). Therefore, it is only when the nature or location of the particular asset found on a search does not allow, or the circumstances of a given case do not permit, the immediate seizure of the same, that the provisions of Section 132(3) may be resorted to....." Therefore, the word "practicable" is to be construed widely. In the present context if in the opinion of the AO, if the value determined by the tax payer on the basis of Rules 3 to 7 is absurd or has no correlation to the fair market value or otherwise not practicable, in such a case, it is open to the AO to invoke Rule 8 of Schedule III and determine the value of the asset either under Rule 20 or refer under Section 16A, for determination of the valuation of the asset. 25. It is true that the invocation of Rule 8(a) cannot based on ipsi dipsi of the AO. The discretion vested in the AO to discard the value determined as per Rules 3 has to be judicially exercised. It must be reasonable, based on subjective satisfaction; the power must be shown to be objectively exercised and is open to judicial scrutiny. 26. In the present case, the AO refused to accept self assessment for ....