TaxTMI 
TaxTMI 
2005 (6) TMI 33
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....tial units and land appurtenant thereto, roads and masonry structures along the contour and vacant land. The vacant land measures 11,66,377.34 sq. mt. Sri Jayachamarajendra Wodeyar expired on September 23, 1974. There was a dispute with regard to the wealth-tax assessments of Sri Jayachamarajendra Wodeyar pertaining to the assessment years 1967-68 to 1976-77. After the death of Sri Jayachamarajendra Wodeyar, his son Sri Srikantadatta Wodeyar applied to the Settlement Commission to get the dispute settled with regard to the valuation of Bangalore Palace and the same came to be decided on September 29, 1988, for the assessment years namely, 1967-68 to 1976-77. The valuation date was 31st March of each calendar year. As per the norms fixed by the Settlement Commission, the Wealth-tax Officer decided the valuation of Bangalore Palace for the assessment years 1967-68 to 1976-77. For the assessment year 1976-77, the valuation, as per the Settlement Commission was Rs. 13,18,44,000. The said valuation was for both land and building and for the land, it was Rs. 12,57,95,250 and for the building Rs. 60,48,750. The Wealth-tax Officer adopted the same valuation for the block period of three ye....
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....nt land in Bangalore Palace should be taken at Rs. 2 lakhs for each of the assessment years, namely, 1977-78 to 1985-86. The issue before the Tribunal was only with regard to valuation of vacant land attached to Bangalore Palace, since the assessee had accepted the valuation in regard to residential and non-residential structures within the palace area and land appurtenant thereto. It is in this factual background, the Commissioner of Wealth-tax has sought reference in respect of the assessment years, namely, 1977-78 to 1985-86 arising out of the consolidated order of the Tribunal in WTA Nos. 315 to 317 and 485 to 490/1990 dated November 2, 1993. The Tribunal has referred the following question of law to this court under section 27(3) of the Wealth- tax Act, 1957, for opinion: "I. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the value of the vacant land, in Bangalore Palace, belonging to the assessee should be taken at Rs. 2,00,000 for the purpose of the wealth-tax assessment for the years in question?" On behalf of the Revenue, Sri Seshachala, learned counsel contended that the Tribunal was clearly error in law, in hold....
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.... deed of wakf was a mere right to an annuity as mentioned in section 2(e)(iv) of the Act and was, therefore, not an asset assessable to wealth-tax. The same was rejected by the Tribunal. On a request made by the assessee, the Tribunal had referred the question, whether on the facts and circumstances of the case, the right of the assessee to receive a specified share of the net income from the wakf estate is an asset, the capitalised value of which is assessable to wealth-tax? The High Court had negatived the contentions of the appellants that the right to receive a definite share of the net income from wakf property did not fall within the meaning of the word "assets" as defined by section 2(e) of the Act or that it was a mere right to an annuity which under the Mohammedan law could not be commuted into a lump sum. It was held that the right of each of the assessee was to receive an aliquot share of net income of the properties which were made the subject-matter of the wakf and there was clear distinction between an aliquot share of income and an annuity. The High Court was of the view that even if the asset of the nature under consideration was non-transferable and could not be so....
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....et. The High Court on a reference held that, even though the estate conferred was a personal estate and it was not possible to sell the estate in the open market, yet it had to be valued on the basis of the principles of the Wealth-tax Act and on an appeal to the Supreme Court, the court observed: "Mr. Sen has laid emphasis on the language of section 7(1) of the Act and has contended that the right to a share in the income is not capable of any valuation and the price which it would fetch, if sold in the open market, could not possibly be ascertained. Such an argument was fully examined in the Bombay case in which the High Court referred to the provisions of the English statutes, which were in pari materia, as also decisions given by the English Courts including the one by the House of Lords in Commissioners of Inland Revenue v. Crossman [1937] AC 26. It has been rightly observed by the High Court that when the statute uses the words 'if sold in the open market' it does not contemplate actual sale or the actual 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 h....
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....the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, was made on May 23, 1966, took the view that this extent should be taken into account for the purpose of composition in respect of the assessment year 1967-68. In support of this view, he relied on the proviso to section 10 of the Madras Agricultural Income-tax Act, 1955. This view was confirmed by the first appellate authority. However, the learned single judge of the High Court, has come to the conclusion that because of section 7 of the Land Reforms Act, the stated extent of land was not liable to be taken into account for the assessment year. In the appeal filed against the said order, the Division Bench of the court while reversing the order passed by the single judge has observed: "Section 7 of the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, does not by itself have the effect of extinguishing the ownership of the holder of a land, though he might not be entitled to the ownership in the sense that he might not be entitled to hold the same from the commencement of in the Act. But the actual vesting of the land in the Government takes place only on the date of the publication of the noti....
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....lar asset, that asset must be valued in the ordinary way, by determining what it would fetch if it were sold in an assumed market; the value being what an assumed willing purchaser would pay for it." On behalf of the assessee, learned counsel Sri Shivaram, Sri Shankar, Sri Parthasarathy and Sri Ramabhadran, contended that having regard to the provisions of the Urban Land Ceiling Act, the maximum amount of compensation payable to the assessee is only Rs. 2,00,000 and therefore, the Commissioner of Income-tax (Appeals) and the Tribunal were justified in fixing the maximum compensation that may be payable to the assessee for the purpose of valuing the vacant land in the Bangalore Palace at Rs. 2,00,000. The right of the assessee, according to learned counsel, in view of the provisions of the Urban Land Ceiling Act, is only to get the compensation and therefore, the Tribunal is justified in directing the Wealth-tax Officer to value the vacant land in the Bangalore Palace at Rs. 2 lakhs for each of the assessment years from 1977-78 to 1985-86, since the land in excess of the ceiling is to be valued on the basis of compensation receivable. In support of their submissions, reliance is ....
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....which they were holding in excess of the ceiling area, the valuation should be based on the compensation that they would get from the Government in relation to those lands. This contention had been negatived by the Wealth- tax Officer. Before the first appellate authority and the Tribunal, the assessee had succeeded. The Revenue had obtained a reference to the High Court. Before the High Court, it was the stand of the Revenue, that the Wealth-tax Officer, while valuing the lands has to proceed only on the basis of section 7 of the Act without reference to the provisions of the Ceiling Act and that he is not bound to accept the compensation fixed by the Government for the excess lands as the basis for fixing the value of the lands under the Wealth-tax Act and that in this case, both the Appellate Assistant Commissioner and the Tribunal had erred in valuing the excess lands at the compensatory value fixed by the State Government. Reliance was also placed on the decision of the Supreme Court in the cases of Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 and Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC). The court, after noticing the observations made in aforesaid decisions, has....
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....the compensation is payable to tenants in the occupation of the lands, determined the value of the land at Rs. 18 lakhs. The Appellate Assistant Commissioner taking into consideration the value determined by the Government under the Land Ceiling Act and other depressing factors, directed the Wealth-tax Officer to accept the value of the lands as determined by the Government under the Land Ceiling Act, which comes to Rs. 4,60,782. Some lands were sold in subsequent years and the value was worked out to Rs 45.280. On appeal, the Tribunal accepted the view taken by the Appellate Assistant Commissioner that when the land was acquired by the Government and compensation was paid in respect thereof, that should be accepted as the value of the land in question. In the Land Ceiling Act also the valuation date roughly comes to the valuation dates as in the wealth-tax assessment. When the land value of the lands was determined by the Government, the Government is hearing the claimants, the Taram and the character of the land, the value of the land in the nearby vicinity and other advantages and disadvantages, with regard to the location of the land etc. Therefore, it cannot be said that the v....
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....ooking to the settled principles of valuation, the Assessing Officer could not have arrived at a higher value of the land in question beyond Rs. 10 per sq. yd. Whenever there is any restriction on the transfer of any land, it is a matter of common knowledge that the value of the property or land, as the case may be, would be normally reduced. In the instant case, it was not open to the assessee to sell the land and, therefore, the value of the land in question could not be more than what the Government was to offer to the assessee under the provisions of the Ceiling Act." The Calcutta High Court in the case of Gouri Prasad Goenka and Family (HUF) v. CWT [1993] 203 ITR 700 has considered the similar issue and in that, has observed: "We have considered the rival contentions. In our view, the Tribunal did not approach this issue from the correct angle. Whenever a person holds vacant land in excess of the ceiling limit, he cannot dispose of such land at all. It cannot be sold in the open market. It is true that the vacant land does not automatically vest in the State Government but the owner may hold it subject to certain conditions. Until a notification is issued under sectio....
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....nd is in excess within the meaning of the Urban Land Ceiling Act, the method which has been adopted for valuation of such land cannot be sustained. To ignore the prohibitions and restrictions of the Ceiling Act in valuing a vacant land in excess and liable to be acquired by the Government and to value it as freely transferable land will amount to an arbitrary act resulting in undue taxation." The Rajasthan High Court in the case of CWT v. Smt. Ballabh Kumari [1986] 160 ITR 945, while considering the issue, whether the prohibition against transfer of land held by the assessee in excess of the Urban Land (Ceiling and Regulation) Act, 1976, will have the effect of reducing the market value of such excess land to the extent of compensation receivable is a question of law fit for reference and while saying so, has observed: "It may be observed that for the purpose of the Wealth-tax Act, the value of the assets is to be determined in accordance with the provisions of section 7 thereof and for the purposes of that Act, the value of a specified asset would be estimated to be the price which it would fetch if sold in the open market on the valuation date. Whether the enforcement of th....
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....the extent of compensation receivable by the assessee under section 11(b)(ii), is a matter which requires to be considered and, in our view, it certainly raises a question of law." Before we deal with the contentions canvassed by learned counsel for the parties to the lis, and the decisions on which reliance is placed, we intend to notice the provisions of the Urban Land Ceiling Act, 1976. The preamble to the Act provides for the object and purpose of the Act. The object of the Act is to impose a ceiling on vacant land in urban areas and acquisition of such land in excess of the ceiling limit. The Urban Land (Ceiling and Regulation) Act, 1976 ("the Ceiling Act" for short) has received the assent of the President on February 17, 1976, and was published in the Official Gazette on the same day. It has been adopted by the State of Karnataka. Section 2 of the Ceiling Act defines the meaning of the expressions, apart from others, "ceiling limit", "competent authority", "person", "to hold", "urban agglomeration", "urban land", "vacant land", "ceiling limit", etc. Section 3 of the Ceiling Act is the charging provision and it provides that the persons shall not be entitled to....
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....nt 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 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. 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 applicant/person, who is given an opportunity 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 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. Sec....
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....uthority will take necessary steps 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 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. Section 20 of the Ceiling Act confers on the State Government the power to exempt any person holding vacant land in excess of the ceiling limit from the provisions of the Act. Under section 33 of the 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 or an order made under sub section (1) of section 30. In the present case, the Bangalore Palace is within the Bangalore Urban agglomeration. The provisions of the Ceiling Act apply to the property in question. The assessee and other members of the family had filed statements under section 6(1) of the Ceiling Act and the competent authority under the Act on the basis of....
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....31, 1999, in this court and on that basis, it has been prayed that the present proceedings be abated. The State has not filed any reply to this affidavit. Section 4 of the Urban Land (Ceiling and Regulation) Repeal Act, 1999 provides as under: '4. Abatement of legal proceedings.- All proceedings relating to any order made or purported to be made under the principal Act pending immediately before the commencement of this Act, before any court, Tribunal or other authority shall abate: Provided that this section shall not apply to the proceedings relating to sections 11, 12, 13 and 14 of the principal Act in so far as such proceedings are relatable to the land possession of which has been taken over by the State Government or any person duly authorised by the State Government in this behalf or by the competent authority.' In the counter-affidavit not a word has been said about the possession of the surplus land. In fact, it is maintained by the appellant that the possession is still with the appellant who was also granted an interim order regarding 'status quo'. Since there is nothing on record to indicate that the State had taken possession over the surplus land, the p....
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....ses 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." The Explanation to sub-section (1) was inserted by the Finance (No. 2) Act, 1980, with effect from April 1, 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 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 would fetch if sold in the open market on the valuation date." Section 3 of the Act is the charging provision. Section 7 of the Act is a machinery provision, which provides for procedure for determining the real value of the assets. A reading of this provision would indicate, subject to the Rules that may be framed for the purpose of sub-section (1) of section 7 of the Act, the value of any asset other than cash, shall be estimated to be the price, which in the opinion of the Wealth-tax Officer, the asset would fetch if so....
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....iples of valuation. Under section 7 of the Act the value of any asset, except cash, shall be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date. The opening words of the section make it clear, that this power of the Wealth-tax Officer is subject to the Rules that may be framed by the Central Board of Revenue in exercise of their power conferred by section 46 of the Act. The power conferred under this section on the Wealth-tax Officer is a judicial power, which is open to review by the Appellate Assistant Commissioner, and the Tribunal as held by this court in U.S. Nayak's case [1968] 68 ITR 171 (Mys). At the cost of repetition, we intend to emphasise, that, section 7(1) of the Act does not contemplate any actual sale or actual state of market. It is to be assumed that there is an open market and the property can be sold in such a market on the valuation date. This fair market value is to be determined as would be available if the property is sold by a notional willing seller to a notional willing buyer on the valuation date itself. While this is being done it is but natural as observed by the Ma....
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.... the facts and circumstances of the present case also. Even in a case where there is a prohibition under the Act for the sale of such asset, but not yet is deemed to have become the property of the Government the valuation requires to be made on the assumption that the purchaser would be able to enjoy the property as the holder, in spite of restrictions and prohibitions contained in the Act. The key question in such cases would be whether there is in fact a market and the property could be in fact be sold is wholly immaterial. If the circumstances justify, the Wealth-tax Officer is not only justified but also bound to take into consideration the value of the asset if sold in the open market, with certain restrictions placed by the Legislature on such a sale. It is under these circumstances, the Wealth-tax Officer is required to find out the price of the asset with all the prohibitions contained in the Ceiling Act which might bring down the price in the open market, as the purchaser will take note of all the restrictions contained under the Ceiling Act. But that price cannot be at any rate the maximum compensation payable under the Ceiling Act. However, the first appellate authority....
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....assessee had questioned the orders passed by the competent authority under sections 8(1), 8(3) and 9 of the Act before the Karnataka Appellate Tribunal and had obtained interim order restraining the authorities not to issue any notification under section 10(1) of the Act, pending disposal of the appeal. 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 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, 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 the maximum compensation payable under section 11(6) of the Ceiling Act is Rs. 2,00,000 only. The first appellate authority and the Income-tax Appellate Tribunal and learned counsel for t....
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....ssee to sell the land in the open market, and whenever there is any restriction on the transfer of any land, it is a common knowledge that the value of the property or land as the case may be would normally be reduced. We again accept the observations made by the court to this extent, but the further observation of the court that since it is not open to the assessee to sell the land the value of the land could not be more than what the Government was to offer to the assessee under the provisions of the Ceiling Act etc., we cannot subscribe to this view, in view of the law declared by the apex court, to which we have already made reference in the earlier portion of our order. The Calcutta High Court in the case of Gouri Prasad Goenka and family (HUF) [1993] 203 ITR 700, was again dealing with a situation, where the competent authority had already issued a notification under section 10(3) of the Act and once such notification is issued, the land is deemed to have been acquired by the Government and what the assessee owns is the right to compensation and that can only be the maximum compensation amount as provided under the Ceiling Act. This view, in our opinion, would not assist t....