Binny Limited vs The Assistant Commissioner of Wealth Tax

K. Raviraja Pandian, J.—These appeals are filed by the assessee in respect of the assessment years 1993-94 to 2001-02 under the Wealth

Tax Act by formulating the following substantial questions of law:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the valuation of

properties as per Rule 20 instead of Rule 3 of Schedule III of Wealth Tax Act, 1957 without taking into account the land comprised in pathway,

sit out, servant quarters, swimming pool, rest rooms, club area, pump house, tennis court, car and scooter shed, etc., as built up area?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming levy of wealth tax

on properties used as transit house for business purpose which are excluded from the definition of assets u/s 2(ea) of the Wealth Tax Act?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not deducting the

proportionate debts while computing the net wealth as per the provisions of Section 2(m) of the Wealth Tax Act?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the value of the

properties at guideline value or cost inflation index or valuation report when the actual sale realization of property sold in open market by public

auction as per the order of the High Court was much less than the above values?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the levy of wealth

tax on the properties owned by the appellant company in which public are substantially interested?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the value of guest

houses when it held that only fifty per cent of the values are only liable to Wealth Tax in the assessment year 1998099 and 1999-2000?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the value of tank

bund property based on the value taken from the assessment year 1994-95 at Rs. 2,10,78,000/- instead of Rs. 21,07,800/-?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the value of the

property of Joint School compound at Rs. 7,18,81,000/- based on the value of another property when the joint school property was assessed

only for Rs. 1,90,74,648/- in the assessment year 1996-97?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the levy of wealth

tax in respect of property which was let out during the year which are excluded from a definition of asset u/s 2(ea)(i) of the Wealth Tax Act?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the levy of wealth

tax on the properties in nature, the commercial establishment which are excluded from the definition of asset u/s 2(ea)(i)(5) of the Wealth Tax Act?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the value of

Magadi road property, when the valuation of said property was remanded to the assessing officer for fresh consideration in the earlier assessment

years for valuation as per Rule 3 of Schedule III of Wealth Tax Act, 1959?

Though the appeals are in respect of different assessment years, the assets on which tax is leviable, the grounds of attack, the arguments

advanced are one and the same. The arguments were heard in common and the appeals are disposed of by this common order, with the consensus

of the parties. For the purpose of narration of material facts, the case of the assessee in respect of the assessment year 1993-94 is taken as a

typical case.

The assessee, a limited company in which the public are substantially interested, carried on business in textiles. The company was closed on

01.04.1991 due to various reasons. The net worth of the company was completely eroded and it was declared as a sick company u/s 3(1)(o) of

the Sick Industrial Companies Act, 1985. The assessee converted certain properties as stock in trade in the year 1981-82. The assessee filed

wealth tax return for the assessment year 1993-94 declaring wealth of Rs. 8,77,741/-. The assessing officer, however, completed the assessment

determining the net wealth at Rs. 47,15,24,500/-. Against the assessment order, the assessee filed an appeal before the Commissioner of Wealth

Tax (Appeals), who partly allowed the appeal. Against that order, both the assessee and the revenue filed appeals before the Income tax

Appellate Tribunal. The Tribunal dismissed the assessee''s appeal and partly allowed the department''s appeal. Hence the present appeals before

this Court at the instance of the assessee.

The assets included and valued for ascertaining the wealth tax liability are guest houses worth Rs. 21,81,52,524/-, urban land worth Rs.

25,30,10,443/-, and motor cars worth Rs. 18,61,500/- and ultimately charged wealth tax in a sum of Rs. 47,15,24,500/-.

The primary contention raised by the learned Counsel for the assessee is that the properties under consideration were partly occupied by the

employees, who were drawing salaries of less than Rs. 2.00 lakhs per annum. Though the properties were known as guest houses, they functioned

as either permanent staff quarters or transit houses for the employees in connection with the business of the appellant company and in such

circumstances, as per Section 2(ea)(i) of the Wealth Tax Act, a house meant exclusively for residential purposes and which is allotted by a

company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees, is

not available for assessment under wealth tax.

He further contended that of-course, it is true that before the assessing officer, this contention has not been raised, but the contention has been

raised before the Commissioner of Wealth Tax (Appeals). However, the Commissioner of Wealth Tax (Appeals) abruptly rejected the submission

made on the ground that such a contention was not taken by the assessee before the assessing officer. Even the contention that the road, servant

quarters, tennis court should be excluded for the purpose of valuation has also been rejected. He further contended that the terminology used in the

Section ''land appurtenant thereto'' has not been taken into consideration by the appellate authorities in its proper perspective and as interpreted by

the judgments of various High Courts.

It was further contended that the Tribunal has also fell in error in accepting the reasons given by the Commissioner that the ground that the

properties under consideration were occupied by the employees who were drawing less than Rs. 2.00 lakh was not taken at the first instance i.e.,

before the assessing officer and the Tribunal fell in error in not taking into consideration the interpretation of the term ''appurtenant land attached to

the building'' as explained by various judgments of various High Courts.

Learned Counsel for the revenue sought to sustain the order of the Tribunal, but however, she was not able to give any sustainable reason for

the first contention i.e., rejection of the ground of occupation of the property by employees, who were drawing less than Rs. 2.00 lakhs by the

Commissioner of Appeals which was confirmed by the Tribunal.

We heard the learned Counsel on either side and perused the materials available on record.

We are of the view that the first contention raised by the Counsel for the appellant is well founded as no restriction or limitation has been

placed on the appellate power of the Commissioner (Appeals) in Section 23 of the Wealth-tax Act, 1957. When he entertains an appeal under the

provisions of the Wealth-tax Act, the Commissioner (Appeals) is, as competent as the Assessing Officer is in relation to all matters concerning the

assessment which are within the scope of the Assessing Officer while making the assessment. The scope of the appellate power under the Income

tax Act was considered by the apex Court in the cases of Commissioner of Income Tax, U.P.,Lucknow Vs. Kanpur Coal Syndicate, ; Jute of

Corporation of India Ltd. Vs. Commissioner of Income Tax and another, and Commissioner of Income Tax, M.P., Bhopal Vs. M/s. Nirbheram

Deluram, . The power of the appellate authority is wide as that of the assessing officer is emphatically stated in these decisions. In the case of

Kanpur Coal Syndicate, the apex Court dealt with Sections 3, 31(3)(b), 33(4) of the Income Tax Act, 1922, which is similar to Section 251(1)(a)

of the Income Tax Act, 1961. The apex Court in that case observed that the Appellate Assistant Commissioner has plenary powers in disposing of

an appeal. The scope of his power is coterminous with that of the Income Tax Officer. He can do what the Income Tax Officer can do and also

direct him to do what he has failed to do. In the case of Corporation of India Ltd., the apex Court held that the Income Tax Act did not place any

restriction or limitation on the exercise of appellate power. Even otherwise, the appellate authority, while hearing the appeal against the order of a

subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or

limitations, if any, prescribed by the statutory provisions. In the absence of any restriction or limitation prescribed by statutory provision, the

appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. The law laid down in those two

decisions was reiterated by the apex court in the case of Commissioner of Income Tax, M.P., Bhopal Vs. M/s. Nirbheram Deluram, .

What was said by the apex court in relation to the appellate power under the Income Tax Act is equally applicable to the scope of the

appellate power under the Wealth-tax Act, as in that Act also, no restriction or limitation has been placed on the appellate power. Section 23,

Sub-section (5), of the Wealth-tax Act, inter alia, provides that the Commissioner (Appeals) ""may pass such order as he thinks fit which may

include an order enhancing the assessment or penalty"". The proviso thereunder requires the Commissioner to give reasonable opportunity to the

assessee to show cause against any proposed enhancement of the assessment or penalty. There is no other restriction placed upon the powers of

the Commissioner (Appeals). The Commissioner (Appeals), when he entertains the appeal under the provisions of the Wealth-tax Act, is,

therefore, as competent as the Wealth-tax Officer is, in relation to all matters concerning the assessment which are within the scope of the Wealth-

tax Officer while making the assessment.

In paragraph 2.2 of the Commissioner of Wealth Tax (Appeals) it is stated as follows:

The Counsel submitted before me that the properties under consideration were partly occupied by employees who were drawing salaries of less

than Rs. 2 lakhs per annum. Though these properties are known as guest houses, they functioned as either permanent staff quarters or transit

houses for the employees in connection with the business of the appellant company. They relied on the judgment of Madras High Court in the case

of Carborundum Universal Ltd. 241 ITR 407 wherein it was held that the transit houses used by the employees are not guest houses as

understood in the Income Tax and Wealth Tax Acts....

However, this contention has been rejected in paragraph 2.4 thus:

I have considered the rival submission of the appellant''s counsel. The first argument that the guest houses are business assets and hence to be

excluded, does not stand to reason as it was not the claim of the appellant at any proceedings at any time, except now....

This action of the Commissioner of Wealth Tax in rejecting the contention is against the well recognised principle of law, as aforesaid. The

Commissioner ought to have given an opportunity to place the materials as required under the Rules and ought to have adjudicated the issue

without rejecting the same on the premise that it has not been taken before. The action of the appellate authority, in rejecting the ground as not

being taken before the lower authority, is nothing but negation of the power that vests with him and also against the well recognised principles of

law. The order of the appellate authority has been affirmed by the Tribunal. Hence, we are of the view that the assessee has to succeed on that

ground. There is a line of decisions to show that the power of the Appellate Assistant Commissioner/Commissioner (Appeals) is co-terminus with

that of the assessing officer and they are Commissioner of Wealth-tax Vs. Prasad Productions (P.) Ltd., , Travancore Electro Chemical Industries

Ltd. Vs. Commissioner of Income Tax, ; Smt. Prabhavati S. Shah Vs. Commissioner of Income Tax, ; and Vijaykunverba Vs. Commissioner of

Income Tax, .

The other issue as to what is the extent of the land that could be regarded as land appurtenant to the main building, as per Section 2(ea)(i) of

the Act has been dealt with by a Division Bench of this Court in the case of M.K. Kuppuraj (HUF) and Others Vs. CWT, .

The question as to whether certain land is appurtenant to the house is one of fact, as held, in the case of Commissioner of Income Tax Vs.

Smt. M. Kalpagam, wherein it was held that in order to decide the question whether certain land is appurtenant to the house, the following five

tests can be applied to understand the meaning of the words ""land appurtenant"" more precisely:

(1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication

that the entire extent of land is appurtenant to the building;

(2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as

such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user

without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial

considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in

the building, the requirements of persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any

surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building;

(3) If there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the

building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for

commercial or agricultural purpose although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to

the building;

(4) If the owner or occupier is deriving any income from the lands which is not liable to be assessed as income from house property u/s 22 of the

Income Tax Act, 1961, then the extent of such land does not qualify to be treated as land appurtenant to the building; and

(5) Any material pointing to the attempted user of the land for purposes other than the effective and proper enjoyment of the house would also

afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are

illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable

and appropriate to each case.

In the case of M.K. Kuppuraj (HUF) and Others Vs. CWT, while considering Section 7 of the Wealth Tax Act, the Division Bench of this

Court held as follows:

Section 7 of the Wealth-tax Act, 1957, deals with the manner in which the value of assets is to be determined. Sub-section (4) of Section 7 which

provides for valuation 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 does not set out a definition of the term ""house"" nor does it lay down any ceiling regarding the

extent of open space which can be regarded as part of the house. The term ""house"" is not defined in the definition Section 2 of the Wealth-tax Act.

The tests that are required to be satisfied to attract the proviso to Section 7(4) are (i) that the property must belong to the assessee, and (ii) that it

should be used exclusively for ""residential purpose"". In the event of the assessee having more than one residential house, option is given to the

assessee to specify the house in respect of which he wishes to avail of the benefit under that proviso. Once it is found that the house is in fact a

residential house and that the land is being used as the ground attached to the house for the benefit of the residents of the house, it remains a part of

the house for the purpose of the proviso to Section 7(4). It is not for the authorities to decide for the assessee as to what the size of his house

should be or the extent of the garden or other area which the assessee should have for the house in which he lives. Such enquiry is outside the

scope of the Wealth-tax Act. If a person had acquired a house for being used as a residential house and that house happened to have a large open

space around it for use as garden or a play area or other purposes, as long as the house is used solely for residence and the benefit of those

grounds is confined to the residents of the house and their visitors, such a house with its grounds would qualify for exemption u/s 7(4). Importing

individual notions as to what should be the reasonable size of a house or what should be the reasonable extent of the open space around it is not a

permissible exercise in making the assessment under the Wealth-tax Act. The Town Planning Rules do not impose a limit on the maximum open

space that can be left around the house. The Assessing Officer cannot take a Rule under a different enactment specifying a minimum and convert

that into a maximum for the purpose of the Wealth-tax Act and thereafter bring to tax a part of the house which should have been excluded from

valuation u/s 7(4). When the statute provides an exemption it is not to be whittled down arbitrarily by the Assessing Officers by importing their

private notions of reasonableness into the provision which grants exemption.

All these judgments clearly show that the various amenities, such as, roads, garden, play area etc., as long as they are used solely for residence

and the benefit of those grounds is confined to the residents of the house and their visitors, such a house with its grounds would qualify for

exemption u/s 7(4). This aspect of the matter has also not been dealt with by any one of the authorities under the Act or by the Tribunal.

The learned Counsel for the revenue is not able to sustain the order of the authorities below and ultimately she says that if the Court is of the

view that the orders have to set aside, the matter may be remitted either to the Commissioner of Appeals or to the assessing officer for redoing the

exercise, the other issue in respect of the valuation of the property also can be remitted to the authorities for reconsideration.

Hence, taking into consideration the totality of the circumstances of the case, we are of view that the ends of justice would be met if the orders

passed by the authorities under the Act and the Tribunal are set aside and the matter may be remitted to the assessing officer. Accordingly, the

orders of the authorities below including the order of the Tribunal are set aside and the matter is remitted to the assessing officer. The assessing

officer is directed to reconsider all the issues afresh, in the lines indicated above. It is open to the parties to raise all the issues with supporting

materials before the assessing officer.

The appeals stand disposed of in the above terms. No costs. The connected miscellaneous petitions are dismissed.