Commissioner of Income Tax vs Gopaldas Dwarkadas Family Trust Estate

Prabha Sridevan, J.—In this case, the following questions of law are raised:

Whether on the facts and in the circumstances of the case the Tribunal was right in remanding the matter to the assessing officer to redo the

assessment is valid law?

Whether on the facts and in the circumstances of the case, that the Tribunal was right in holding that all the properties rented out should be

valued only as per Rule 3 of Schedule III, even where the rents are very low and the Jt. CIT was satisfied that r. 3 would not apply in terms of r.

8(a) is valid in law ?

The Respondent is served and has not chosen to enter appearance.

The Assessee is a private family trust. The Tribunal after hearing the appeal filed by the trust remitted the matter to recompute the value of the

property as on the valuation date relevant to the assessment year by applying Schedule III, Rule 3 of the Wealth Tax Act. When we asked the

learned Counsel why we should interfere since it is any way an order of remand and the tax effect also appears not to be very high, the learned

Counsel submitted that all that the Assessee wants is that the hands of the assessing officer shall not be tied by the order of the Tribunal and that

the same direction as given in Commissioner of Wealth-tax Vs. VGP Housing Pvt. Ltd., may be given in this case. The relevant para in the

judgment reads as follows:

The Tribunal held that the Assessee is subject to wealth-tax and for the purpose of determining the value of the immovable property, the Tribunal

remanded the matter with a direction to the assessing officer to apply rules 3, 4 and 5 of the Schedule III of the Wealth Tax Act. The order of the

Tribunal reads as under:

We have gone through Schedule III, wherein Rule 3 Part B for determining the value of the immovable property has been provided. First of all,

we have gone through the provisions of rules 3, 4 and 5 of Schedule III and seen that the let out property is to be valued after arriving at by

multiplying the net maintainable rent at 12.5. In this case, the Assessee admitted that there is written lease agreement but the Assessee has to

clearly state before the assessing officer that as to how much period, the property was on lease because for application of Rule 3, unexpired period

of lease is to be calculated by valuing the property. Even in the case of Bharat Hari Singhania v. CWT (1994) 118 CTR (SC) 125, the Honble

Supreme Court has held that Where there is a rule prescribing the manner in which a particular property has to be valued, the authorities under the

Act have to follow it. In the present case, the property has to be valued as per Schedule III which is mandatory. Hence, we direct the assessing

officer to value the property in view of rules 3, 4 and 5 of Schedule III after taking the annual rent as the property is let out, for the years ending on

the valuation date and the actual rent received by the owner in respect of that year. In this case, the property i.e. land and superstructure are let out

to its sister concern and the rent as assessed in the income tax proceeding will be taken as the annual rent and accordingly, the valuation of

property be made by the assessing officer. In view of this, we set aside this issue to the file of the assessing officer to value the property in view of

the provisions of rules 3, 4 and 5 of Schedule III to the Wealth Tax Act and direct the assessing officer to take the annual rent as declared in the IT

returns.

The only grievance of the. Revenue is that the Tribunal has specifically mentioned only the rules 3, 4 and 5 to be invoked and directed the assessing

officer to determine the value of the property. Schedule III of the Wealth Tax Act deals with rules for determining the value of assets. Part B of

Schedule III deals with immovable property and Rule 3 deals with valuation of immovable property. Rule 4 deals with net maintainable rent how to

be computed. Rule 5 deals with gross maintainable rent how to be computed. Rule 6 deals with adjustments to value arrived at under Rule 3, for

unbuilt area of plot of land. Rule 1 deals with adjustment for unearned increase in the value of the land. Rule 8 deals with the rule not to apply in

certain cases, which reads as under:

Rule 3 not to apply in certain cases.--Nothing contained in r. 3 shall apply,

(a) where, having regard to the facts and circumstances of the case, the assessing officer, with the previous approval of the Dy. CIT, 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 r. 20.

From a reading of the above, it is clear that if Rule 3 is not practicable to be applied to the facts of a case, the assessing officer, with the approval

of the Dy. CIT, can apply Rule 8. Rule 20 comes under Part H under the heading ""Residuary"", which reads as follows:

Valuation of assets in other cases.--(1) The value of any asset, other than cash, being an asset which is not covered by rules 3 to 19, for the

purposes 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.

(2) Notwithstanding anything contained in Sub-rule (1), where the valuation of any asset referred to in that sub-rule-is referred by the assessing

officer to the Valuation ""Officer u/s 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it

would fetch if sold in the open market on the valuation date.

(3) Where the value of any asset cannot be estimated under this rule because it is not saleable in the open market, the value shall be determined in

accordance with such guidelines or principles as may be specified by the Board from time to time by general or special order.

The apprehension of the revenue is that the Tribunal had given only a specific direction to the assessing officer to apply only rules 3, 4 and 5. On a

complete reading of Schedule III, the irresistible conclusion is that the assessing officer should consider and apply rules 3, 4 and 5, and if he is of

the opinion that it is not practicable to apply the rules 3, 4 and 5, he could rely on Rule 8 or Rule 20 and the value of the property could be

determined in the manner laid down under Rule 8 or Rule 20. Hence, there is no restriction for the assessing officer to apply the relevant rules for

determining the value of the immovable property and hence the apprehension of the revenue has no basis and it is an imaginary one. We make it

clear that it is for the assessing officer to apply first the rules 3, 4 and 5, and if he feels the same is not practicable to apply, he is at liberty to invoke

Rule 8 or Rule 20 and determine the value of the assets in accordance with Schedule III of the Wealth Tax Act.

The tax case appeal is disposed of clarifying that it is for the assessing officer to determine the value of the assets as above in accordance with law.

No costs.