H.H. Maharaja Martand Singh Ju Deo vs Commissioner of Wealth-tax

This is a reference made by the Income Tax Appellate Tribunal, Jabalpur, u/s 27(1) of the Wealth-tax Act, 1957, for answering the following questions :

"(1) Whether in computing the market value of Rewa House, Bombay, on the basis of value as on March 31, 1972, the assessee was entitled to the deduction of--

(a) the sum of Rs. 2,93,400 (as allowed by the Income Tax Officer in Income Tax assessment on account of one-half share of stamp duty, registration charges and other expenses incurred in connection with the sale of the property ?

(b) Rs. 3,00,000 obtained for additional Floor Space Index (F.S.I.) for Part B of the property as per the agreement for sale thereof through the efforts of the vendees subsequently ?

(c) Rs. 7,41,000 on account of corresponding higher value fetched on sale of the remaining Parts A and C of the property subsequent to the sale of Part B thereof and developments effected thereon, i. e., Part B ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified is holding that the events taking place subsequent to the valuation date could not be taken into consideration in working out the market value of the property and thereby upholding the valuation of Rewa House, Bombay, at Rs. 24,93,998 as on March 31, 1969, Rs. 27,40,652 as on March 31, 1970, and Rs. 30,11,700 as on March 31, 1971 ?"

This reference arises out of the valuation of the Rewa House at Bombay declared in the return of wealth filed by the assessee for the assessment years 1969-70, 1970-71 and 1971-72.

The short facts leading to this reference are as under : The assessee was the ruler of the erstwhile princely Rewa State. While furnishing the return of wealth, the assessee declared his net wealth including movable and immovable properties, but the present dispute rests with the property situated at Bombay which is known as ''Rewa House'', The said house was partitioned in the year 1972 in three portions. Portion "A" fell to the share of the assessee''s only son, Kunwar Pushpraj Singh. Portion "B" fell to the share of the assessee''s wife and portion "C" fell to the share of the assessee himself. The return was filed by the assessee in the capacity of karta of the Hindu undivided family. However, all the portions of the Rewa House at Bombay have been sold on different dates for Rs. 39 lakhs (approximately). The Wealth-tax Officer, however, gave certain adjustments, but it appears that the assessee was not satisfied and, after the decision of the Wealth-tax Officer, went in appeal before the Tribunal. The Tribunal at the instance of the assessee referred the aforesaid two questions for answer to this court.

Shri H.S. Shrivastava, learned counsel appearing on behalf of the assessee, contended that portion ''B'' of the Rewa House at Bombay was sold on March 31, 1972, for Rs. 16,75,000 and for the execution of the sale, the assessee incurred expenses to the tune of Rs. 2,77,140 which are liable to be deducted from the sale price. He further submitted that the sale price was receivable in terms of the agreement, in instalments, and, therefore, the assessee is further entitled to deduction for the loss of interest during the period from the date of sale to the date when the sale price was received and thus after making the aforesaid deduction from the sale price, the balance thereof only represents the market value of the property on March 31, 1972. Next, it was submitted that the purchasers managed to get permission for additional floor space index and paid Rs. 3 lakhs to the assessee on August 1, 1975. Therefore, according to learned counsel for the assessee, this additional payment of Rs. 3 lakhs is liable to be excluded from the sale price as this additional floor space index has been acquired by the purchasers by their own efforts. On this basis, learned counsel submitted that the development potentiality of the building is liable to be ignored in determining the market value of the property on the date of its valuation.

So far as the expenses on sale are concerned, this point in issue is well-settled. In Lakshmi Kant Jha Vs. Commissioner of Wealth Tax, Bihar and Orissa, , wherein their Lordships of the Supreme Court have held (headnote):

"It is not the amount which the vendor would receive after deducting brokerage commission or other expenses for effectuating the sale but the price which the asset would fetch when sold in the open market that would constitute the value of the asset for the purpose of Section 7(1) of the Wealth-tax Act, 1957. In computing the value of an asset for the purposes of wealth-tax, expenses which may have to be borne in effecting the sale cannot be deducted from the price which the asset would fetch if sold in the open market."

Thus, in the instant case, the market value of the Rewa House at Bombay is the gross sale proceeds. Therefore, the sum of Rs. 2,93,400 as had been claimed towards the expenses incurred for execution of the sale deed, is not liable to be deducted.

It is next contended that the purchasers had obtained floor space index for which an amount of Rs. 3 lakhs was given and this amount is liable to be deducted from the sale proceeds. While making this submission, learned counsel failed to see that had this agreement been arrived at between the assessee and the purchasers, then, to this extent, a term must have found place in the agreement of sale or in the sale deed itself, but no such stipulation finds a place. Therefore, in our opinion, the assessee is not entitled to claim such deduction for A and C portions of the building. Therefore, the total sum of Rs. 16,75,000 which was paid to the assessee will be taken as the sale price, i. e., the market value of the property as on March 31, 1972. It was a part of the price for the estate as such. The additional floor space index was acquired by the purchasers, which is inherent in the property as such, or otherwise there was no reason why the purchasers would agree to pay Rs. 3 lakhs in addition to Rs. 13,75,000 paid earlier. Therefore, the total sum of Rs. 16,75,000 is the market value, being the gross sale proceeds which is to be taken into account.

Therefore, the development potentialities of the building cannot be ignored in determining the market value of the property as on the date of its valuation, the floor space index price cannot be deducted from the sale price of Parts A and C of the Rewa House, Bombay, as there was no such stipulation in the agreement of sale or in the sale deed and, therefore, the assessee is not entitled to the deduction of Rs, 7,41,000 for A and C parts of the building.

In our opinion, the Revenue was justified in holding that the events which took place subsequent to the valuation date, could not be taken into consideration in working out the market value of the property and, therefore, the Revenue has rightly assessed the market value of Rewa House, Bombay, on March 31, 1969, at Rs. 24,93,998, on March 31, 1970, at Rs. 27,40,652 and on March 31, 1971, at Rs. 30,11,700 as against the total sale price of the entire Parts, Rs. 39 lakhs. While determining the market value, adequate adjustment has been given to the assessee by reducing at 9% per annum on the amount of sale price by way of interest and as such as compared to Rs. 38 lakhs for which the house was sold, deduction of Rs. 5,06,002 (against the price of Rs. 24,93,998 on March 31, 1969, and Rs. 4,59,348 (against the price of Rs. 32,00,000 in 1970-71) have already been given, as the sale price of the Rewa House, Bombay, was received by the assessee in instalments. Therefore, the principle adopted by the Revenue cannot be said to be unjustified and as such the legitimate relief to which the assessee was entitled has already been granted to him which cannot be said to be unfair and unjust, needing interference by this court.

Here, it will not be out of point to state that while determining the fair market value of the property, the potentiality of the land or the building, as the case may be, can be taken into consideration. This view finds support from the decision in AIR 1939 98 (Privy Council) .

Shri H.S. Shrivastava, learned counsel appearing for the assessee, further argued that the approach of the Tribunal in reaching the conclusion on the questions framed and referred to this court is erroneous and the same may be rectified. The jurisdiction of the High Court relating to the nature of the proceedings in a reference either under the Income Tax Act, the Gift-tax or any other allied Act, is only advisory and to the questions which are referred to the High Court, it can only subscribe its view in an advisory capacity. The point at issue has been dealt with by their Lordships of the Supreme Court deciding the scope of such proceedings in Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., , where it has been held that the High Court hearing a reference does not exercise any appellate or supervisory jurisdiction over the Tribunal but it acts purely in an advisory capacity. The jurisdiction of reference confers a special and limited jurisdiction on the High Court to decide any specific question of law which has been raised between the assessee and the Revenue before the Tribunal, and upon which question the parties are at issue. Therefore, the true position that emerges is that the High Court is not a court of appeal, but it exercises only an advisory jurisdiction. In K.S. Venkataraman and Co. Vs. State of Madras, , C.P. Sarathy Mudaliar v. CIT [1960] 62 ITR 576 , Aluminium Corporation of India Ltd. Vs. Commissioner of Income Tax, West Bengal, and Popular Engineering Co. Vs. Commissioner of Income Tax, , the aforesaid view that the High Court acts in such matters in an advisory capacity has been registered. Therefore, the aforesaid discussion makes it clear that the only power which the High Court exercises in reference matters, is to give its opinion about the question referred to it in its advisory capacity by answering those questions in favour of the assessee or the Revenue, as the case may be. Therefore, the argument advanced by learned counsel is repelled.

The questions referred for our answer by the Tribunal at the instance of the assessee have already been dealt with and concluded by a catena of decisions of the various High Courts and the highest court of the land. Therefore, in such matters, when the questions are self-evident, the Tribunal should always be slow in referring the questions to the High Court. (See Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, ).

As a result of the aforesaid discussion, we answer both the questions referred to us, in favour of the Revenue and against the assessee. Costs shall be borne by the assessee. Counsel''s fee Rs. 500, if certified.