Skip to content


Commissioner of Wealth Tax Vs. Srikantadatta Narasimharaja Wadiyar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation;Property
CourtKarnataka High Court
Decided On
Case NumberTax Refd. Case Nos. 124 to 132 of 1998
Judge
Reported in(2005)196CTR(Kar)585; [2005]279ITR226(KAR); [2005]279ITR226(Karn)
ActsWealth Tax Act, 1957 - Sections 2, 3, 7(1) and 27(3); Urban Land (Ceiling and Regulation) Act, 1976 - Sections 2(1), 4, 5, 5(3), 6, 6(1), 8, 8(1), 8(3), 8(4), 9, 10, 10(1), 10(3), 11, 14, 18, 20, 30(1) and 33; Bihar Land Reforms Act, 1950; Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 - Sections 18(3); Urban Land (Ceiling and Regulation) Repeal Act, 1999; Constitution of India - Article 252(2); Principal Act - Sections 11, 12, 13 and 14; Wealth Tax Rules, 1957 - Rule 1B
AppellantCommissioner of Wealth Tax
RespondentSrikantadatta Narasimharaja Wadiyar
Appellant AdvocateM.V. Seshachala, Adv.
Respondent AdvocateShankar, ;Shankar, ;Parthasarathy, ;Ramabhadran and ;S.G. Shivaram, Advs.
Excerpt:
- indian penal code, 1890.section 376: [arali nagaraj, j] sentence offence of rape - accused forcibly raped a girl aged less than 16 years trial court imposed sentence of 10 years sentence - high court reduced it to 4 years on the ground that the accused had aged parents and he is the only earning member and also that he had no other criminal antecedents. - 2,00,000 for the purpose of wealth-tax assessment for the years in question ?' 6. on behalf of the revenue, sri seshachala, learned counsel, contended, that the tribunal was clearly in error in law, in holding, that the wto was not justified in assessing the wealth of the assessee at the value equivalent to the amount that the assets would have fetched, since it is the statutory obligation for the purpose of assessing the value of.....orderh.l. dattu, j.1. since in all these references the dispute between the assessee and the revenue is of identical nature and they arise out of the same facts but pertains to different assessment years, namely, 1977-78 to 1986-87, we intend to dispose of these reference cases by this common judgment.2. a few relevant facts need to be noticed in order to appreciate the contentions raised and canvassed in these reference cases. they are :the assessee is sri srikantadatta narasimharaja wadiyar (minor huf). the assessment years are 1977-78 to 1985-86. bangalore palace was the private property of late sri jayachamarajendra wodeyar, the former ruler of the princely state of mysore. the total extent of bangalore palace is 554 acres or 1837365.36 sq. mt. it comprises of residential units,.....
Judgment:
ORDER

H.L. Dattu, J.

1. Since in all these references the dispute between the assessee and the Revenue is of identical nature and they arise out of the same facts but pertains to different assessment years, namely, 1977-78 to 1986-87, we intend to dispose of these reference cases by this common judgment.

2. A few relevant facts need to be noticed in order to appreciate the contentions raised and canvassed in these reference cases. They are :

The assessee is Sri Srikantadatta Narasimharaja Wadiyar (Minor HUF). The assessment years are 1977-78 to 1985-86. Bangalore Palace was the private property of late Sri Jayachamarajendra Wodeyar, the former ruler of the princely State of Mysore. The total extent of Bangalore Palace is 554 acres or 1837365.36 sq. mt. It comprises of residential units, non-residential units and land appurtenant thereto, roads and masonary structures along the contour and the vacant land. The vacant land measures 11,66,377.34 sq. mt. Sri Jayachamarajendra Wodeyar expired on 23rd Sept., 1974. There was a dispute with regard to wealth-tax assessments of Sri Jayachamarajendra Wodeyar pertaining to asst. yrs. 1967-68 to 1976-77. After the death of Sri Jayachamarajendra Wodeyar, his son Sri Srikantadatta Wodeyar applied to Settlement Commission to get the dispute settled with regard to valuation of Bangalore Palace and the same came to be decided on 29th Sept., 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 WTO decided the valuation of Bangalore Palace for the asst. yrs. 1967-68 to 1976-77. For the asst. yr. 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 WTO adopted the same valuation for the block period of three years commencing from asst. yr. 1976-77. For the asst. yr. 1979-80, since there was no report of the Valuation Officer, the Commr. of Appeals worked out the value of the Bangalore Palace at Rs. 19.96 crores for the asst. yr. 1981-82. The WTO adopted the same valuation for the asst. yrs. 1979-80 and 1980-81. For the assessment years, namely, 1981-82 to 1983-84, the WTO fixed the value on the same lines and adopted the same value as was done for the previous assessment years.

For the asst. yr. 1984-85, the value fixed by the WTO was Rs. 31,72,91,000 on the basis of the order passed by the Commr. of Appeals for the two earlier assessment years. Against these orders, assessee went up in appeal before the CIT(A). One of the grounds urged is with regard to valuation of Bangalore Palace. The appeals relating to assessment years namely, 1981-82, 1982-83 and 1983-84 came to be disposed of by the CIT(A) by his common order dt. 9th Jan., 1990. For the asst. yr. 1981-82, the CIT(A) made slight modification of the order passed by the WTO and in regard to asst. yrs. 1982-83 and 1983-84, he confirmed the order passed by the WTO.

3. The appeals filed for the assessment years, namely, 1977-78 to 1980-81 were subsequently disposed of by the CIT(A) by his common order dt. 31st July, 1990 and in those orders, he accepted the plea of the assessee and held that the vacant land should be valued at Rs. 2 lakhs in each of these years. Similar orders came to be passed by the CIT(A) for the asst. yrs. 1984-85 and 1985-86 also.

4. Against these orders, the Department went up in appeals before the Tribunal, Bangalore Bench, Bangalore. The assessee also had filed appeals against, the common order passed by the CIT(A) for the assessment years, namely, 1981-82, 1982-83 and 1983-84. The appeals tiled by the Revenue and the assessee came to be disposed of by the Tribunal by its common order dt. 2nd Nov., 1993. Following the decision of CWT v. K.S. Ranganatha Mudaliar and Ors. : [1984]150ITR619(Mad) , the Tribunal held that the value of the vacant 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 appurtenant land thereto.

5. It is in this factual background, the CWT 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 dt. 2nd Nov., 1993. The Tribunal has referred the following question of law to this Court under Section 27(3) of WT 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 wealth-tax assessment for the years in question ?'

6. On behalf of the Revenue, Sri Seshachala, learned counsel, contended, that the Tribunal was clearly in error in law, in holding, that the WTO was not justified in assessing the wealth of the assessee at the value equivalent to the amount that the assets would have fetched, since it is the statutory obligation for the purpose of assessing the value of the wealth of the assessee that the authority has to determine as to what fair market value it would have realised, if the assets had been sold in the open market. It was further contended, that the Tribunal without keeping in view the settled principles evolved by the apex Court while fixing the value of the vacant land for the purpose of valuation of the assets, could not have come to the conclusion that, in view of the provisions of the Urban Land (Ceiling and Regulation) Act, 1976, the maximum compensation that the assessee may be paid was Rs. 2,00,000 and that amount required to be taken as the value of vacant land for the purpose of wealth-tax assessment for the relevant assessment years. In support of his contentions, the learned counsel relies on the decision of the apex Court in the case of Ahmed G.H. Ariff and Ors. v. CWT : [1970]76ITR471(SC) . The issue before the apex Court was, whether the right of an assessee to receive specified share of the net income from an estate in respect of which Wakf-alal-aulad has been created is an asset assessable to wealth-tax. The facts in that case were, the appellants, who were beneficiaries under the deed of wakf, were paying income-tax on the amount, which was being received by them in terms of the deed of wakf created by the settlor. In the year 1957, the WT Act, 1957, came into force and during the asst. yrs. 1957-58 and 1958-59, the appellants were not only assessed to income-tax in respect of the income received by them from the wakf estate but were also assessed to wealth-tax by the WTO, on the basis, that they had a share in the wakf estate. The total value of the immovable property belonging to the wakf estate was valued at 20 times the annual municipal valuation and 1/6th of the value of the immovable property along with the other properties was taken to be the net wealth of each assessee. Appeals were filed before the AAC of WT, but they were dismissed. There were further appeals before the Tribunal and one of the contentions before the Tribunal was that the right of the beneficiaries under the 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, that, on the facts and circumstances of the case, whether 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 a 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 sold in the open market, it could not be said that such an asset had no value. For the purpose of the Act, the WTO must proceed to value it as if it was an asset, which was saleable in the market and that would depend on actuarial valuation. Consequently, the question was answered in the affirmative and in favour of the Revenue. Against the said order of the High Court, the assessee had carried the matter before the Supreme Court and one of the contentions canvassed by the learned counsel for the assessee by placing reliance on Section 7(1) of the Act was, that a right of share in the income was not capable of any valuation and the price which it would fetch, if sold in the open market could not possibly be ascertained. While considering this argument, the Supreme Court has observed :

'Such an argument was fully examined in the Bombay case in which the High Court referred to the provisions of English statutes, which were in pari materia, as also decisions given by the English Courts including the one by the House of Lords in IRC 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 has to be found out. It is a hypothetical case which is contemplated and the tax officer must assume that there is an open market in which the asset can be sold.'

7. The learned counsel for the Revenue has drawn our attention to the decision of the apex Court in the case of Purshottam N. Amarsay and Anr. v. CWT : [1973]88ITR417(SC) . That was a case where under a trust deed executed by the settlor, the trustees were to supply the net income of the trust fund 'for the support, maintenance and advancement in life and otherwise for the benefit of the settlor and his wife in such manner as to enable the settlor to live as far as possible with the same comforts and to enjoy life in the same manner as he is accustomed to do'. There was also directions regarding the surplus income. The Tribunal held that the settlor's interest under the trust deed had no value for the purpose of wealth-tax, it being a personal estate, which it was not possible to sell in the open market. 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 WT 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 IRC 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 has to be found out. It is a hypothetical case which is contemplated and the tax officer must assume that there is an open market in which the asset can be sold.

Mr. Chagla, learned counsel for the assessees, contended that in that case this Court did not consider the possibility of an asset not having any value whatsoever. We are unable to accede to that contention. What this Court ruled in Ahmed G.H. Ariff and Ors. v. CWT : [1970]76ITR471(SC) was that even if the property in question is incapable of being sold in the open market, being a personal estate, in that event also the interest of the assessee has to be valued by the WTO. In our opinion, the decision of this Court in Ahmed G.H. Ariff's case (supra) completely covers the issue under discussion.'

8. The learned counsel for the Department next relies on the observations made by the Supreme Court in the case of Pandit Lakshmi Kant Jha v. CWT : [1973]90ITR97(SC) . Before the Supreme Court, three questions fell for its consideration. Apart from the two questions, the third question was, whether any part of the amount of Rs. 36,87,419 fixed as compensation payable to the assessee under the Bihar Land Reforms Act is liable for inclusion in the total wealth of the assessee. While answering this question, the apex Court has observed :

'Under the Bihar Land Reforms Act, 1950, as soon as the estate or tenure of a proprietor or tenure-holder vests in the State, he becomes entitled to receive compensation. The right to receive compensation from the State is a valuable right. The fact that the compensation is not payable immediately and its payment might be spread out over a period of 40 years, would be relevant only for the purpose of evaluating the right to compensation. The right to receive compensation, even though the date of payment is deferred, is property and constitutes an 'asset' for the purpose of the WT Act, 1957.'

9. The learned counsel for the Revenue also relies on the view expressed by the Madras High Court in the case of Commr. of Agrl. IT v. K.S. Balakrishnan : [1976]104ITR368(Mad) . In this case, the question before the Court was, whether an extent of 29 acres and 27 cents which was in excess of the ceiling area, should be taken into account for the purposes of composition. The assessing authority, notwithstanding the fact that the notification under Section 18(3) of the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, was made on 23rd May, 1966, took the view that this extent should be taken into account for the purpose of composition in respect of the asst. yr. 1967-68. In support of this view, he relied on the proviso to Section 10 of the Madras Agrl. IT 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 Act, but the actual vesting of the land in the Government takes place only on the date of the publication of the notification under Section 18(1) and it is only then that the title of the person who, in fact, held the excess, though he was not entitled thereto, would stand extinguished.

By reason of the proviso to Section 10 of the Tamil Nadu Agrl. IT Act, 1955, even though the notification which vested the lands in question in the Government took effect in the middle of the account year, the same should be included in the composition application.'

10. The learned counsel for the Revenue also relies on the observations made by the apex Court in the case of CWT v. Prince Mufakkham Jah Bahadur (2001) 247 ITR 351. The facts in that case were :

'The assesses had, under a trust created by the late Nizam, the right to live in a house during his lifetime without being required to pay any rent. The right was inalienable. The question was whether the value of that right had to be included in the assessee's wealth for the purposes of the WT Act, 1957. The Tribunal held that the assessee's interest was not includible in the wealth of the assessee; and the High Court, on a reference, held that inasmuch as the assessee's interest was only to live in the house as a licensee and he could not dispose of the interest or deal with it in any manner for his benefit, the assessee's interest could not be called an 'asset' for the purposes of the WT Act.'

On appeal, the Supreme Court has held :

'(i) that the assessee's right to reside in the house for the duration of his life, though it was personal and inalienable, was property which would have a market in an assumed market place; in other words, an assumed somebody would acquire this personal right in the property during the lifetime of the assessee and pay a price for it. The right of the assessee had to be included in the wealth of the assessee for purposes of wealth-tax.

(ii) That Rule 1B of the WT Rules, 1957, was not workable in the circumstances of this case, because it was applicable only to an income-yielding asset. Even if Rule 1B did not apply, the asset had still to be valued and included in the wealth of the assessee. The life interest of the assessee had to be valued in the ordinary way, i.e. upon the assumption that the assessee's personal right to reside in the house during his lifetime was saleable.

In the absence of a rule which can apply to the valuation of a particular 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.'

11. On behalf of the assessee, the 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, CIT(A) 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 the 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 WTO 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 sought to be placed on the decision of the Supreme Court in the case of Calcutta Electric Supply Corporation v. CWT : [1971]82ITR154(SC) . In the said decision, the Court has observed, that 'Section 7 of the Act does not take of hypothetical possibilities in the matter of valuation of the assets. It merely concerns itself as what is the true market value of the assets in question on the valuation date'.

12. The learned counsel for the assessee has invited our attention to the law laid down by the Constitution Bench of the Supreme Court in the case of CWT v. Bishwanath Chatterjee and Ors. : [1976]103ITR536(SC) , wherein the Court has observed, that, under Section 3 of the WT Act, 1957, read with Section 2(m) of the Act, liability to wealth-tax arises out of ownership of the asset and not otherwise. Mere possession or joint possession, unaccompanied by the right to, or ownership of property would, therefore, not bring the property within the definition of 'net wealth' for it would not then be an asset belonging to the assessee.

13. The learned counsel for the assessee have placed heavy reliance on the decision of the Madras High Court in the case of CWT v. K.S. Ranganatha Mudaliar (supra). Since the conclusion reached by the Tribunal is mainly depending on the observations made by the Madras High Court in the aforesaid decision, we intend to notice in detail the fact situation, issues decided and the conclusion reached.

The issue before the Court was, having regard to the provisions of Section 7 of the WT Act, whether the Tribunal was right in holding that surplus lands belonging to the assessees under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, should be valued on the basis of the compensation receivable under the said Tamil Nadu Act. The dispute between the Revenue and the assessees relate to the determination of their farm wealth. The WTO valued all the lands at a particular rate on the ground that under the WT Act, the assets will have to be valued at the prices which the lands will fetch, if sold in the open market, irrespective of the fact whether the holding of each of the assessee is or is not in excess of the ceiling fixed under the Tamil Nadu Reforms (Fixation of Ceiling on Land) Act, 1961. Before the WTO, it was the assessee's contention that in relation to the lands, 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 WTO. 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 WTO, 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 WT Act and that in this case, both the AAC 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 case of Ahmed G.H. Ariff v. CWT (supra) and Purshottam N. Amarsay v. CWT (supra).

The Court, after noticing the observations made in aforesaid decisions, has observed that 'it is no doubt true that the said decision supports the case of the Revenue, to this extent, that even if there is a prohibition under the Ceiling Act against the transfer of lands, still the said lands should be taken to have a hypothetical market and the price they will fetch in the market will have to be taken into account as per the provisions of Section 7 of the WT Act. But even as per that decision, the further question is, whether the restrictions contained in the Ceiling Act will have to be taken note of, for giving due allowance in the price of the lands in view of the depressing effect those restrictions will have on the market.'

The Court has further observed :

'It cannot be disputed that the restrictions and prohibitions will have the effect of depressing the value which the lands would fetch if they were free from the said restrictions and prohibitions. Though we have to assume a market for the lands, in determining the market value of the lands, the restrictions and prohibitions contained in the Ceiling Act have to be taken note of and the value of the lands with all these restrictions and prohibitions should have to be determined. If we ignore the restrictions and prohibitions contained in the Ceiling Act in valuing the excess lands, then that would be valuing an asset differently in content and quality from that actually owned by the assessees. We are, therefore, of the view that all the lands have to be valued only after taking note of the restrictions and prohibitions which will have the effect of depressing the value, which the lands would fetch if sold free from any restrictions and prohibitions.'

14. Similar question also came up for consideration before the Madras High Court in the case of CWT v. R. Padmavathy Ammal. The Court following the observations made by the same Court in the case of CWT v. K.S. Ranganatha Mudaliar (supra), has stated as under :

'7. We have considered the rival submissions. The fact remains that in the wealth-tax assessment of the assessee, for the asst. yrs. 1970-71 and 1971-72, the respective valuation dates are 31st March, 1970 and 31st March, 1971. The point for consideration is to determine the value of the lands, which were taken over by the Government amounting to 993.71 acres. The WTO considering the fact that a portion of the compensation is payable to tenants in the occupation of the lands, determined the value of the land at Rs. 18 lakhs. The AAC taking into consideration the value determined by the Government under the Land Ceiling Act and other depressing factors, directed the WTO 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 AAC 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 disadvantage's, with regard to the location of the land, etc. therefore, it cannot be said that the value determined under the Land Ceiling Act would be something different from the value, which has got to be determined under the guideline value as per the WT Rules and the WT Act. A similar question came up for consideration before this Court in the case of CWT v. K.S. Ranganatha Mudaliar : [1984]150ITR619(Mad) wherein this Court held that the valuation on the basis of compensation received under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 was justified. Therefore, even though the AAC has not elaborately stated the reasons for accepting the compensation awarded under the Land Ceiling Act, the Tribunal, which is the highest fact finding authority, in its order, has given ample reasons for accepting the value in accordance with the compensation awarded under the Land Ceiling Act. Therefore, we see that there is no infirmity in the order passed by the Tribunal in accepting the compensation awarded under the Land Ceiling Act as the value of the land as on the relevant dates.'

15. The Gujarat High Court in the case of CIT v. G.S. Krishnavati Vahuji Maharaj Kalyanaraiji Temple (2003) 131 Taxman 339, has taken the same view as the Madras High Court in the case of K.S. Ranganatha Mudaliar (supra). In this case, the fact situation was that :

'The assessee was having an open land, which was covered under the provisions of the Urban Land (Ceiling and Regulation) Act, 1976. The assessee contended that it was not open to it to sell the land to anyone, and according to the provisions of the Ceiling Act, it was to get Rs. 10 per sq. yd. from the Government. However, the WTO, relying upon the report of the Valuation Officer, valued the entire land at the rate of Rs. 33 per sq. yd. for the asst. yr. 1979-80 and Rs. 48 per sq. yd. for the asst. yrs. 1980-81 and 1981-82. The assessee's appeal was allowed by the CIT(A). The Tribunal also confirmed the order of the CIT(A).

On reference, the Court concluded that :

'The land which was subject-matter of the assessment could not have been valued beyond Rs. 10 per sq. yd. because the said land could not have been sold by the assessee in open market. According to the provisions of the Ceiling Act, the assessee was to receive only a sum of Rs. 10 per sq. yd. in respect of the land in question. Looking to the settled principles of valuation, the AO 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'.'

16. The Calcutta High Court in the case of Gouri Prasad Goenka & Family (HUF) v. CWT : [1993]203ITR700(Cal) , 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 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 Section 10(3) of the Land Ceiling Act, the land does not vest in the Government. Once the land vests in the State Government, there is no question of exemption being granted under Section 20 of the Land Ceiling Act. In this case, a notification has been issued. The assessee had made an application in this case for exemption under Section 20 of the Land Ceiling Act. Even in 1991, as has been stated by Mr. Bajoria, such exemption has neither been given nor rejected and the land remained as excess land all these years.

The State Government may exempt any excess vacant land in public interest and also in a case where such exemption is considered necessary to avoid undue hardship that may be caused to the person holding the vacant land in excess. The order of exemption can only be made if the State Government is satisfied and the reason for doing so is recorded in writing. In granting exemption, it is open to the State Government to impose such condition as may be specified in the order. Certain guidelines have been issued which enjoin that the vacant land in excess, if exempted, could be used for certain specific purposes. In our view, such vacant land in excess, although may be sold in the open market, cannot be transferred by way of mortgage, lease or otherwise in view of the provisions contained in Section 5 of the Land Ceiling Act. Any transfer made in contravention of the provisions of Sub-section (3) of Section 5 of the Land Ceiling Act shall be deemed to be null and void. In such a case, therefore, there may not be willing purchaser for such vacant land.

In our view, therefore, when land cannot be sold in the open market, the question of valuation on the hypothetical basis as to what price it would have fetched had it been sold in the open market could not arise even assuming that such land may be sold subject to the restrictions imposed by the Urban Land Ceiling Act. In that process, one has to take into account the remote possibility of such land being granted full or partial exemption giving liberty to the assessee to dispose of it as he likes or subject to such restrictions as may be imposed as the conditions for exemption. In valuing such a property, one has to take into account the state of affairs as prevailing on the relevant valuation date. The Tribunal has not adverted to this aspect of the matter at all. In our view, admittedly, when the land 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.'

17. The Rajasthan High Court in the case of CWT v. Smt. Ballabh Kumari of Bagsun , while considering the issue, whether the prohibition against transfer of land held by the assessee in excess of 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 WT 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 the Land Ceiling Act would automatically have the effect of diminishing the value of the vacant land held by the assessee in excess of 2,000 sq. mtrs. is essentially a question of law and the provisions of the Land Ceiling Act have to be taken into consideration for the determination of this question. Under Section 6 of the Land Ceiling Act, the person holding vacant land in excess of the ceiling limit is required to file a statement of the vacant lands held by him, specifying the vacant land within the ceiling limit which he desires to retain. Thereafter, a draft statement is prepared under Section 8 as regards the vacant land held by the person concerned in excess of the ceiling limit, inviting objections in respect thereof. After considering the objections received to the draft statement, the competent authority under the Land Ceiling Act has to issue a final statement under Section 9 and when that statement is served upon the person concerned, the competent authority is entitled to issue a notification under Section 10 declaring the excess land held by such person. Section 10(3) of the Land Ceiling Act provides that at any time after the publication of the notification under Sub-section (1) of Section 10, the competent authority may, by a notification published in the Official Gazette of the State, declare the excess vacant land referred to in that notification, to be deemed to have been acquired by the State Government with effect from such date as may be specified in the declaration and upon the publication of such declaration, the excess land shall be deemed to have been vested in the State Government free from all encumbrances. Section 11 specifically refers to the acquisition by the State Government of such vacant land under Section 10(3) and at that point of time, the vacant land will be deemed to have been acquired, when the declaration under Section 10(3) is made by the competent authority. After the excess land is deemed to have been acquired by the State Government, the compensation in accordance with the provisions of Section 11(b)(ii) would be payable to the person having any interest in such land. Thus, whether merely because the provisions of the Land Ceiling Act contain a prohibition against the transfer of land held by the assessees in excess of the ceiling limit would have the effect of reducing the market value of such excess land to the extent of compensation receivable by the assesses under Section 11(b)(ii), is a matter which requires to be considered and, in our view, it certainly raises a question of law.'

18. Before we deal with the contentions canvassed by the 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 of 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.

19. The Urban Land (Ceiling and Regulation) Act, 1976 ('Ceiling Act' for short) has received the assent of the President on 17th Feb., 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 hold any vacant land in excess of the ceiling limit in the territories to which the Act applies, except as otherwise provided in the Act itself from the date of commencement of the Act.

The 'person' is defined under Section 2(i) of the Ceiling Act to include an individual, a family, a firm, a company or an association or body of individuals whether incorporated or not.

To hold' is defined under Section 2(1) of the Ceiling Act in relation to vacant land means, to own such land; or to possess such land as owner or as a tenant or as a mortgagee or under irrevocable power of attorney or under a hire purchase agreement or partly in one of the said capacities or partly in any other of the said capacity or capacities.

Section 2(q) of the Ceiling Act defines the meaning of the expression 'vacant land' to mean the land in an urban agglomeration, and

Section 2(c) of the Ceiling Act defines the expression 'ceiling limit' to mean ceiling limit specified in Section 4 of the Ceiling Act.

Section 4 of the Ceiling Act provides for the manner in which ceiling limit of a person is to be ascertained. It involves a consideration of numerous details prescribed for filing a statement by a person holding vacant land in excess of the ceiling limit.

Section 5(1) of the Ceiling Act deals with transfer of the vacant land in excess of the ceiling limit at any time during the period commencing on the appointed day, i.e., 28th Jan., 1976 and, ending with the commencement of this Act, i.e., 17th Feb., 1976. Under this sub-section, if any person has transferred such land, the extent of the land so transferred shall also be taken into account in calculating the extent of vacant land held by such person. Sub-section (3) of Section 5 of the Ceiling Act contains a prohibition to transfer any vacant land held by a person in excess of the ceiling limit immediately before the commencement of the Act till a statement under Section 6 is furnished and a notification regarding excess land has been published under Section 10(1) of the Act. Any transfer made in contravention of this sub-section shall be deemed to be null and void.

Section 6(1) of the Ceiling Act statutorily obligates that every person holding vacant land in excess of the ceiling limit as on or after the 17th day of February 1976, is required to file a statement in the prescribed form, specifying the vacant 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 Feb., 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. Section 10(1) of the Act envisages, that the competent authority as soon as possible after the final statement is served on the concerned person, to issue a notification giving the particulars of the vacant land held by such person in excess of the ceiling limit, and further notify that such vacant land is to be acquired by the concerned State Government and invite claims from all persons interested in such land, giving particulars of the nature of their interest in such land. The notification requires to be published in the Official Gazette of the State concerned and also in such other manner prescribed in the rules. Under Sub-section (2), the competent authority is expected to consider any claims that may be filed by the persons interested in the vacant land notified under Sub-section (1) and determine the nature and extent of such claims and pass such order as he deems fit.

Sub-section (3) of Section 10 of the Ceiling Act provides for issuance of notification vesting vacant land in the State Government free from all encumbrances. Under this sub-section, the competent authority after the publication of notification under Sub-section (1) of Section 10 of the Act, by publishing a notification in the Official Gazette concerned, declare that excess vacant land referred in Sub-section (1) shall, with effect from such date as may be specified in the declaration, be deemed to have been acquired by the State Government. Once notification is published, and declaration is made, such land shall be deemed to have vested absolutely in the State Government free from all encumbrances with effect from the date specified.

Sub-section (4) of Section 10 of the Ceiling Act provides for maintenance of status quo in respect of excess vacant land proposed to be acquired during the period commencing on the date of publication under Sub-section (1) and ending with the date specified in the declaration made under Sub-section (3).

Sub-section (5) of Section 10 of the Ceiling Act provides that the competent authority shall issue a notice in writing to any person who may be in a position to surrender or deliver possession to the State Government or to the person duly authorised in this behalf. The person to whom the notice is issued is given 30 days time to comply with the notice. Under Sub-section (6), if a person fails to deliver possession within that period, the competent authority 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.

20. In the present case, the Bangalore Palace is within the Bangalore Urban agglomeration. The provisions of 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 the statement filed, had prepared a draft statement by his order dt. 27th July, 1989, and had served the same on the assessee and other family members. The competent authority thereafter considering the objections filed by the person interested, had passed an order as required under Section 8(4) of the Act and also had issued a direction to publish notification as required under Section 10(1) of the Act. Against this order, the assessee had filed appeals before the Karnataka Appellate Tribunal as provided under Section 33 of the Ceiling Act. The Appellate Tribunal by its order dt. 11th May, 1992, has dismissed the appeal and has confirmed the order passed by the competent authority under Sections 8(1) and 8(3) of the Act. After disposal of the appeal so filed, the competent authority has issued a final statement as required under Section 9 of the Act on 20th June, 1992.

21. The assessee aggrieved by the orders passed by the competent authority under Sections 8 and 9 of the Act, which was confirmed by the Karnataka Appellate Tribunal, had preferred writ petition before this Court. This Court, by its order dt. 15th July, 1998, has set aside the orders passed by the Karnataka Appellate Tribunal and the orders passed by the competent authority under Sections 8 and 9 of the Act. Further, this Court has directed the State Government to dispose of the application filed by the assessee under Section 20 of the Act and it is only thereafter to initiate fresh proceedings under Sections 8(1) and (3) of the Act.

22. During the pendency of these proceedings, the Urban Land (Ceiling and Regulation) Act, 1976 has been repealed by Urban Land (Ceiling and Regulation) Repeal Act, 1999 (Act 15 of 1999). What is the effect of such repeal is explained by the Supreme Court in the case of Pt. Madan Swaroop Shrotiya Public Charitable Trust v. State of U.P. and Ors. : AIR2000SC3415 . In the said decision, the Court has observed :

'2. The Act has since been repealed by the Urban Land (Ceiling and Regulation) Repeal Act, 1999 (Act 15 of 1999). The legislature of State of U.P. has since adopted the provisions of Urban Land (Ceiling and Regulation) Repeal Act, 1999 by a resolution as required by Article 252(2) of the Constitution. The Repealing Act has since come info force in the State of U.P. w.e.f. 18th March, 1999. The appellant has filed a supplementary affidavit dt. 31st Oct., 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.

3. 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 insofar 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.'

4. 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'.

5. Since there is nothing on record to indicate that the State had taken possession over the surplus land, the present proceedings have to be abated and are hereby abated under Section 4 of the Urban Land (Ceiling and Regulation) Repeal Act, 1999.'

23. In view of the repeal of the Urban Land Ceiling Act, as of now, no proceedings are pending against the assessee and other members of the family under the Ceiling Act. This decision, in our view, has no bearing for disposal of these reference proceedings, since the events which have taken place subsequent to the valuation date are not required to be taken note of by this Court, while considering the orders passed by the WTO, while computing the net wealth of the assessee as on the valuation date.

24. In order to resolve the controversy between the parties to the lis, certain provisions of WT Act also require to be noticed.

Section 2(e) of the Act defines the meaning of the expression 'asset' to include property of every description, both movable and immovable, except the few kinds of property specified therein for the purpose of ascertaining the net wealth of an individual.

Section 2(m) of the Act defines the meaning of the expression 'net wealth' to mean the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date.

Section 2(q) of the Act defines 'valuation date' in relation to any year for which an assessment is to be made under this Act, means, the last day of the previous year as defined in Section 3 of the IT Act, if an assessment were to be made under that Act for that year.

Section 3 of the Act is the charging section which imposes a liability to pay wealth-tax on the net wealth as on the valuation date of every individual and HUF.

Section 7 of the Act is a machinery provision and lays down the method of valuation of an asset for the purpose of computation of net wealth of an assessee. Sub-sections (1) and (2) provide two methods of valuation of assets. To our purpose, provisions of Sub-section (1) of Section 7 of the Act is relevant, and Section 7(1) of the Act prior to its substitution by the Direct Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989 was as under :

'Section 7 : Value of assets how to be determined--(1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purpose of this Act shall be estimated to be the price which in the opinion of the AO, it would fetch if sold in the open market on the valuation date.'

Explanation to Sub-section (1) was inserted by Finance (No. 2) Act, 1980 w.e.f. 1st April, 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.'

25. 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 WTO, the asset would fetch if sold in the open market on the valuation date. Alternatively, the value of the asset for the purposes of WT Act, shall be estimated by the WTO/AO, the price it would fetch in his opinion if sold in the open market on the valuation date. The 'price it would fetch if sold in the open market' came for consideration before the Supreme Court in the case of Ahmed G.H. Ariff v. CWT (supra) and Purshottam N. Amarsay v. CWT (supra). In those decisions, it was observed, that, '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 has to be found out. It is a hypothetical case, which is contemplated, and the tax officer must assume that there is an open market in which the asset can be sold. It is well settled that where the legislature uses a legal term, which has received judicial interpretation, the Courts must assume that the term has been used in the sense, in which it has been judicially interpreted'.

The Supreme Court in the case of CWT v. Prince Mufakkham Jan Bahadur (supra), has noticed, that, 'in the absence of a rule which can apply to the valuation of a particular 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'.

26. The Central Board of Revenue in exercise of the powers conferred by Section 46 of the WT Act, 1957, has framed WT Rules, 1957, and it is deemed to have come into force on the 1st day of April, 1957. The rules so framed do not provide for valuation of urban land and, therefore, as observed by the Supreme Court in the decision referred supra, the asset must be valued in the ordinary way by determining what it would fetch if it were sold in the assumed market and what willing purchaser would pay for it. Here, the willing purchaser may definitely take into consideration the peculiar factors, which might affect the price of such an asset.

27. The wealth-tax is chargeable under this Act on the net wealth of the assessee as it existed on the valuation date relevant to each assessment year. Section 7 of the Act deals with general principles of valuation. Under Section 7 of the Act, value of any asset, except cash, shall be estimated to be the price which, in the opinion of the WTO, it would fetch if sold in the open market on the valuation date. The opening words of the section makes it clear, that this power of the WTO 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 WTO is the judicial power, which is open to review by the AAC, and the Tribunal as held by this Court in U.L. Nayak's case. 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 Madras High Court both in the case of K.S. Ranganatha Mudaliar (supra) and in R. Padmavathy Ammal's case (supra), that the restrictions and prohibitions contained in the Ceiling Act will have the effect of depressing the value which the lands would fetch if they were free from the said restrictions and provisions. Insofar as this observation made by the Madras High Court, we cannot have any disagreement and in fact, we are in full agreement with the observation so made.

28. The WT Rules, 1957, lay down the specific method of valuation in respect of certain types of assets, namely, valuation of shares of controlled companies, life interest or interest in partnership or AOP, etc. However, the rules do not provide for the method of valuation of urban vacant land. The WTO, keeping in view the language employed by the legislature under Section 7(1) of the Act and the law declared by the apex Court in Ahmed G.H. Ariff's case (supra) and in Purshottam N. Amarsay's case (supra), had fixed the value of the property, by determining what it would fetch, if it were sold in the assumed market and also keeping in view the orders passed by the Settlement Commission. For the wealth-tax purpose, it is no doubt true that the WTO cannot ignore some of the restrictive provisions contained in the Ceiling Act. It is for the WTO to find out what price the assets would fetch, if they are sold in the open market as on the valuation date, by keeping in view, certain restrictions in the Urban Land Ceiling Act, which will have depressing effect on the value of the asset. Some amount of deductions might have to be granted while fixing the price of the asset, but certainly it cannot be what is payable under the provisions of the Ceiling Act, even before a notification is issued under Section 10(3) of the Act vesting the excess vacant land in the State Government free from all encumbrances. As pointed out earlier, the fact that there are restrictions on sale or transfer of shares under articles of association of a company or where a property is unsaleable due to any personal nature of the property or due to personal status of the assessee, has no relevance is the view of the apex Court. In our view, the observations made by the apex Court requires to be applied in 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, sold is wholly immaterial. If the circumstances justify, the WTO is not only justified but also bound to take into consideration the value of the asset if sold in the open market, with certain restriction placed by the legislature on such a sale. It is under these circumstances, the WTO 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 and the Tribunal taking into consideration, that, provisions of Section 11(6) of the Urban Land (Ceiling and Regulation) Act, 1972 and the observations made by Madras High Court in K.S. Ranganatha Mudaliar's case (supra), have held, that, for valuation of the asset in the present case, vacant land has to be valued on the basis of compensation receivable under the Land Ceiling Laws and, therefore, the maximum compensation that can possibly be received by the assessee is Rs. 2,00,000 and accordingly, have directed the AO to adopt the value of vacant land only at Rs. 2,00,000 for each of the assessment years in question.

29. The Urban Land (Ceiling and Regulation) Act, 1976 has come into force w.e.f. 17th Feb., 1976, and gazetted on the same day. It has been adopted by the State Government. The Act statutorily limits the extent of the urban land, which can be held by a person. Section 6 of the Act lays down that every person holding the vacant land in excess of the ceiling limit is to file a statement within 120 days from 17th Feb., 1976, and the assessee in the present case, filed statement as required under Section 6(1) of the Act on 10th Sept., 1976 and on 16th Sept., 1976, has filed an application under Section 20 of the Act for exemption of his lands under the Act to the State Government, which is the competent authority under the Act to grant such exemption. The competent authority, in the present case, the Addl. Dy. Commissioner, on the basis of the statement filed and after making enquiries, has prepared the draft statement dt. 20th Aug., 1980 and has served the same on the assessee, with a notice to the assessee requiring him to file objections to the draft-statement, if any, within thirty days of service of notice. After receiving such notice, the assessee has filed his objections, objecting to the proposal made in the draft statement. After considering the objections so filed, the competent authority has prepared a final statement as required under Section 9 of the Act by his order dt. 27th July, 1989 and in that, has determined the vacant land held by the assessee in excess of the ceiling limit and has served the same on the assessee and has further directed for publication of the notification as required under Section 10(1) of the Act. Even before such notification could be issued, the assessee had questioned the orders passed by the competent authority under Sections 8(1), 8(3) and 9 of the Act before the Karnataka 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.

30. The first appellate authority and the Tribunal and the learned counsel for the assessee at the time of hearing of the references, would strongly rely, firstly, on the decision of the Madras High Court in the case of CWT v. K.S. Ranganatha Mudaliar and Ors. (supra), for sustaining the orders passed by the Tribunal. In our view, that was a case where compensation was fixed and received by the assessee under the provisions of Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961. Since the compensation was fixed under a legislation and was received by the assessee, the WTO could not have estimated the price which in his opinion, would fetch if sold in the open market on the valuation date, since, where the price is fixed by legislature in respect of an asset, then the price to be taken into account is based on the price fixed by the legislature and the AO would not be justified in estimating the price that the property may fetch if sold in the open market, when compensation payable is fixed under the Ceiling Act.

31. In Padmavathy Ammal's case (supra), the land was acquired by the Government under the Land Ceiling Act and the compensation was determined by the Government. Therefore, the High Court of Madras has observed that the 'Tribunal accepted the view taken by the AAC that when the land was acquired by the Government and compensation paid in respect thereof, that should be accepted as the value of the land in question. Therefore, it cannot be said that the value determined under the Land Ceiling Act, would be something different from the value, which has got to be determined under the guideline value as per WT Rules and the WT Act'. The Court has also applied the principles laid down in K.S. Ranganatha Mudaliar's case (supra) and has observed that 'a similar question came up for consideration before this Court in the case of CWT v. K.S. Ranganatha Mudaliar : [1984]150ITR619(Mad) , wherein this Court held that the valuation on the basis of compensation received under the Tamil Nadu Reforms (Fixation of Ceiling on Land) Act, 1961 was justified'.

(Underlining, italicized in print, is by us)

32. In G.S. Krishnavati Vahuji Maharaj Kalyanaraiji Temple's case (supra), the Gujarat High Court has noticed that the land in question in that case being covered under the Urban Land (Ceiling and Regulation) Act, it was not open to assessee 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 further observation of the Court that since it is not open to the assessee to sell the land and therefore, 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 our earlier portion of the order.

33. The Calcutta High Court in the case of Gouri Prasad Goenka (supra), 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 the assessee. In the present case, we are yet to reach that stage.

34. Insofar as the decision of Rajasthan High Court in the case of Smt. Ballabh Kumari (supra) is concerned, it may not assist the case of the assessee. There, the Court was considering an issue, whether the prohibition against transfer of land held by the assessee in excess of Urban (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 and the Tribunal was not justified in rejecting the request made by the Revenue to refer the aforesaid question for opinion of the Court.

35. The reliance placed by the learned counsel for the assessee insofar as the observations made by the Supreme Court in the case of Calcutta Electric Supply Corpn. (supra) is concerned, it would not assist the case of the assessee. In that case, the Supreme Court has only stated that Section 7 of the Act does not take note of hypothetical possibilities in the matter of valuation of assets. It merely concerns itself as to what is the true market value of the assets in question on valuation date. Lastly, in our opinion, the law declared by apex Court in Bishwanath Chatterjee & Ors. case (supra) has no bearing on the issue referred for our opinion.

36. Before we conclude, we once again emphasise that if sale of the land or the property is subject to restrictions under certain Central or State legislations such as the Urban Land Ceiling Act, Karnataka Land Reforms Act, etc., the property or the land has to be valued only after taking note of the restrictions and prohibitions which will have the effect of depressing the value which the land would fetch if sold free from any restrictions and prohibitions, for the reason, if there are such restrictions, the value of the property or land would normally be reduced, but at the same time, it cannot be said that it would fetch only the maximum compensation payable under the Urban Land Ceiling Act. As stated earlier, Section 7 of the WT Act, assumes that there is a hypothetical open market and there are hypothetical purchasers and hypothetical bids and hypothetical sale to a person prepared to give the highest value, subject to all such restrictions and prohibitions contained in the Ceiling Act.

37. In the result, the question of law referred for our opinion, requires to be answered in negative and against the assessee. Accordingly, we answer the question referred for our opinion in negative, i.e., in favour of the Revenue and against the assessee. Ordered accordingly.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //