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Gangaram Hargovandas (Huf) Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1982)1ITD949(Ahd.)
AppellantGangaram Hargovandas (Huf)
RespondentWealth-tax Officer
Excerpt:
1. these six wealth-tax appeals of the assessee-huf relating to consecutive assessment years 1970-71 to 1975-76 relate to a consolidated order under section 25(2) of the wealth-tax act, 1957 ("the act"), passed by the commissioner, baroda, for the assessment years 1970-71 to 1978-79. all these appeals are conveniently considered together had disposed of by a common order.2. the assessee is a huf and for the relevant assessment years 1970-71 to 1975-76, its valuation dates were the last day of the samvat year and these were 9-11-1 969, 30-10-1970, 19-10-1971, 5-11-1972, 26-10-1973 and 13-11-1974. up to the assessment year 1971-72 it was owning both immovable properties and movable properties. the movable properties as is seen from the papers included in the assessee's paper book were two.....
Judgment:
1. These six wealth-tax appeals of the assessee-HUF relating to consecutive assessment years 1970-71 to 1975-76 relate to a consolidated order under Section 25(2) of the Wealth-tax Act, 1957 ("the Act"), passed by the Commissioner, Baroda, for the assessment years 1970-71 to 1978-79. All these appeals are conveniently considered together had disposed of by a common order.

2. The assessee is a HUF and for the relevant assessment years 1970-71 to 1975-76, its valuation dates were the last day of the samvat year and these were 9-11-1 969, 30-10-1970, 19-10-1971, 5-11-1972, 26-10-1973 and 13-11-1974. Up to the assessment year 1971-72 it was owning both immovable properties and movable properties. The movable properties as is seen from the papers included in the assessee's paper book were two cash deposits lying with two firms-one of Rs. 1,40,050 with Manganlal Brothers (P.) Ltd. and the other of Rs. 10,664 with Magindas Industries. It was the claim of the assessee that both these movable properties had been divided amongst the members of the HUF on 30-11-1970, a date which will fall in the wealth-tax assessment year 1972-73. The assessee had duly intimated the WTO about the partition by a letter which was as per the acknowledgment of the department received by it on 11-2-1971. The learned departmental representative found that the letter filed on 11-2-1971 was available in wealth-tax assessment records. It is undisputed that after the original assessments had been made under Section 16(1) of the Act by the WTO for the assessment years 1970-71 to 1977-78, reassessments were made under Section 16(3) on the basis of revised returns filed by the assessee. The assessment for the year 1978-79 was made under Section 16(1). It is also not disputed that in respect of immovable properties, the assessee had shown the fair market value on the respective valuation dates supported by the valuation reports of the registered approved valuers. The Commissioner went through the assessment records of the assessment years 1970-71 to 1978-79 and found that the assessments Iramed by the WTO were erroneous insofar as these were prejudicial to the interests of revenue for the following two reasons : 1. The ITO while computing the net wealth of the assessee had failed to consider the value of movable assets for the assessment years 1972-73 to 1978-79.

2. The WTO while computing the net wealth of the assessee failed to adopt the correct fair market value of the various immovable properties held by the assessee on the valuation dates relevant to the assessment years 1970-71 to 1978-79.

He heard the assessee but after noting certain instances in para 4 of his order he reached the conclusion in para 5 that the reports of the registered valuers were at variance and inconsistent in respect of the same properties and the basis of valuation adopted was not uniform, nor linked firmly to accept principles of valuation. In para 6, he noted the assessee's plea that it had claimed a partial partition of the movable assets on 30-11-1970 and lodged a claim with the concerned ITO and the ITO, it seemed, had not passed any order on the said application. In para 7, the Commissioner observed that apart from* the aforesaid omission of movable assets, a careful examination of the valuers' reports would have revealed to the WTO that the valuation of the different immovable properties was faulty and unacceptable for a proper assessment under the Wealth-tax Act for the assessment years in question and, therefore, the orders of the WTO were erroneous insofar as they were prejudicial to the interests of revenue. He, consequently, set aside the wealth-tax assessments made by the WTO on 21-2-1979 for the assessment years 1970-71 to 1978-79 in the case of the assessee and directed him to make fresh assessments after obtaining under Section 16A of the Act from the Valuation Officer a proper estimate of the value of the immovable properties in question and after affording the assessee adequate opportunity to present his case. He also directed that the WTO would examine and decide the assessee's claim of partition in accordance with law as far as the movable assets were concerned.

Against this combined order of the Commissioner, the assessee has come in appeal to the Tribunal.

3. We have heard the rival submissions and perused papers included in the assessee's two paper books. In our opinion, the action of the Commissioner under Section 25(2) in respect of the major issue of valuation of immovable properties is not proper as he had failed to establish an error prejudicial to the interests of revenue in the eye of law in the reassessment orders passed by the WTO for the six assessment years under appeal. With the question of partial partition of movable properties, we will deal with later.

4. On the question of valuation of immovable properties, with reference to which the Commissioner hold the orders of the WTO to be erroneous, it may be pointed out at the outset that the Commissioner had no material available to him to show as to what was the fair market value of those properties and how the value shown by the assessee on the basis of reports of the registered approved valuers, which was accepted by the WTO, was wrong. Without establishing that fundamental requirement, we fail to understand how the Commissioner could attribute an error to the WTO merely on the basis of conjectures and surmises.

Before an error could be attributed to the WTO within the meaning of Section 25, the Commissioner on the basis of proper material as envisaged in that section should be in a position to point out an error in fact. The approach adopted by the Commissioner in para 4 of his order could justify an enquiry at best but could not straightaway lead to the conclusion that error had been established. This observation too is correct on the footing that what the Commissioner has stated in para 4 is factually correct or justified. On behalf of the assessee substantial errors in the approach of the Commissioner were pointed out. First and foremost was that all the properties referred to by the Commissioner in para 4 were rented properties and as laid down by the Calcutta High Court in CIT v. Smt. Ashima Sin ha [1979] 116 TTR 26 and CIT v. Anup Kumar Kapoor [1980] 125 ITR 684 the valuation of such properties was to be made on the yield basis and reversionary value of land was not to be taken into account. In fact, yield method or rental income method has been considered to be normally the correct method for valuation of rented properties even by the Supreme Court in the well known Hassan Koya's case. Hence, the Commissioner was totally wrong in basing his criticism on a principle which is bound to be incorrect. On the other hand, what had happened is that the assessee's approved valuers prior to the crystallising of the legal opinion had valued the properties on "Rent Capitalisation Method" and further added the reversionary value of the land which meant that the valuation made by them was higher inasmuch as they had included the reversionary value of land. The Commissioner's criticism in para 4 on this score is totally off the mark. Again his criticism about different approaches of the different valuers is incorrect and put in wrong factual perspective. It was pointed out by the assessee's authorised representative with the help of a chart that three different valuers had valued the assessee's immovable properties in different assessment years and not that the same properties were valued differently by different valuers on the same valuation dates It was stated that for the assessment year 1970-71 certain properties were valued by Shri B.O. Lalaji, for the assessment years 1971-72 to 1974-75 valuation of those properties was made by another valuer, Shri C.C. Gandhi, and finally for the assessment years 1975-76 to 1978-79 the properties were valued by the valuer Shri J.H.Merita. In regard to property No. 4393, which is wrongly referred to as 4339 in para 4(a) of the order of the Commissioner, the valuation was made for the entire period of the assessment years 1970-71 to 1978-79 by the valuer, Shri J H. Mehta, who had adopted the "Rent Capitalisation Method" rightly and, therefore, had discarded the method of including the reversionary value of the land. It was correctly contended on behalf of the assessee that it was common knowledge that different valuers could value the property in different ways and by adopting different methods and this should not have caused any surprise to the Commissioner and it was futile for him to seek for same estimate of valuation or same method of valuation from all the valuers or to think of uniform basis of valuation being adopted by all valuers. This is the burden of the Commissioner's argument in para 4. Here also we find that the approach of the Commissioner was not in conformity with the reality of the situation and hence it was improper. Considering these factors, it is evident to us that so far as the question of valuation of immovable properties is concerned, no error has been established by the Commissioner to given him jurisdiction to act under Section 25. On the other hand, the WTO has proceeded on the basis of reports of registered approved valuers.

5. We also fail to see any authority in the Commissioner to direct the WTO to obtain valuation from the Valuation Officer under Section 16A.The direction of the Commissioner runs counter to the clear provisions of Section 16A. This direction could also be operative only if a proper opinion could be formed that the value shown by the registered valuers was less than the fair market value of the property in the opinion of the WTO. There must be data, therefore, to show what is the fair market value of the concerned property, before Section 16A can be taken recourse to. It is not that mechanically references can be made to the departmental Valuation Officer brushing aside the valuation made by the registered approved valuers.

6. The view we have taken in this case is similar to the view taken by the Delhi Bench of the Tribunal in a case which according to us had stronger facts than the case we are dealing with. The assessee's authorised representative cited the decision in Jagdish Kumar Aggarwal v. WTO [1981] 7 Taxman 252 (Delhi-Trib.). In that case the Commissioner prior to acting under Section 25(2) had a report of departmental Valuation Officer available to him in addition to the report of the assessee's approved valuer. The Delhi Bench observed that no doubt the Commissioner had before him the valuation reports of two experts, but then valuation was after all a question of estimate and when estimates of two experts were pitched against each other, merely because one of the two happened to be higher than the other, it could not be said that the one showing the lower figure was not correct. It was further observed that the Commissioner had not indicated any defect in the valuation done by the assessee's valuer, nor had he examined the valuation done by the departmental Valuation Officer vis-a-vis the estimate of the approved valuer of the assessee. In the instant case, the Commissioner obtained no valuation whatsoever and merely expressed the opinion that the value adopted by the approved valuers of the assessee was not the fair market value. Even later on, after the issue of notice, when he has pointed out the so called defects in para 4 of his order, these are also found to be no defects by us and in any case even on the basis of those defects, it could not be said what was the fair market value of the concerned properties and how it was more than the value estimated by the assessee's approved valuers.

7. In conclusion, we are satisfied that in the facts and in the circumstances of this case, the Commissioner had failed to establish any error in the valuation of immovable properties and, hence, his order setting aside the assessments for that reason is unsustainable.

8. The next question is about the WTO omitting to deal with the claim of partial partition of movable assets. The assessee heavily relied on the intimation filed with the WTO on 11-2-1971 and contended that the WTO impliedly took note of the partition. We are unable to accept that argument. It is a question of fact whether the WTO had applied his mind to the question of partial partition of movable assets or not. It appears to us that in the assessee's case, the WTO had lost sight of the assessee's claim for partial partition and he proceeded to make the reassessments in the concerned years 1972-73 to 1975-76 without considering and dealing with it and merely on the basis of what the assessee showed in the wealth-tax returns. In respect of this omission, we feel that the Commissioner was justified to hold that there was an error prejudicial to the interests of revenue and direct the WTO to examine and decide the assessee's claim of partition in accordance with law so far as the movable assets are concerned. In view of this position, we are inclined to uphold the setting aside of the assessments for the years 1972-73 to 1975-76 for this limited purpose and nothing else. The WTO should go into the claim of partial partition and, if required, make any changes in the wealth computed in those assessment years. In other words, if the WTO finds that the assessee's claim for partial partition was justified, the assessments will need no modification but if the claim is rejected, the WTO can include the value of movable assets in the assessments of the HUF.9. As for the assessment years 1970-71 and 1971-72, the only ground for the Commissioner to act under Section 25(2) has failed and his action is found to be unsustainable, we set aside his order for those two assessment years and restore the impugned orders of the WTO and fully allow the appeals of the assessee. In regard to the assessment years 1972-73 to 1975-76, the assessee succeeds partly and the action of the Commissioner is upheld only to the limited extent of dealing with the claim of partial partition of movable assets on 30-11-1970. For those years, the assessee's appeals may be treated to be partly allowed.


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