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H.H. Gouri Lakshmi Bayi Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1984)7ITD548(Coch.)
AppellantH.H. Gouri Lakshmi Bayi
RespondentWealth-tax Officer
Excerpt:
.....as residential property of the assessee for the purpose of section 7(4), it was contended by the learned representative for the assessee that it is not necessary that the assessee should actually reside in the palace and that it is enough if the same is kept ready for the residence of the assessee. it was pointed out that the assessee has no other residential property and that she was residing in the kaudiyar palace along with the maharaja only in accordance with her obligation as the maharani. with regard to the observation of the commissioner (appeals) that before him the learned representative for the assessee admitted that the assessee had not been residing at sundaravilasom palace during the 12 months preceding the valuation date, it was submitted by the learned representative.....
Judgment:
1. This appeal by the assessee relates to the assessment year 1977-78, for which the valuation date was 31-3-1977.

2.1 Ground Nos. 1 and 2 - These are to the effect that the Commissioner (Appeals) erred in holding that the assessee was not eligible for having the value of the property known as Sundaravilasom Palace freezed under Section 7(4) of the Wealth-tax Act, 1957 ('the Act') on the ground that the assessee had not exclusively used the property throughout the period of 12 months immediately preceding the valuation date for her personal occupation.

2.2. The assessee is the VIII princess of Travancore. She has a half share in the property known as Sundaravilasom Palace. Sub-section (4) of Section 7 provided that the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date may, at the option of the assessee, be taken to be the price which, in the opinion of the WTO, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on the valuation date relevant to the assessment year commencing on 1-4-1971, whichever valuation date is later. The assessee claimed that the Sundaravilasom Palace is a residential property falling within Sub-section (4) of Section 7 and on this basis, wanted to freeze the value of the property as on 1-4-1971.

She returned the value of her share in the property at Rs. 96,500 subject to the exemption under Section 5(1) of the Act. The claim was rejected by the WTO for the reason that the assessee was staying in the Kaudiyar Palace, where the Maharaja of Travancore is residing and that she has not used the Sunderavilasom Palace for residential purposes.

He, therefore, fixed the value of her share in the property at Rs. 2,06,936 and then gave appropriate exemption. This was confirmed by the Commissioner (Appeals). It was further held by him that in any case, the provision of Section 7(4) will be applicable only to the building and not to the land. It was pointed out by the Commissioner (Appeals) that as regards the building, the WTO had adopted the value as on 1-4-1971 and that the enhancement of the value was only with regard to the land. On the question whether the Sundaravilasom Palace can be treated as residential property of the assessee for the purpose of Section 7(4), it was contended by the learned representative for the assessee that it is not necessary that the assessee should actually reside in the palace and that it is enough if the same is kept ready for the residence of the assessee. It was pointed out that the assessee has no other residential property and that she was residing in the Kaudiyar Palace along with the Maharaja only in accordance with her obligation as the Maharani. With regard to the observation of the Commissioner (Appeals) that before him the learned representative for the assessee admitted that the assessee had not been residing at Sundaravilasom Palace during the 12 months preceding the valuation date, it was submitted by the learned representative that what was submitted was that the assessee was mainly residing in the Kaudiyar Palace. It was further submitted by the learned representative for the assessee that the assessee may occasionally go and reside in the Sundaravilasom Palace. It was also contended by the learned representative for the assessee that the proviso to Section 7(4), which allows an assessee owning more than one house to opt one of the houses for purposes of Section 7(4), will indicate that actual residence is not necessary and what is necessary is only to keep the house ready for the residence of the assessee.

2.3 On the other hand, it was contended by the learned departmental representative that keeping the building ready for the residence of the assessee is not sufficient and that to satisfy the requirements of Section 7(4), the assessee should use the building exclusively for the residential purposes throughout the period of 12 months immediately preceding the valuation date.

2.4 In support of his contention, the learned representative for the assessee relied upon the ruling of the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas v. Addl. CIT [1979] 119 ITR 980 which was a case arising under Section 54 of the Income-tax Act, 1961 ('the 1961 Act'). Section 54 provides for exemption from tax on capital gains where the property transferred was being used by the assessee or the parents of his mainly for the purpose of his own or the parents' own residence. The question for consideration was whether an artificial juridical person or a fictional person can claim the exemption. This ruling does not seem to be relevant for the present purpose. Similarly, the learned departmental representative also drew our attention to Sub-clause (b) of Section 6(1) of the 196 1 Act, prior to its deletion by the Finance Act, 1982. Under this sub-clause, an assessee who maintains or causes to be maintained for him a dwelling place in India for the period stated in the sub-clause will be treated as a resident.

It was pointed out by the departmental representative that while this sub-clause only required that a house should be maintained in India, Sub-section (4) of Section 7 of the Act requires exclusive use of the assessee for residential purposes. This is not, in our view, decisive because Section 6 of the 1961 Act was intended to cover a different situation where the assessee was residing outside India. It will not be proper to contrast the same with Section 7(4) of the Act.

2.5 We could not come across any decided case on Sub-section (4) of Section 7. In our view, it will not be correct to give a too literal interpretation to the provisions of Sub-section (4) If such a literal interpretation is given, the result will be that the assessee can claim the benefit of Sub-section (4) only if he resided in the house for the whole of the 12 months immediately preceding the valuation date. He may lose the benefits if he is absent from the house even on a single day.

The requirement of section seems to be that the house should be intended for the residence of the assessee and that it should not have been rented out or given out for the residence of any body else. The requirements of Sub-section (4) are that the house should belong to the assessee and that it should be used exclusively for residential purposes. In other words, what is required is that it should not be used for any purposes other than for residential purposes. As rightly pointed out by the learned representative for the assessee, the proviso to Sub-section (4) shows that the assessee can have two residential houses and in that case, he can choose one of the residential houses for the benefit of Sub-section (4). It is clear that in such cases the assessee would not have been actually residing in both the houses. A situation may arise where an assessee is hospitalized for the entire period of 12 months immediately preceding the valuation date and that he could not actually reside in the house during this period. If a literal interpretation is given to Sub-section (4), such an assessee will not be entitled to the benefits of Sub-section (4) during the period during which he was hospitalized. Similarly, an assessee may be compelled to go and reside with his children or close relative due to unavoidable reasons. It does not seem to be the position that if during the period he locked the building he will lose the benefit of Sub-section (4). Before its amendment by the Finance Act, 1970, Clause (iv) of Section 5(1) provided that to claim exemption under the clause, the house should be exclusively used by the assessee for residential purposes. This provision came up for consideration in CWT v. Mrs. Avtar Mohan Singh [1972] 83 ITR 52 (Delhi). The requirements of the clause were held by the High Court to be that the house must be used by the assessee, that it must be used exclusively by the assessee and that it must be used exclusively for residential purposes only. In this connection, it was pointed out that the members of the family of the assessee who resided with the assessee cannot be said to be using the house in their own right and that the residence of family members will not bring out a situation in which it can be said that the assessee is not using the house for his residence. In the present case, the assessee is not the owner of the Kaudiyar Palace where she was residing. The only place where the assessee could stay as a matter of right was Sundaravilasom Palace. The department has no case that the assessee had allowed the use of the building for any other purpose. We also find no reason to reject the submission made by the learned representative for the assessee that the assessee will go over to the Sundaravilasom Palace on special occasions. On a consideration of the matter in all its aspects, we are inclined to hold that the Sundaravilasom Palace kept by the assessee exclusively for use as a residence should be entitled to the benefit conferred by Sub-section (4) of Section 7.

2.6 The next question for consideration is whether the freezing of the value should be confined to that of the building or whether it should be with reference to the compound also. It was pointed out by the learned departmental representative that with regard to the building the value taken by the WTO is the same as on 1-4-1971 and that the enhancement had been only with regard to the compound. It was claimed by the learned representative for the assessee that the house in the present case is a palace and that the land measuring 1 acre 27 cents should, therefore, be treated as land appurtenant to the house and the value of the land also allowed to be freezed under Sub-section (4). In our view, the benefit under Section 7(4) will be available only for the house and the land appurtenant thereto. As no particulars are available with regard to the area of the building, the unbuilt area and the manner in which the building is spread out over the plot, we would direct the WTO to allow the benefit under Section 7(4) after examining and deciding whether the whole of the compound has to be treated as land appurtenant to the building or only a portion and if so, what portion can be treated as land appurtenant to the building.

3. Ground Nos. 3 and 4 : These are to the effect that the Commissioner (Appeals) erred in confirming the order of the WTO that the assessee was not eligible for deduction under proviso to Section 5(1A) on account of value of National Defence Certificate. For the reasons mentioned by us in our order dated 18-11-1983 in WT Appeal No. 125 (Coch.) of 1982 in the case of the very same assessee for the assessment year 1976-77, these grounds are decided against the assessee.

4. Ground Nos. 5 to 7 : These are to the effect that the Commissioner (Appeals) erred in confirming the inclusion of a sum of Rs. 25,000 representing the amount due from General Commercial Agency as a debt includible in the net wealth. This was not pressed by the learned representative for the assessee and has, therefore, to be decided against the assessee.


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