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K.L. Swamy (Huf) Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Reported in(1985)12ITD396(Bang.)
AppellantK.L. Swamy (Huf)
RespondentWealth-tax Officer
.....rule 1bb is something ridiculously low, then it should be held that it is not 'practicable' to apply rule 1bb. the decision of the madras high court in k.m. mammen v. wto [1983] 139 itr 357 indicated that the rules are not mandatory. it was also stated that the decision of the gujarat high court in hasanand pinjomal v. cit [1978] 112 itr 134 at page 145 could be interpreted in favour of the revenue. there it was held that 'practicable' means capable of being carried out in action. the learned departmental representative meant that in the present case, 'carried out in action' means 'carried out in conformity with the provisions and intent of the law'. reliance was also placed on the decision of the supreme court in juggilal kamlapat bankers v. wto [1984] 145 itr 485, where it was held.....
1. In all these appeals, a common point is involved. The assessees are the part owners of the premises at No. 9, Seshadri Road, Bangalore.

According to the assessees, the value of the property was only Rs. 6,25,000. The WTO referred the matter for valuation by the Departmental Valuation Officer. The Valuation Officer determined the value of this property at Rs. 16,14,000. Accordingly, the share of the assessees in the property was also enhanced. The assessees appealed to the Commissioner (Appeals). The main argument before him was that Rule 1BB of the Wealth-tax Rules, 1957 ('the Rules'), was applicable as the entire property was the residential property being occupied by five joint families. Rule 1BB is procedural in nature and being retrospective in operation, applied to all pending proceedings before various taxing authorities. The decision of the Tribunal in WT Appeal Nos. 614 to 624 (Delhi) of 1979 was relied upon. The gross maintainable rent of the property was Rs. 24,000 only and after deducting taxes and expenses for repairs, the net rent worked out to Rs. 18,683. On the basis of this rent and applying Rule 1BB, the value will be Rs. 2,33,537. Out of the total area of 5075 sq. metres, the built up area was 1148 sq. metres. Rule 1BB also specified how the property was to be valued where an unbuilt area exceeded the specified area. The rule was comprehensive enough to value the property and the WTO erred in not proceeding according to Rule 1BB.(a) The learned Commissioner (Appeals) referred to Sub-rule (5) of Rule 1BB. This sub-rule prescribed the conditions under which the valuation was not to be made according to Rule 1BB. As the difference between the unbuilt area and the specified area was only 12.4 per cent he held that Sub-rule 5(ii) did not apply but Sub-rule 5(i) applied. In his opinion, this was because of the substantial potentiality in the development of the unbuilt area. He relied on the observations of the Valuation Officer that the building was so nicely set back, that a good construction can be provided without disturbing the present building.

He observed as follows : It appears to me that Rule 1BB can be applied to the valuation of a house, wherein the unbuilt area is for the permanent beneficial enjoyment of the built area and is not capable of independent development, whereas in the present case, the nature and location of the building in relation to the whole plot is such that independently of the existing building, development of part of the unbuilt area is feasible. It will not be a case coming within the purview of Rule 1BB, which provides only for a marginal increase in the value of the house where the unbuilt area exceeds the specified limit. Raising the value of the house arrived at in accordance with Sub-rule (1) by a percentage, will not meet the requirements due to the existence of large unbuilt area of the type available in the present case. It appears to me that in the circumstances, Rule 1BB cannot be used as such to arrive at the value of the entire property and, hence, I shall hold that having regard to the facts and circumstances of the case, it is not practicable to apply the provisions of this rule to the present case. No doubt, Clause (i) of Sub-rule (5) of Rule 1BB had to be applied by the WTO with the previous approval of the Inspecting Assistant Commissioner of Income-tax, but it cannot be denied that the appellate authority, who considers the issue, can invoke this provision on his own as well.

(b) He then proceeded to fix the value of the property. He took the figure at Rs. 14,60,000 as against Rs. 16,14,000 adopted by the WTO.The assessees are in appeal.

2. The learned Counsels for the assessees vehemently contended that there was no grounds for the Commissioner (Appeals) to hold that Rule 1BB did not apply to the present case. The fact that there was an approach road to the property and that on either side of the approach road there were unbuilt areas, did not take the case out of Rule 1BB.Rule 1BB had only specified that if there is some unbuilt area, then the valuation is to be made in a different way. The WTO has to establish that it was not practicable to value the property according to Rule 1BB. He cannot say that if Rule 1BB gives a lower valuation than what could be arrived at by valuing the open land separately, the rule has to be discarded. It was, accordingly, urged that the order of the Commissioner (Appeals) should be set aside.

3. The learned departmental representative contended, on the other hand, that the Wealth-tax Act, 1957 itself has prescribed that the value of the property to be adopted in the assessment is the fair market value. The fair market value is defined as the value which the property would fetch if sold in the open market. Therefore, if application of the rule gives a value which is very much lower than the market value, it is to be held that it was impracticable to apply the said rule, as it would work counter to the purposes of the Act. The Act will hold sway over the rules. In the present case, the property can be brought within the exceptions specified by Sub-rule (5). According to him, 'practicable' means something which is not opposed to commonsense.

If the value obtained by adopting Rule 1BB is something ridiculously low, then it should be held that it is not 'practicable' to apply Rule 1BB. The decision of the Madras High Court in K.M. Mammen v. WTO [1983] 139 ITR 357 indicated that the Rules are not mandatory. It was also stated that the decision of the Gujarat High Court in Hasanand Pinjomal v. CIT [1978] 112 ITR 134 at page 145 could be interpreted in favour of the revenue. There it was held that 'practicable' means capable of being carried out in action. The learned departmental representative meant that in the present case, 'carried out in action' means 'carried out in conformity with the provisions and intent of the law'. Reliance was also placed on the decision of the Supreme Court in Juggilal Kamlapat Bankers v. WTO [1984] 145 ITR 485, where it was held that primarily the market value of an asset has to be determined for purposes of wealth-tax assessment and reference under Section 16A of the Wealth-tax Act, 1957 ('the Act'), to the Valuation Officer was perfectly valid.

4. In reply, the learned Counsels for the assessee submitted that it is not possible to interpret the word 'practicable' in the manner in which the learned departmental representative had done and the Supreme Court decision in Juggilal Kamlapat Banker's case (supra) cannot be interpreted to mean that the rights conferred on the assessees by Rule 1BB cannot be taken away by giving a different interpretation to it, 5. We have heard the rival submissions. At the outset, we have to reject the argument advanced on behalf of the revenue that where application of Rule 1BB brings about a result not contemplated by Section 7 of the Act, the rule is to be ignored. The WTO has to follow the orders, etc., of the Board in accordance with Section 13 of the Act, If the wealth-tax authorities are bound by the circulars of the Board which are favourable to the assessees though contrary to the intentions of the Act, we do not see any reason as to why this principle could be discarded in the case of Rules. Obviously, with a view to simplify valuation procedures, Rule 1BB has been framed. If the value according to Rule 1BB is much lower than the market rate, the rule cannot be rejected as unworkable. It is common knowledge that market values of properties are very much higher than the value arrived at by rent capitalisation method. If for that reason Rule 1BB is not to be applied, then that rule will become otiose. Such an interpretation cannot be permitted. When rules are framed under the Act, they have to be followed. The Rules themselves provided, under what circumstances they are not to be applied. Sub-rule (5) of Rule 1BB deals with such exceptions. They are as follows : (i) where, having regard to the facts and circumstances of the case, the Wealth-tax Officer, with the previous approval of the Inspecting Assistant Commissioner, is of opinion that it is not practicable to apply the provision of this rule to such a case ; or (ii) where the difference between the unbuilt area and the specified area exceeds twenty per cent of the aggregate area; or (iii) where the house is built on leasehold land and the lease expires within a period not exceeding fifteen years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease.

In the present case, the Commissioner (Appeals) himself has stated that Sub-rule (5)(n) does not apply. He has held that Sub-rule (5)(i) applies. But we find nothing in Sub-rule (5)(i) to hold that where the property is capable of potential development, Rule 1BB cannot be applied. Every property, where there is an unbuilt area, is capable of further development. This is precisely the situation taken care of by Sub-rule (5)(ii). If there is large open space, certain modifications are to be made to be valuation. But to interpret that in such cases Sub-rule (5)(i) will apply, would be fallacious. The ordinary dictionary meaning of the word 'practicable' is : That can be done, feasible, that can be used, (of road, etc.) that can be traversed ; (theatre, of door, window, etc.) real, that can be used as such.

The dictionary meaning is quite clear. It cannot be said that the valuation under Rule 1BB is not 'practicable' just because it gives a lower value than the rent and building method. Stroud's Judicial Dictionary also states that the word 'practicable' cannot be construed as meaning equitable, fair or reasonable. If the property was subject to various types of encumbrances, easements, etc., that Rule 1BB could not be applied, we could have said that it was not 'practicable' to apply that rule. Looked at from any angle, it is difficult to say that Rule 1BB does not apply to valuation of the property in question. We, therefore, set aside the order of the Commissioner (Appeals) and restore the assessments to the WTO, who would strictly value the property in accordance with Rule 1BB while framing the assessments.

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