TMI Blog2012 (6) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of valuation as laid down in rule 14 and Schedule III part ‘D’ is also applicable and on both counts the valuation adopted by AO cannot be upheld - no scope to determine the valuation as adopted by the WTO/CWT(A) – in favour of assessee. - WTA No.32/Del/2010 - - - Dated:- 25-1-2012 - R P Tolani, K D Ranjan, JJ. For Appellants: Shri Pradeep Dinodia Adv. Shri R K Kapoor, CA For Respondent: Shri A D Mehrotra CIT (DR) ORDER Per: R P Tolani: This is assessee s appeal against CWT (A)-XVI, New Delhi s order dated 31-3-2010 relating to A.Y. 2001-02. Following grounds are raised: 1. That on the facts and in the circumstances of the case and in accordance with the provisions of law, the Commissioner of Wealth Tax (Appeal) has erred in summarily confirming the action of the learned Assessing Officer in determining the value of urban land at the increased amount of Rs.20,09,06,586/- ignoring the fact that the same has been sold to an agreed price to M/s DLF Universal Ltd in term of an agreement dated 25.10.1983 and the same being unwarranted, illegal and unjustified, deserves to be deleted in full. 1.1 That the order passed by WTO and confirmed by CWT (A) is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamated with the appellant company, has not been considered for filing the wealth-tax return. The WTO required the assessee to file details including all the stocks i.e. land etc. held by all the entities which merged with it. In response thereto the assessee submitted that only one of such amalgamated companies viz. Mayur Recreational Development Ltd. held stock in trade of land in question, which was more than 10 years old. Though it was liable to be included in the net wealth of the assessee company, however, because of outstanding debts/liabilities against such stock in trade i.e. the amount of advance received in relation to such stock of land taxable wealth, still worked out to be Nil (as per the balance sheet of assessee company the value of assets liable to wealth tax). iii) It was explained to the WTO that the land which came to be owned by the appellant company on account of the order of amalgamation was under obligation to sell at a pre agreed selling price inasmuch as that an agreement dated 25.10.1983 has been entered into with M/s. DLF Universal Ltd., wherein all the land held by M/s. Mayur Recreational Development Ltd. (in short MRDL ), was to be transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions: i) The agreement dated 25.10.1983 was a bona fide commercial arrangement creating valid contractual obligations. Besides, the agreement has been accepted by the department all through in various assessments of both M/s. Mayur Recreational Development Ltd., Nachiketa Real Estates Pvt. Ltd., as well as in the assessment proceedings of M/s. DLF Universal Ltd. Reference was made to ITAT decision in the case of DLF Universal Ltd. in ITA No.1884/Del/98 placed in the IInd Paper Book pages 14 to 17, wherein this business model of procuring the land by DLF Universal Ltd. through its subsidiaries has been unequivocally upheld by following observations: 5.3 These subsidiary companies never develop the land on their own. They have entered into agreements to sell these lands only to the appellant company or its nominees at a specified rate which is the cost of the land + Rs.2,000/- per acre. The subsidiaries have given to the appellant company the right to develop the land as per the terms of the license and to enter into agreements to sell with the prospective buyers and deal with various authorities. In fact, the subsidiaries are getting a fixed return of Rs.2000 per acre for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stretch of imagination. v) It was, thus, argued that the revenue cannot probate and reprobate with regard to this issue in the income-tax proceedings and adopt a contrary stand for same agreement in wealth-tax proceedings. A specific reliance was placed on the judgment of Co-ordinate Bench of Ahmedabad ITAT in the case of JCWT vs. Prayasvin B. Patel, 41 SOT 357 on this proposition. It was, thus, explained that the sole basis of rejecting the agreement dated 25.10.1983 between M/s. DLF Universal Ltd. and M/s. Mayur Recreational Development Ltd. does not hold good. The WTO s method based on these observations, determining the valuation of the property on the alleged market rates is against the record and based on surmises and conjectures. vi) It is pleaded that the various judicial authorities have held that while valuing the property, the advantages or disadvantages attached to the said property, cannot be ignored. Reliance is placed on the following judgments for this proposition: - 107 ITR 922 - CWT, New Delhi vs. P.N. Sikand Others (SC) - CWT vs. Trustees of H.E.H. The Nizam s Jewellery Trust 261 ITR 690 (SC). - CWT vs. Simpson and General Finance Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation is admissible, its book value; (iii) In the case of closing stock its value adopted for the purposes of assessment under the Incometax Act for the previous year relevant to the corresponding assessment year. (b) Where the value of any of the assets referred to in clause (a), determined in accordance with the provisions of this Schedule as applicable to that particular asset or if there are no such provisions, determined in accordance with rule 20 exceeds the value arrived at in accordance with clause (a) by more than 20 per cent, then the higher value shall be taken as the value of the asset. ix) It is, thus, contended that when specific rules for assigning the value to business assets are available on the statute, then there is no occasion to go beyond such rules and apply residuary clause in determining the value of the asset. Assuming even if rule 14 is applicable, then rule 20(1) was required to be applied and value of an asset could be determined/estimated only at a price which it would fetch if sold in the open market on the valuation date. The land in question is stock-in-trade, which is under the obligations created by above agreement with M/s. DLF Univ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock-in-trade. 7.1. The issues which arise are: a) The agreement dated 25-10-1983 between M/s. Mayur Recreational Development Ltd. and DLF is self serving, hence should not be considered. b) The valuation is required to be determined based on the market value as estimated by the WTO and confirmed by the CWT (A). c) Whether the valuation is to be made as per Rule 14(1) of the Wealthtax Rules in Schedule III part D as claimed by assessee or the same is to be determined as per Rule 20 relied by AO.. 7.2. Learned counsel for the assessee stressed that WTO s valuation is unjustified and arbitrary, specially in view of the fact that agreement dated 25.10.1983 has been held as self-serving devise. This agreement has actually been implemented by concerned parties and department throughout a period of more than two decades. The impugned agreement has been examined by various Income-tax authorities in its assessments and appellate proceedings including the ITAT. In the case of DLF Universal Ltd., ITAT has specifically examined this aspect in ITA No.1884/Del/98 We are of the view that this fact cannot be denied, the assessee and group companies and department have all impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should be held as a void agreement for wealth tax purposes, as the department itself has held it to be a valid agreement in income-tax proceedings. 7.7. The Hon ble Supreme Court while dealing with Vodafone case (supra) was examining a foreign company set up . In our view for an Indian Set up of holding and subsidiary companies tax evasion theoryrequires more rigid application of these tests to hold it a colourable devise. In our view accept raising some whisper of suspicion, WTO has not discharged the burden to prove the agreement as self serving on reasoning and material. Therefore, findings of authorities below that the agreement is a self-serving document and has been designed to defeat the provisions of W.T. Act, is to be rejected. 8. The CWT(A) has raised one more issue in his order that the land in question was not covered by the Agreement dated 25.10.1983 by only reproducing some and not all material clauses of the Agreement. As rightly pointed out by the AR, the clause which covers the lands in question is - That in case the area of the said land as detailed in the schedule attached thereto is more or less at site of according to revenue records, the said schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion, the value of the asset has to be determined in accordance with section 7 of the Wealth Tax Act which states subject to the provisions of sub-section(2), the value of any asset, other than cash, for the purposes of this Act, shall be its value as on the valuation date determined in the manner laid down in Schedule III. . Section 7(2) is thus irrelevant. Schedule III lays down rules for determining the value of the asset. Rule 1 states that value of any asset, other than cash, for purposes of this Act shall be determined in the manner laid down in these Rules. If we come to relevant part D of Schedule III, it lays down the rule for valuation of assets of business . Sub-rules (1) and (2) of Rule 14 of Schedule III have been reproduced by us above. Rule 14(2)(a)(iii) is reproduced as under:- R.14(2)(iii) In the case of closing stock its value adopted for the purposes of assessment under the Income Tax Act for the previous year relevant to the corresponding assessment year . Rule 14(2)(b) then lays down as under:- R.14(2)(b) Where the value of any of the assets referred to in clause (a), determined in accordance with the provisions of this Schedule as applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on 25.10.1983 where money was provided by the buyer i.e. DLF Universal Ltd.; the land was preordained to be sold to the said buyer at cost price plus Rs.2000/- per acre. This agreement, we have already held, to be bonafide commercial arrangement between the parties executed approximately 20 years earlier and accepted by department in income tax proceedings of both the buyer and the seller. At the time of the agreement, section 2(ea) of the Wealth Tax Act did not exist in the Statute Book, therefore, the allegation of self serving or tax avoidance device is ruled out. Business assets embedded in the urban land became liable to tax with effect from 1.4.1993 and it cannot be said that this agreement, even though valid for all other purposes is void for the purposes of the Wealth Tax Act by application of this section. We, therefore, hold that the value of the asset cannot be determined ignoring the agreement of 25.10.1983. 10. There are various judicial precedents holding that while valuing the property, for the of levy of wealth tax, advantages and disadvantages attached to the property cannot be ignored and are to be considered in valuation. 10.1. In the case of CWT, New De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Simpson General Insurance Co. Ltd. 285 ITR 429 (Mad.) , while examining the issue of valuation of land for the purposes of wealth-tax valuation held as under: Held, that it was 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 Land Ceiling Act. Therefore, the Tribunal was right tin holding that the immovable property subject to the urban land ceiling laws should only be valued s per the compensation payable under the Ceiling Act. To the same effect are the following decisions - - CWT Vs. K.S.Ranganathan Mudaliar another 150 ITR 619. - CWT Vs. R.P. Padmavathy Ammal (Mad.) 230 ITR 922. 10.4. The land was purchased with borrowed funds from DLF with a predetermined sale price and was sold subsequently at its pre-determined sale price and the profits accordingly are assessed as business profit in the respective hands in prior and subsequent years as well. 10.5. After examining all facts and circumstances, in our considered view the AO was not justified in holding the agreement to be a self serving devise for avoidance of wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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