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2015 (9) TMI 1065

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..... mind the conduct of a reasonable person and “ordinary way” of the presumptuous sale. When such a presumed buyer is not going to offer more than ₹ 2 lakhs, obvious answer is that the estimated price which such asset would fetch if sold in the open market on the valuation date(s) would not be more than ₹ 2 lakhs. Having said so, one aspect needs to be pointed out, which was missed by the Commissioner (Appeals) and the Tribunal as well while deciding the case in favour of the assessee. The compensation of ₹ 2 lakhs is in respect of only the “excess land” which is covered by Sections 3 and 4 of the Ceiling Act. The total vacant land for the purpose of Wealth Tax Act is not only excess land but other part of the land which would have remained with the assessee in any case. Therefore, the valuation of the excess land, which is the subject matter of Ceiling Act, would be ₹ 2 lakhs. To that market value of the remaining land will have to be added for the purpose of arriving at the valuation for payment of Wealth Tax - Decided in favor of assessee. - Civil Appeal Nos. 6873-6881 of 2005, Civil Appeal No. 6882 of 2005, Civil Appeal No. 1338 of 2006, Civil Appeal N .....

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..... thin the Bangalore Urban Agglomeration, hence fell within the purview of the Act. The assessee filed statement as required under Section 6(1) of the Ceiling Act on 10.09.1976. On 16.09.1976, he filed an application under Section 20 of the Act for exemption of his lands under the Ceiling Act to the State Government. 4. From the aforesaid, it is clear that the Property in question, namely, the Bangalore Palace came within the purview of the Ceiling Act. 5. The application of the assessee before the Settlement Commission for the Assessment Years 1967-1968 to 1976-1977 was disposed of on 29.09.1988, laying down norms for valuation of the property. The Wealth Tax Officer adopted the value as per Settlement Commission for Assessment Years 1976-1977, 1977-1978 and 1978-1979 at ₹ 13.18 crores (for both land and buildings). For the Assessment Year 1979-1980, since there was no report of the Valuation Officer, the Commissioner of Appeals worked out the value of the Property at ₹ 19.96 crores for the Assessment Year 1979-1980, which was adopted by Wealth Tax Officer for Assessment Year 1980-1981 as well. For the Assessment Years 1981-1982, 1982-1983 and 1983-1984, the Wealth .....

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..... 8 to 1980-1981, the Commissioner (Appeals) passed the orders dated 31.07.1990 accepting that the urban land appurtenant to Property be valued at ₹ 2,00,000/-. Similar orders came to be passed by the Commissioner of Income Tax (Appeals) for the Assessment Years 1984-1985 and 1985-1986 also. Against these orders of Commissioner (Appeals) dated 09.06.1990, 31.07.1990 and 14.08.1990, both the assessee as well as the Revenue/Department went up in appeals before the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore. The appeals filed by the assessee and the Revenue Department were heard together by the Tribunal. 9. The issue before the Income Tax Appellate Tribunal was only with regard to valuation of vacant land attached to the Property, since the assessee had accepted the valuation in regard to residential and non-residential structures within the said property area and appurtenant land thereto. 10. The Income Tax Appellate Tribunal, Bangalore passed the order dated 02.11.1993 directing the vacant land be valued at ₹ 2 lakhs for each year from Assessment Years 1977-1978 to 1985-1986. Its reasoning was that the Competent Authority under the Ceiling Act had pass .....

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..... t of the Urban Land (Ceiling and Regulation) Repeal Act, 1999 (Act 15 of 1999). 13. The factual position which existed at the time when the reference cases were to be decided by the High Court under the Act is recapitulated below: (i) The Assessment Years in respect of which question was to be determined were 1977-1978 to 1986-1987. (ii) Ceiling Act had come into force w.e.f. 17.02.1976 and was in operation during the aforesaid Assessment Years. (iii) The Competent Authority under the Ceiling Act had passed orders to the effect that as per Section 11(6) of the Ceiling Act, the maximum compensation that could be received by the assessee was ₹ 2 lakhs. In accordance with Section 30 of the Ceiling Act, the declaration dates back to 17.02.1976 on which date the Ceiling Act was promulgated in Karnataka. (iv) The order of the Competent Authority was challenged by the assessee by filing appeal before the Karnataka Appellate Tribunal. This appeal was, however, dismissed on 15.07.1998. Against that order, writ petition was filed wherein provisions of the Ceiling Act were also challenged. Because of the pendency of these proceedings or due to some other reason, notificat .....

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..... y 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 Income Tax 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 Hindu Undivided Family. 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 t .....

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..... Tax Officer cannot ignore such restricted provisions contained in the Ceiling Act and it is for him to find out what price the asset would fetch if it is sold in the open market on the valuation date, keeping in view, certain restrictions in the Ceiling Act which will have depressing effect on the value of the asset. 18. Having said so, which legal position even the assessee accepts, the High Court went on to observe that it would not mean that the valuation has to be the compensation which the assessee would be getting inasmuch as the valuation as per Section 7 has to be the price which the property would fetch if sold in the open market. Significantly, the High Court also noted the effect of Ceiling Act in the context of the present case and the legal proceedings which had been initiated pursuant thereto whereby orders passed by the Competent Authority under Sections 8 and 9 were challenged and no Notification under Section 10 had been issued. In this regard, it observed as under: 29. 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 .....

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..... argued by learned senior counsel appearing for the appellants in these appeals that once it is accepted that the property is covered by the Ceiling Act and it would depress the value of the property, then the value could not be more than ₹ 2 lakhs which was the maximum compensation payable under the Ceiling Act. It was also argued that provisions of the Ceiling Act did not impose only 'restrictions' but there was categorical 'prohibition' from selling the land. This land, therefore, had to be treated as not saleable on the 'valuation date' and, therefore, as on that date, the price it could fetch would not be more than ₹ 2 lakhs. Learned senior counsel also referred extensively to the orders passed by the Commissioner (Appeals) under the Act giving detailed reasons while accepting the valuation of the property at ₹ 2 lakhs and submitted that there was no reason to take a contrary view by the High Court. 21. Learned counsel for the Revenue, on the other hand, emphasized the reasons which have been given by the High Court in support of its opinion and submitted that no case was made out to interfere with the said proceedings. 22. We hav .....

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..... were to be sold in the assumed market and the estimated price would be the one which an assumed willing purchaser would pay for it. On these reckoning, the asset has to be valued in the ordinary way. 25. The High Court has accepted, and rightly so, that since the Property in question came within the mischief of the Ceiling Act it would have depressing effect insofar as the price which the assumed willing purchaser would pay for such property. 26. However, the question is as to what price the willing purchaser would offer in such a scenario? 27. In order to provide an answer to this question, we may take note of certain relevant provisions of the Ceiling Act, which, are even noticed by the High Court. We will reproduce here Sections 3, 5, 10(1) and 10(3) and narrate the scope of the other relevant provisions without reproducing the text thereof. 3. Persons not entitled to hold vacant land in excess of the ceiling limit.- Except as otherwise provided in this Act, on and from the commencement of this Act, no person shall be entitled to hold any vacant land in excess of the ceiling limit in the territories to which this Act applies under sub-section (2) of section 1. .....

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..... h person in excess of the ceiling limit and stating that- (i) such vacant land is to be acquired by the concerned State Government; and (ii) the claims of all person interested in such vacant land may be made by them personally or by their agents giving particulars of the nature of their interests in such land, to be published for the information of the general public in the Official Gazette of the State concerned and in such other manner as may be prescribed. (3) At any time after the publication of the notification under sub-section (1) the competent authority may, by notification published in the Official Gazette of the State concerned, declare that the excess vacant land referred to in the notification published under 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 and upon the publication of such declaration, such land shall be deemed to have vested absolutely in the State Government free from all encumbrances with effect from the date so specified. 28. Section 3 of the Ceiling Act, as is clear from its reading, is the main provision. It categorically provi .....

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..... 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 .....

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..... nder Section 11 or an Order made under sub-section (1) of Section 30. 29. The combined effect of the aforesaid provisions, in the context of instant appeals, is that the vacant land in excess of ceiling limit was not acquired by the State Government as notification under Section 10(1) of the Ceiling Act had not been issued. However, the process had started as the assessee had filed statement in the prescribed form as per the provisions of Section 6(1) of the Ceiling Act and the Competent Authority had also prepared a draft statement under Section 8 which was duly served upon the assessee. Fact remains that so long as the Act was operative, by virtue of Section 3 the assessee was not entitled to hold any vacant land in excess of the ceiling limit. Order was also passed to the effect that the maximum compensation payable was ₹ 2 lakhs. Let us keep these factors in mind and on that basis apply the provisions of Section 7 of the Wealth Tax Act. 30. The Assessing Officer took into consideration the price which the property would have fetched on the valuation date, i.e. the market price, as if it was not under the rigors of Ceiling Act. Such estimation of the price which the .....

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