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2015 (9) TMI 1065 - SUPREME COURT

2015 (9) TMI 1065 - SUPREME COURT - [2015] 378 ITR 9 (SC) - Valuation of vacant land attached to the Property - wealth tax assessment - Property which had come within the mischief of the Ceiling Act. - admittedly possession had not been taken, which remained with the assessee for want of notification under Section 10, the proceedings abated and the said vacant land remained with the assessee - Held that:- The Assessing Officer took into consideration the price which the property would have fetch .....

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ccepted.

Hypothetical presumptions of such sales are to be discarded as we have to keep in 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 t .....

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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 No. 7251 of 2015 ( Arising Out of SLP (C) No. 18960 of 2006), Civil Appeal Nos. 7377-7378 of 2005 - Dated:- 21-9-2015 - A. K. Sikri And Rohinton Fali Nariman, JJ. For the Appellant : Mr. Varun .....

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taken at the price which is the maximum compensation payable to the assessee under the Urban Land Ceiling Act, 1962? 3. For the purposes of understanding the circumstances under which this question has arisen, we are taking note of the facts of Civil Appeal Nos. 6873-6881/2005: The appellant herein is assessed to wealth tax under the Act. The Assessment Years in these appeals are 1977-1978 to 1986-1987. The valuation of the property which is the subject matter of wealth tax under the Act is the .....

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ore. He died on 23.09.1974. There were disputes with regard to the wealth tax assessments pertaining to the Assessment Years 1967-1968 to 1976-1977. After the death of Sri Jayachamarajendra Wodeyar, his son Sri Srikantadatta Wodeyar, the assessee applied to Settlement Commission to get the dispute settled with regard to valuation of Property and lands appurtenant thereto for Assessment Years 1967-1968 to 1976-1977. While this application was still pending, the Urban Land (Ceiling and Regulation) .....

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said, 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). F .....

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ssessment Year 1984-1985, the Wealth Tax Officer took the value at ₹ 31.22 crores on the basis of the order passed by the Commissioner (Appeals) for earlier years. 6. On the other hand, in the proceedings under the Ceiling Act, the Competent Authority passed an order No.ULC(A)(Z) 440/85-86 dated 27.07.1989 determining vacant land in excess of the ceiling limits, and ordered action be taken to acquire excess land under the Karnataka Town & Country Planning Act, 1961. In accordance with .....

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per Section 11(6) of the Urban Land Ceiling Act, the maximum compensation that could be received by the assessee was ₹ 2 lakhs. 7. Before any Notification could be issued under Section 10(1) of the Ceiling Act, the assessee questioned the aforesaid order passed by the Competent Authority under Sections 8 and 9 of the Ceiling Act before the Karnataka Appellate Tribunal. 8. Simultaneously, the orders of the Wealth Tax Officer passed under the Act fixing the value of the land for different A .....

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1990 in which he made slight modifications to value adopted for Assessment Years 1981-1982 and confirmed the valuation of Wealth Tax Officer for Assessment Years 1982-1983 and 1983-1984. However, in respect of appeals relating to Assessment Years 1977-1978 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 .....

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e 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 passed an order determining that the vacant land was in .....

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aluation date for the Assessment Years 1977-1978 to 1985-1986. 11. Against the order of the Tribunal, the Commissioner of Wealth Tax sought reference before the Karnataka High Court in respect of Assessment Years, namely, 1977-1978 to 1985-1986 arising out of the consolidated order of the Tribunal in WTA Nos.315 to 317 and 485 to 490/1990 dated 02.11.1993. The Tribunal made a Statement for reference to the High Court. The question that was raised for adjudication before the High Court was whethe .....

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evelopments took place in relation to the proceedings under the Ceiling Act. The appeal which was filed by the assessee before the Karnataka Appellate Tribunal against the order dated 27.07.1989 passed by the Competent Authority under the Ceiling Act was dismissed by the Tribunal on 15.07.1998. The assessee took up the matter further before the High Court in the form of a writ petition. In this writ petition, the assessee also challenged the constitutional validity of the provisions of the Ceili .....

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ere 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 .....

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some other reason, notification under Section 10(1) of the Ceiling Act was not passed. (v) In the year 1999, Ceiling Act was repealed. At that stage, the writ petition filed by the assessee was still pending. The effect of this Repealing Act was that the Property in question remained with the assessee and was not taken over by the Government. 14. We may remind ourselves that there is no dispute with regard to valuation in respect of residential and non-residential structures within the said Prop .....

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value of the Property still the value of the land cannot be the maximum compensation that is payable under the provisions of the Ceiling Act. Thus, the question referred has been answered against the assessee. 16. The High Court, in its impugned order, took note of the aforesaid facts and accepted the position that the Property in question which is within the Bangalore urban agglomeration was covered by the Ceiling Act and the provisions of the said Act applied to this Property. It also noted t .....

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ection 10, the proceedings abated and the said vacant land remained with the assessee. Thereafter, the High Court took note of certain relevant provisions of the Act and we may also capture the position contained in those provisions: Section 2(e) of the Act defines the meaning of the expression 'asset' to include property of every description, both movable and immovable, except the few kinds of property specified therein for the purpose of ascertaining the net wealth of an individual. Se .....

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sessment 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-secti .....

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-section (1) was inserted by Finance (No.2) Act, 1980 w.e.f. 01.04.1980. The explanation is as under: Explanation: For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the .....

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open market do not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in the open market and, on that basis, the value has to be found out. The Court noted that though the rules, namely, Wealth Tax Rules, 1957 were framed, they did not provide for valuation of urban land and, therefore, the asset must be valued in the ordinary way by determining what it would fetch if it were sold in the .....

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ore 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 gett .....

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n 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 stage itself to notice that between the period of first notification under Section 10(1) of the Act and the second notification under Section 10(3) of the Act, the owner of the land can neither alter the use, nor transfer the land, if any, and if it is done, the same would be void. After the publication of the second notif .....

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enever there is any restriction on the transfer of any land, it is common knowledge that the value of the property or the land, as the case may be, would normally be reduced. However, it did not accept that since it is not open to the assessee to sell the land, 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 Ceiling Act. The High Court concluded its answer in the penultimate para as under: 36. Before we conclude .....

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the property or land would be normally be reduced, but at the same time, it cannot be said that it would fetch only the maximum compensation payable under the urban Land Ceiling Act. As stated earlier, Section 7 of the Wealth Tax Act, assumes that there is a hypothetical open market and there are hypothetical purchasers and hypothetical bids and hypothetical sale to a person prepared to give the highest value, subject to all such restrictions and prohibitions contained in the Ceiling Act. 20. Ch .....

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l '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 b .....

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tion has to be on the valuation date which has reference to the last day of the previous year as defined under Section 3 of the Income Tax Act if an assessment was to be made under that Act for that year. In other words, it is 31st March immediately preceding the assessment year. The valuation arrived at as on that date of the asset is the valuation on which wealth tax is assessable. It is clear from the reading of Section 7 of the Act that the Assessing Officer has to keep hypothetical situatio .....

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e actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and, on that basis, the value has to be found out. It is a hypothetical case, which is contemplated, and the Tax Officer must assume that there is an open market in which the asset can be sold. It is well settled that where the legislature uses a legal term, which has received judicial interpretation, the Courts must assume that th .....

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assumed willing purchaser would pay for it. 24. Thus, the Tax Officer has to form an opinion about the estimated price if the asset 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 .....

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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. 5. Transfer of vacant land.- (1) In any State to which this Act applies in the first instance, where any person who had held vacant land in excess of the ceiling limit at any time during .....

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excess vacant land cannot be so selected, the balance, or where no vacant land is held by him after the transfer, the entire excess vacant land, shall be selected out of the vacant land held by the transferee: Provided that where such person has transferred his vacant land to more than one person, the balance, or, as the case may be, the entire excess vacant land aforesaid, shall be selected out of the vacant land held by each of the transferees in the same proportion as the area of the vacant .....

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imit immediately before the commencement of this Act shall transfer any such land or part thereof by way of sale, mortgage, gift, lease or otherwise until he has furnished a statement under section 6 and a notification regarding the excess vacant land held by him has been published under sub-section (1) of section 10; and any such transfer made in contravention of this provision shall be deemed to be null and void. 10. Acquisition of vacant land in excess of ceiling limit. - (1) As soon as may b .....

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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 declarati .....

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except as otherwise provided under the Act itself, from the date of commencement of the Act. Act came into force on 17.02.1976. The effect of this Section was that on and from 17.02.1976, the assessee was not entitled to hold the vacant land in question, which was in excess of the ceiling limit. Section 4 of the Act provides for the manner in which the ceiling limit of the person is to be ascertained. Section 5(1) of the Ceiling Act deals with transfer of the vacant land in excess of the ceilin .....

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ling limit immediately before the commencement of the Act till a statement under Section 6 is furnished and a notification regarding excess land has been published under Section 10(1) of the Act. Any transfer made in contravention of this sub-section shall be deemed to be null and void. Section 6(1) of the Ceiling Act statutorily obligates that every person holding vacant land in excess of the ceiling limit as on or after the 17th day February 1976 is required to file a statement in the prescrib .....

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riod. Under Section 8 of the Ceiling Act, on the basis of the statement filed under Section 6 of the Ceiling Act, a draft statement is prepared by the competent authority and the same is served on the applicant/person, who is given an opportunity to 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 statem .....

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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 the persons interested in the vacant land notified und .....

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in the declaration, be deemed to have been acquired by the State Government. Once notification is published, and declaration is made, such land shall be deemed to have vested absolutely in the State Government free from all encumbrances with effect from the date specified. Sub-section (4) of Section 10 of the Ceiling Act provides for maintenance of status quo in respect of excess vacant land proposed to be acquired during the period commencing on the date of publication under sub-section (1) and .....

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n that period, the competent authority will take necessary steps to take possession itself. Sections 11 and 14 of the Ceiling Act provide for determination of the amount payable to the person concerned for the vacant land acquired and for the mode of payment of the amount to such person. Section 18 of the Ceiling Act lays down the penalty that may be imposed for concealment of particulars in the statement filed under Section 6 of the Act. Section 20 of the Ceiling Act confers on the State Govern .....

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cant 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 t .....

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f the price which the asset would have fetched if sold in the open market on the valuation date(s), would clearly be wrong even on the analogy/rationale given by the High Court as it accepted that restrictions and prohibitions under the Ceiling Act would have depressing effect on the value of the asset. Therefore, the valuation as done by the Assessing Officer could not have been accepted. 31. Let us proceed on the same lines as delineated/drawn by the High Court itself, namely, one has to assum .....

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