TMI Blog1985 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. Apparently, the reference to the ITO in these grounds is a mistake for the WTO since the appeals before us are under the Act. We, therefore, proceed substituting 'Wealth-tax Officer' for 'Income-tax Officer'. 2. The initial grounds raised by the department to our mind are without any substance. We have heard the parties on the point. It would appear that the instructions accompanying the demand notice may be on account of a routine, dealing with the same referred to the AAC. An assessee who follows the instructions of the department cannot be committing an error by doing so. It would be improper for the department to take advantage of this misdirection and object to the transfer of the appeals to the correct officer having jurisdiction, namely, the Commissioner (Appeals) for being heard by him, This ground of appeal raised by the department arises from a misconception of the whole matter. The records of the case, etc., we find were called for by the Commissioner (Appeals), who issued the notice of hearing also. The allegation of non-grant of opportunity is also, therefore, without substance. In fact, for some of the appeals relating to the same group and covering the same ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... built in these transactions was an asset of substantial value, which was not included in the original wealth-tax return or the wealth-tax assessment of these assessees. Since this asset was not taken into consideration at the time of the original assessment, the assessees having concealed the details thereof, reassessment proceedings were started. The WTO completed the assessment by including an extra asset valued at Rs. 1,30,000 in the new wealth of each of the assessees for each assessment year. The assessees appealed against this inclusion. But before the AAC, the assessees did not contest the appeals. They withdrew the same. This was done by a letter addressed to the AAC on 30-7-1980. 5. The WTO noting that the assessees had omitted the above asset valued at Rs. 1,30,000 from the returns, started penalty proceedings for concealment and levied penalties under section 18(1)(c) for all the assessment years from 1966-67 to 1971-72. In the case of S. P. Jain, the penalties levied were Rs. 980, Rs. 922, Rs. 1,096, Rs. 839, Rs. 967 and Rs. 1,251 for these years. Similar penalties were levied in the case of all these assessees for the abovementioned assessment years. The penalties le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re conscious of the same. It was not by the mere agreement that this asset was brought into existence. The asset was already there. It is also pointed out by conceding before the first appellate authority the above position that the assessees accepted the existence of the asset. They have been also assessed on the same. The assessments have become conclusive. Taking us through the assessment order, the learned counsel pointed out that a special concession having monetary value was given to them under the agreement with SB Ltd. and CPP Ltd. The right to occupy the new flat allotted in lieu of the old tenement was a transferable and marketable right having monetary value. Even otherwise, the test of transferability is not important for treating something as an asset. 8. Stressing the point that the assessees were conscious of their having a valuable asset with them and also that they had not returned that in their net wealth, the learned counsel pointed out that this omission was clear from their letter dated 3-12-1980 addressed to the AAC. In this letter, the assessees have mentioned that the ground relating to the inclusion of tenancy right as an asset was withdrawn because they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that section 18 deals with different faults attracting penalty. With regard to different defaults, the section utilises different terminology. On the facts, the assessees knew that they were in possession of a valuable asset. Even so, no value for this asset was returned. The same material which formed the basis for sustaining the addition in this case by the first appellate authority would constitute material to support the levy of penalty as well. No fresh material was required. In the present case, the assessees had clearly concealed items of net wealth knowing that they were in possession of them. They were entering into an agreement and transactions with parties with the full knowledge not only of their being owners of these assets but also conscious of their worth. When gift-tax proceedings were taken against CPP Ltd., on the ground that the reduced value at which the flats were given to these assessees represented a gift in their hands, the assessees relied on the wealth-tax assessments made to challenge them. According to the learned counsel, this was a clear admission on the part of the assessees that this asset possessed value and knowingly they did not return it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made it clear that the main purpose of the assessees' withdrawing the appeal was only to avoid escalating litigation. 11. The learned counsel has pointed out that there was in fact no justification for making the addition of Rs. 1,30,000 to the net wealth by the assessees. Even if on account of his withdrawal of appeals, the assessments became final in the penalty proceedings, he could well put forward the proper legal claim, viz., that the additions were unjustified. Elaborating his point, reference is made to the provisions of the letter dated 7-1-1966 addressed by SB Ltd. to all the respondents. Paragraph No. (d) of this letter specified that the assessees were only monthly tenants. The rights given to the assessees were only to occupy the place as tenants. The reference to the monthly tenancy indicated that the assessees were permitted to stay only for the month. Any protection of the tenancy secured to them by the tenancy legislations could always be waived if the justice of the situation warranted it. In other words, as a conscientious citizen, if the assessees found a claim for vacation of the premises made by the landlord, it was proper. Whatever be the rights under law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other statute, in this case the Bombay Rent Hotel and Lodging House Rates Control Act. By assuming a value for the transfer of the tenancy which in fact cannot be transferred in law, the WTO was doing just this. In-between the demolition of the old building and the construction of the new building, there was no tenancy, at best a promise of a future tenancy. It is also pointed out that till an option is exercised even granting that it has a value, it cannot be evaluated. In the present case, the option was exercised only in November 1971. After this date, the assessees in fact returned the value of the flats as part of the net wealth. The assessees had in their letter to the WTO stated that the tenancy was not taxable. The definition of the asset in the Act was to include the value of an asset. If there was no monetary value for the asset, it could not be included in the net wealth, even if it was deemed to be a property for some other purposes. According to the counsel, the WTO assessed the 'tenancy right' as an asset includible in the net wealth. The departmental counsel's stand, therefore, that it is not the tenancy right but the agreement which conferred a benefit to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights on the tenants. The rights follow and are restricted by the statutory provisions. We have in these appeals really an enquiry as to the sweep of and the limitations on the tenants' rights. The stand of the department in short is that the tenancy is a right. It is also an item of property. It is thus includible in the net wealth of the tenant as an assessee. 16. The assessees in the present case were tenants in a property. They were also wealth-tax assessees prior to the earliest assessment years in appeal before us. Admittedly, the positive or presumptive value of the tenancies had not been included in the net wealth of these tenant-assessees in the earlier years. From the facts detailed above from the years 1966-67 to 1970-71, there was a dent on the tenants' previous position. The landlord sold the property to another. Avowedly seeking to protect the tenancies they were offered alternate accommodation. This was to be given in a new property to be constructed by the purchaser after demolishing the old property. The new property came into existence in 1971. After that period, the value of the flats allotted to these assessees were included by them in their net wealth. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide protection to the extent detailed in the statute to all these tenants. The present assessees are subject to the same rent control laws. Not a single case has been brought before us where the department has sought to include the value of these tenancies either in Bombay or anywhere in India in the net wealth of a tenant. It, therefore, passes our comprehension why in the case of these assessees only lessee's tenancy right in a property should be treated as an asset to be included in the net wealth. If the matter is so clear and certain, at least, there would have been other assessments in Bombay or other places where the value of the tenancy of the continuing tenant would certainly have been included in his net wealth. There is no such instance. Even for the estate duty purposes, we know not of any instance where the protected tenancy of a deceased has been treated as a property passing on his death and included in the estate. 19. The above is no mere accident. Though the law provides a protection to the tenant, the protection cannot be elevated to the level of a positive asset which can be included in the net wealth of the tenant. The Bombay Rent Hotel and Lodging House Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 19(2). As rightly contended by the learned counsel for the assessee, the WTO cannot import the idea of an 'asset' to a situation where such importation necessarily implies the citizen acting against the public policy and in fact inviting punishment for breach of statutory provisions. This itself should be sufficient to show that tenancy right as such cannot be included as an asset for the purposes of wealth-tax. 22. True, we do come across cases where tenancies are surrendered and the tenants receive some consideration. Apart from the legality or otherwise of this receipt, if any, the payment may be for other purposes such as the difficulty in getting rid of a person or the difficulty in getting rid of inconvenient situations. The position would be almost like that of a blackmailer. If the blackmailer receives money from another, certainly it would be incongruous to tax him on the ground of an asset which brings him that money. 23. The learned counsel for the department almost giving up the stand of the WTO, who evaluated the 'tenancy' as an asset claimed that implicit in the various agreements between SB Ltd. and CPP Ltd. and the assessees inter se is an asset which belon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of the damages would be easy. We are only trying to point out that even if the agreement or letters between these three parties are elevated to a position of a right, it would have absolutely a negligible value. The learned counsel for the assessees described it as a precarious asset. We would like to add 'a precarious asset of questionable value'. For the wealth-tax purposes, we have to include the value of an asset. If an asset even if exists has only a value of the abovementioned type, its inclusion in the net wealth would not be justified. 26. Under the Bombay Rent Hotel and Lodging House Rates Control Act, what the tenant is entitled to is alternate accommodation. There are one or two specific details basic to the transactions in the present case. The assessees as tenants agreed to the sale and demolition of the building. They were promised a flat in the new building at the standard rent. The relevant portions of the letter dated 7-1-1966 are as under : "(g)(iii) Till the sale of the said property is completed by us to the company, you shall pay rent of Re. 1 per month and after the sale of the said property is completed in favour of the company and till you ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent attempts to construct another. Section 17 provides certain safeguards against this. The only safeguard the tenant has is to have a tenement in the newly constructed building at legally acceptable rent. If in spite of or against these provisions, a tenant were foolish enough to leave the tenanted premises, he would have not even any rights under the tenancy left to him. If in the alternative, the tenant does not avail of alternative accommodation granted to him during the period of demolition of the old building and the construction of the new building, even the value of the alternate accommodation which he would be entitled to, would be lost to him. In the present case, whatever be the significance of the payment of Re. 1 per month, certainly these assessees did not have any alternate accommodation. They cannot, therefore, be said to have even the benefit of alternate accommodation they are entitled to under section 17. If instead of being granted and occupying an alternate accommodation, the tenants were foolish enough to have no alternate accommodation during this period but were looking up to the completion of the new building, we are unable to understand what rights the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d building with huge flats. But on account of the vast contribution from the future owners, the landlord makes a large profit in the newly constructed building. This would outweigh the cost of one or the other flats given free to the old tenants. Neither the concessional purchase price nor the full relief in purchase price given to the old tenants in the present case, therefore, can be the basis of any addition. 28. More than the above, there is a fallacy in the WTO valuing this 'supposed' asset in the manner he has done. He deducted the price paid by these assessees from the market price on the date of allotment in 1971 to the outsiders. This difference he included in the net wealth for all the assessment years 1966-67 to 1971-72. For the wealth-tax purposes, the value of an asset as defined in section 7 of the Act as on the valuation date is to be included. If the assessee has an asset of the type under discussion on 31-3-1966, certainly its value cannot be the same on 31-3-1970. The prospects of the new construction coming up, its possible price, the time when it will be completed, the effect of inflation on this price, etc., introduce different variables in the computation. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence, the tenant's right gets extinguished. It can at best (perhaps after long litigation) be compensated by damages. The nature of this right would be purely contingent not includible in the net wealth. Secondly, its value will be negligible. Sale of a flat in the new building to the old tenant would be a matter beyond the control of the Bombay Rent Hotel and Lodging House Rates Control Act. The price paid by the former tenant for this whether equal to the market price or less or nil may be relevant for provision of some other law. It certainly cannot be the basis of inclusion of some vague asset in wealth-tax or estate duty proceedings. We have, therefore, no hesitation in holding that the inclusion of the assets in the wealth-tax assessments in the present case itself is unjustified and erroneous in law. If the assessees had pursued their appeals to the Tribunal, we are not sure that the additions would not have been deleted. It is a natural corollary that the penalties based on such additions should not stand. For this reason alone, all the penalties should be cancelled. 30. Even otherwise, the only reason for the enforcement of the penalties seems to be the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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