Income Tax Appellate Tribunal - Delhi
Wealth-Tax Officer vs Manmohan Lal Rais (Huf) on 24 April, 1989
Equivalent citations: [1989]29ITD47(DELHI)
ORDER
Anand Prakash, Accountant Member
1. These are departmental appeals. The point which is common to all the years, is as to whether the learned AAC was justified in excluding the sale proceeds of agricultural land valuing Rs. 5,29,375 from the wealth of the assessee HUP.
2. The relevant facts may be noted. On 5-2-1969, property of the family situated at Sanai Khoja near Faridabad was settled amongst the family members, whereby the assessee was to get 4/10 share in the said property as his share. The assessee son Vikram Lal was to get 3/10 share and Smt. Brinda Lal was to get the remaining share. A declaratory suit in terms of the said settlement was filed before the Sub-Judge, 1st Class on 19-2-1970 and a consent decree, dated 20-2-1970, was obtained. The said property was later sold on 27-2-1970 and the sale proceed were actually distributed amongst the above three persons in the above proportion. The said persons invested the said sale proceeds in the purchase of the shares of Eicher Tractors in their individual names and they declared the said sale proceeds and the investments therefrom in their individual wealth-tax returns. The same were accepted by the WTO in the course of time. The said persons also declared income arising from the aforesaid investments in their individual income-tax returns and the same were accepted as their incomes by the ITO. On these facts, it was pleaded by the assessee before the learned AAC that there was no justification for including the entire sale proceeds of the land in the total wealth of the family as the partition of the sale proceeds of the land itself was clear evidence of the partition of the original asset, viz., the land.
3. The above plea was accepted by the learned AAC, while passing his order dated 29-2-1984 in the case of the assessee for asst. year 1975-76. He pointed out inter alia that the aforesaid partition could not be held to be hit by the provisions of Section 20 of the WT Act, 1957 for the said section dealt with the cases of complete partition and not with the cases of partial partition. In the case of partial partition, whatever property was partitioned amongst the coparceners, went out of the family fold and the income therefrom could not be included in the hands of the family. It was includible in the hands of the individual coparceners, who received the property on partition. Therefore, he held that the WTO was not justified in including the entire value of the sale proceeds in the hands of the appellant. Accordingly, he deleted the addition in question.
4. In respect of asst. years 1978-79 and 1979-80, the above position has also been accepted by him. The present appeals of the department are against the above finding of the learned AAC.
5. After hearing both the sides, we are of the opinion that there is merit in the order of the learned AAC. When a certain property is partitioned amongst the members of the family, without bringing about the total partition of the family, it is a case of partial partition, till Section 20A was brought on the statute book, the matter of partition was governed by Section 20 and as the said section was not referring to partial partition, and merely referred to complete partitions it was analogous to as old Section 25A of the Indian Income-tax Act, 1922. The result is that as and when there is partial partition of an asset amongst the coparceners, the said asset goes out of the family fold, and becomes the property of the individual coparceners, amongst whom it is partitioned. The order of the learned AAC was, therefore, correct that the agricultural land, which had been partitioned amongst the members of the family, and in respect of which ultimately court decree was also obtained, ceased to be the property of the family, and became the property of the members of the HUP amongst whom it was divided. The sale proceeds of the said property could, therefore, be assessed in the hands of the said members alone and not in the hands of the HUP i.e. the present respondent. Therefore, so far as departmental appeals are concerned, the same stand rejected on the above ground.
6. In respect of asst. year 1978-79, there is one additional ground of appeal by the revenue, namely, that "on the facts and in the circumstances of the case, the AAC erred in directing to work out the value of property as per Rule 1BB".
7. It appears from the facts on record that the assessee had returned the value of the property in question at Its. 5,50,624. The WTO did not accept the above valuation and, instead, valued the said property at Rs. 7,45,640 on the ground that in the immediately preceding year, the value of the property was taken at that figure. The contention of the assessee that Rule 1BB may be applied to the valuation of the said property was rejected by the WTO by observing that Rule 1BB came into force w.e.f. 1-4-1979, and as such it was not applicable for the asst. year 1978-79,
8. The assessee appealed against the aforesaid order to the AAC, who observed that Rule 1BB was retrospective in operation and, therefore, it covered the asst. year 1978-79 and, therefore, the value of the property in question should have been worked out by the WTO by applying Rule 1BB.
9. The revenue challenges the correctness of the above direction of the learned AAC and it is submitted that the valuation adopted by the WTO was not excessive and was in keeping with the figure adopted in the immediately preceding asst. year, which was not challenged by the assessee. On behalf of the assessee, order of the learned AAC is supported.
10. It has been pointed out by their Lordships of the Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, that when the WTO is of the opinion that the value of the property in question was in his opinion, more than 33 1/2 per cent of the returned value, it was not open to him to value the property himself. In terms of Rule 3B, read with Section 16A, he should refer the matter to the Valuation Officer, who would find out the market value of the property. In not doing so, the WTO had clearly erred and, therefore, the learned AAC was correct in holding that the valuation, as adopted by the WTO could not be sustained.
11. Their Lordships of the Hon'ble Delhi High Court have further pointed out that, when VO has to value the property in terms of Sub-section (3) of Section 7, the Wealth-tax Rules need not govern his valuation any further, that, when the matter is brought in appeal before the AAC or any other appellate authority, the appellate authority is also not governed by the relevant wealth-tax rules including Rule 1BB. Therefore, the direction of the learned AAC to the WTO to value the property in question in terms of Rule 1BB deserves to be modified in the light of the observations of their Lordships of the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani (supra). We, accordingly, direct that the WTO should refer the matter of valuation of the property to the Valuation Officer, who would value the property in accordance with law. With these modifications we accept the departmental appeal in part, for asst. year 1978-79.
12. The appeals of the revenue for other years stand dismissed.
13. In respect of appeal No. 750 filed by the assessee, one of the issues involved is the valuation of the property situated at Panchsheel Marg the assessee's plea was that it should be valued under Rule 1BB. This issue was raised by way of additional ground by the assessee before the AAC, who has however, not referred to it in Ms order, neither he admits it nor he rejects it. Patently this action of the learned AAC is incorrect. The asses-see did have the right to move the additional ground before him, and it was for the AAC to express his opinion on it, namely, whether he would accept it or he would not accept it. By expressing no opinion, either way, the order of the learned AAC has got vitiated. It is necessary in the interest of justice that we should restore the matter back to him on this point with the direction that he should express his opinion as to whether or not, he would admit the additional ground. If he admits it, he would naturally adjudicate upon it. If he does not, he will give reasons for it so that if the assessee is aggrieved of his order, it may be possible for him to file an appeal. For this limited purpose namely to consider the admissibility of the additional ground raised by the assessee before the learned AAC, we restore the matter back to him.
14. The assessee returned the value of the other property owned by him at Hissar, namely, Shanker Niwas at Rs. 33,333. The WTO referred the matter of valuation of the said property to the Valuation Officer with whom the assessee unfortunately did not cooperate. The said Valuation Officer, therefore, estimated the value of the property in question for asst. year 1978-79 at Rs. 2,33,333. On the basis of that valuation, the WTO estimated the value of the said property in the assessee's hands on the valuation date i.e. 30 Sept., 1974, corresponding to the asst. year under consideration, at Rs. 1,75,000. The assessee appealed against the aforesaid order to the learned AAC. There is unfortunately no discussion again with regard to this point in the order of the learned AAC. The ground was specifically taken before him, but apparently has been left out due to inadvertence. In all fairness, therefore, the matter should go back on this point also to the learned AAC for examining the facts and giving his decision thereon.
15. The assessee incurred certain liabilities in the name of the business concerns named M/s Goodearth Co. and MM Lal. The details of the liabilities are as below :
Rs.
1. Landsherg India Pvt. Ltd. 8,100
2. Expenses payable 3,231
3. Interest payable 4,472 The WTO did not deduct the aforesaid liabilities from the aggregate of the value of assets on the ground that these related to expenditure of a business, which had been discontinued by the assessee. On appeal, the learned AAC confirmed the disallowance in question. The assessee assails the correctness of the above findings of the authorities below. In our opinion, there is merit in the assessee's submission. Whether or not a certain item of expenditure would be allowed while determining the assessee's total income for an asst. year, may be relevant for determining the total income of an assessee under the Income-tax Act, 1961, but it has no relevance whatsoever with the determination of the assessee's net wealth under Section 2(ii) of the WT Act, 1957. Whether or not the liabilities are of business, they have to be allowed, so long as they are the assessee's liabilities, against the aggregate value of all his assets. The authorities below were, therefore, not justified in ignoring the assessee's claim merely on the ground that the liabilities related to a closed or discontinued business. If the said liabilities represent positive debts due to others, they will have to be deducted from the aggregate of the assets under Section 2(ii). Inasmuch as the authorities below have not examined this point from this angle, it would be better if the matter is sent back to the AAC on this point also. He will now determine as to whether or not the debts in question have infact been incurred by the assessee, and in case they having been so incurred, they would be allowed, and it would be of no consequence in this regard that the said debts pertain to a closed business. It is not only the capital of the assessee engaged in business which is the subject matter of levy of the wealth-tax. It is the excess of all the assets, business and non-business, over all the debts (business and non-business) which would yield the assessee's net wealth. The AAC will, therefore, re-examined the matter and allow the assessee's claim, if it is in accordance with law.
16. In the result, we will treat the assessee's appeals for, statistical purposes, as partly allowed.
M.C. Agarwal, J.M.
1. I have gone through the order prepared by my learned brother. I agree that his views and conclusions in so far as WTA Nos. 457/Del/85, 648/Del/84 and WTA No. 750/Del/84 are concerned.
2. As regards WTA No, 456/Del/85, also I agree with him so far as the exclusion of sale proceeds of agricultural land is concerned. However, so far the valuation of the house property is concerned, I beg to differ from the order proposed by my learned brother.
3. The property is a house property No. 2, Panchsheel Marg, New Delhi. The assessee had returned its value at Rs. 5,50,624. In the preceding assessment year (1977-78) this property had been valued by the WTO at Es. 7,45,640. During the assessment proceedings the assesses claimed that this property be valued in terms of Rule 1BB of the Wealth-tax Rules. The WTO declined to apply Rule 1BB on the ground that the said Rule came into force w.e.f. 1-4-1979 and as such was not applicable for assessment year 1978-79. The Wealth-tax Officer, therefore, had adopted the value of this property at Rs. 7,45,64a on the basis of the preceding year's assessment. On appeal the learned A AC directed that the property be valued in terms of Rule 1BB. In doing so the learned AAC followed a judgment of a Special Bench of this Tribunal in the case of Blju Patnaik v. WTO [1982] 1 SOT 623 (Delhi), in which the Tribunal has held that Rule 1BB of the Wealth-tax Rules is mandatory and applies to all pending assessments. In the grounds of appeal the WTO appellant has merely stated that on the facts and in the circumstances of the case the AAC erred in directing to work out the value of property as per Rule 1BB. The Revenue did not contend before us that the house in question does not satisfy the conditions laid down by Rule 1BB and that it was for that reason that the direction to value the property as per Rule 1BB was incorrect. As already stated the WTO's argument merely was that Rule 1BB having been enacted w.e.f. 1-4-1979 was not applicable to assessment year 1978-79. The Tribunal has already held otherwise and the Tribunal's view has found support from some of the High Courts CWT v. Vidyavathi Kapur [1984] 150 ITR 319 (Kar.) and CWT v. Laxmandas Bhatia [1987] 163 ITR 586 (MP). The learned D.R. had not contended before us that in view of the judgment of Hon'ble the Delhi High Court in Sharbati Devi Jhalani's case (supra), the property could not be valued in terms of Rule 1BB or that the WTO should have made a reference to the Valuation Officer. My learned brother has taken the view that since the value adopted by the Wealth-tax Officer was more than 33 1/2 per cent of the returned value, it was not open to the WTO to value the property himself and that he should have referred the matter to the Valuation Officer who would value the property in accordance with law, meaning thereby that Rule 1BB would not be binding on the Valuation Officer.
4. In my view the ratio laid down by Hon'ble the Delhi High Court in the case of Sharbati Devi Jhalani (supra) is limited to a specific rule i.e., Rule 1-D of the Wealth-tax Rules and was given in a case in which Rule 1-D could not be applied because the valuation date of the assessee was different than the date on which the accounts of the company were finalised. The manner of valuation of unquoted equity shares, prescribed in Rule 1-D can be applied only where the two dates aforesaid are common. At page 561 the Hon'ble court observed :
To summarise--The position, therefore, is that when a question arises as to the value of unquoted equity shares, the Wealth-tax Officer has to act according to the provisions of Section 7(1) read with Rule 1-D, if applicable. He has to determine the break-up value of the shares in the manner prescribed in Rule 1-D. In the case of application of Rule 1BB no problem like the one in the case of Sharbati Devi Jhalani (supra) arises, because Rule 1BB would apply whatever be the valuation date. No doubt the Hon'ble High Court has gone to state that where the value determined by applying Rule 1-D exceeds the returned value by more than the prescribed limit, then the question of valuation of shares has to be referred to the Valuation Officer, who will not be bound by Rule 1-D. The Hon'ble High Court has taken up this position because of Sub-section (3) of Section 7, whioh is in the nature of a proviso to Section 7(1) as it begins with the words--'Notwithstanding anything contained in Sub-section (1)'. Under Sub-section (3) the Valuation Officer has to determine the price which an asset would fetch if sold in the open market on the valuation date. Rule 1-D of the Wealth-tax Rules has been framed under Sub-section (1) of Section 7 and since Sub-section (3) is in the nature of a proviso to Section 7(1) the Hon'ble High Court took the view that Rule 1-D was neither binding on the Valuation Officer nor on the appellate courts. Rule 1BB, however, has a different setting and it begins by saying--'for the purposes of Sub-section (1) of Section 7, the value of a house...'shall be' Under the Wealth-tax Act, the fair market value of any asset is determined in terms of Section 7 which says that the value of any asset shall be estimated to be the price which in the opinion of the WTO, it would fetch if sold in the open market on the valuation date. Rule 1BB provides the method of valuation in respect of residential properties and as already held by this Tribunal is mandatory i.e. it is binding on the WTO as well as on the assesses. Therefore, interpreting Section 7(1), Section 7(3) and Rule 1BB in a harmonious manner, it is not possible to hold that Rule 1BB is not binding on the Wealth-tax Officer or on the Valuation Officer, to whom the matter may be referred, or on the appellate courts. Valuation of immovable properties always involves a lot of guess work and it is in order to avoid that guess work that a rough and ready method has been evolved by the Legislature under Rule 1BB of the Wealth-tax Rules. I have been unable to find anything in the law as laid down by Hon'ble the Delhi High Court in Sharbati Devi Jhalani's case (supra) which may show that same principles can be applied to Rule 1BB as well which, as pointed out above, stands on an entirely different footing. I am, therefore, of the view that the direction given by the learned AAC that the property aforesaid be valued in terms of Rule 1BB of the Wealth-tax Rules was correct and required no interference. In my view, therefore, WTA No. 456/Del/85 for assessment year 1978-79 should be dismissed and I order accordingly.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is difference of opinion between us on the following question, the same is referred for the valued opinion of the Hon'ble Third Member:
Whether, the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, 559 and 561 indicating the scope of the duties and powers of the Valuation Officer under Section 16A read with Section 7(3) of the Wealth-tax Act, 1957 applies only to the valuation of shares under Rule 1D or whether it will be applicable to the valuation of any property including that covered under Rule 1BB ?
The ratio of Sharbati Devi Jhalani's case (supra) does not apply to Rule 1BB.
2. If the answer to the above be in the negative, whether, the direction given by the AAC in the present case that the value of property No. 2, Panch Sheel Marg, New Delhi be determined in accordance with Rule 1BB of the Wealth-tax Rules is erroneous ?
THIRD MEMBER ORDER G. Krishnamurthy, President
1. This is a matter that came to me under Section 24(1) of the Wealth-tax Act, 1957 read with Section 255(4) of the Income-tax Act, 1961 as there is a difference of opinion between the Members, who heard this appeal on the following points:
1. Whether the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sharbati Devi Jhalani v. CWT [1986] 159 ITR 549, 559 and 561 indicating the scope of the duties and powers of the Valuation Officer under Section 16A read with Section 7(3) of the Wealth-tax Act, 1957 applies only to the valuation of shares under Rule 1D or whether it will be applicable to the valuation of any property including that covered under Rule 1BB ?
2. If the answer to the above be in the negative, i.e. the ratio of Sharbati Devi Jhalani's case (supra) does not apply to Rule 1BB, whether, the direction given by the AAC in the present case that the value of property No. 2, Panch Sheel Marg, New Delhi be determined in accordance with Rule 1BB of the Wealth-tax Rules is erroneous ?
In order to appreciate the controversy, I shall briefly refer to the facts that gave rise to this appeal and then refer to the Delhi High Court decision on the interpretation of which the above difference appears to have arisen.
2. The assessee, inter alia, owned a property at No. 2, Panch Sheel Marg, New Delhi. Up to the wealth-tax assessment year 1977-78, the value of this property was fixed at Rs. 7,45,640 to which the assessee had agreed and there was no controversy about that. But in the assessment year under dispute (1978-79), the assessee returned the value of this property at Rs. 5,50,624 on the ground that this property was used as a residential house and that the value of this property should be arrived at on the basis of the method of valuation provided for in Rule 1BB of the Wealth-tax Rules, which came into effect from 1-4-1979 and which had retrospective effect. On the question of retrospectivity of this Rule; the issue is not before me because the Members agreed that the Rule was to be applied even in respect of pending assessments. But the Wealth-tax Officer held that Rule 1BB having come into force with effect from 1-4-1979 did not apply to the assessment year in question, namely, 1978-79 and valued the property as in last year at Rs. 7,45,640. The assessee aggrieved by this valuation, preferred an appeal before the Appellate Asstt. Commissioner. He directed that, the property should be valued in terms of Rule 1BB of the Wealth-tax Rules. Against that order of the Appellate Asstt. Commissioner, a second appeal was filed before the Tribunal. The application of Rule 1BB was questioned not on the ground that the conditions laid down for the application of Rule 1BB were not satisfied but on the ground that Rule 1BB had no retrospective effect and therefore did not apply to the assessment year in question.
3. The learned Accountant Member, who wrote the leading order observed that the Delhi High Court in the case of Sharbaii Devi Jhalani (supra) held that when the Wealth-tax Officer was of the opinion that the value of the property in question was more than 33 1/3 per cent of the returned value, it was not open to him to value the property himself and in terms of Rule 3B read with Section 16A of the Wealth-tax Act, he should refer the matter to the Valuation Officer, who would then find out the market value of the property. Further, according to the learned Accountant Member, the Delhi High Court laid down in that case that when Valuation Officer has to value the property in terms of Sub-section (3) of Section 7, the Wealth-tax Rules would not govern his valuation and when the matter was brought in appeal before the Appellate Authorities, the Appellate Authorities also would not be governed by the relevant Wealth-tax Rules including Rule 1BB. On this understanding the learned Accountant Member held that the direction given by the Appellate Asstt. Commissioner to the Wealth-tax Officer in this case to value the property at No. 2, Panch Sheel Marg, New Delhi in terms of Rule 1BB deserved to be modified in the light of the observations of the Delhi High Court in the above case. He therefpre directed the Wealth-tax Officer to refer the matter to the Valuation Officer, who would then value the property in accordance with law.
4. But the learned Judicial Member understood the Delhi High Court decision in a different way. He first pointed out that it was not the contention of the Department before the Tribunal that in the light of the judgment of the Delhi High Court in Sharbati Devi Jhalani's case (supra) the property could not be valued in terms of Rule 1BB or that the Wealth-tax Officer should have made a reference to the Valuation Officer. In the direction that was given by the learned Accountant Member, the learned Judicial Member saw a possibility of the Valuation Officer not applying Rule 1BB for the valuation of this property on the view that it would not bind him and that result should not and was not to flow from the decision of the Delhi High Court. According to his understanding the Delhi High Court only laid down the principle as to how the value of unquoted share should be made according to Rule 1D. The High Court was concerned in that case to find out as to whether Rule 1D is mandatory or directory. By analysing Rule 1D the High Court held that Rule 1D was not mandatory but in certain circumstances it is directory and those situations are that when the valuation date of the assessee and the balance sheet date of the shares happen to be the same, the Rule becomes mandatory in which case the Wealth-tax Officer has to act according to the provisions of Section 7(1) read with Rule 1D and determine the breakup value of the shares in the manner prescribed in Rule 1D but in situations where the valuation date of the assessee and the balance sheet date of the shares differ, then the rule becomes directory, in which case a different procedure has to be applied, namely, to refer the matter to the Valuation Officer subject to the satisfaction of the conditions laid down in Rule 3B read with Section 16A of the Wealth-tax Act and only then the Valuation Officer would come into the picture and he has to value the unquoted shares by determining the market value of those shares, which they would fetch if sold in the open market and he would not be bound by Rule 1D. Since such a situation would not arise in the case of application of Rule 1BB, the question of applying the rule laid down in Sharbati Devi Jhalani's case (supra) would not arise. The learned Judicial Member further pointed out that Rule 1BB has a different setting and it begins by saying 'For the purposes of Sub-section (1) of Section 7," and therefore in determining the fair market value of any asset, particularly of a house, there is no escape other than applying the provisions of Rule 1BB to arrive at the market value of that house. In this context it cannot be said that Rule 1BB was not binding upon the Wealth-tax Officer or on the Valuation Officer to whom the matter might be referred or on the Appellate Courts. The learned Judicial Member further pointed out that there was nothing in Sharbati Devi Jhalani's case (supra) which would show that the same principles, as would, apply to Rule 1D, would also apply to Rule 1BB. Thus he came to the conclusion that the direction given by the Appellate Asstt. Commissioner that the property in question should be valued in terms of Rule 1BB was correct and required no interference.
5. The learned Departmental Representative now before me argued that the view taken by the learned Judicial Member cannot be supported in the light of the categorical findings by the Delhi High Court. She submitted that the market value of this property was accepted by the assessee in the previous years at Rs. 7,45,640. At a time when the values of the properties were appreciating day by day, it cannot be countenanced that the value of this property should be brought down to Rs. 5,50,624 ; the Legislature never intended this result. It therefore follows that Rule 1BB could have no application to a situation of this nature. Further reading Sub-section (3) of Section 7 and Section 16A together, it would mean that whenever the Wealth-tax Officer arrives at the conclusion that the market value of the property was more than 33 1/3 per cent than the returned value, he has no option but to refer the matter to the Valuation Officer. The Valuation Officer would then enter upon the valuation process and in doing so, as held by the Delhi High Court, he was not bound by any Rules because under the express provisions of Sub-section (3) of Section 7, he has to arrive at the price the property would fetch if sold in the open market on the valuation date. The value arrived at as per Rule 1BB being a concessional value would not reflect the market value and the market value as estimated by the Valuation Officer should therefore prevail and that was how the Delhi High Court interpreted the provisions of Section 7(3) in the above case. Such being the position, the Appellate Asstt. Commissioner was not justified in directing the Wealth-tax Officer to value this property as per the provisions of Rule 1BB. She further pointed out that under Sub-section (1) of Section 7, the Wealth-tax Officer has to estimate the market value of the property subject to the rules made in that behalf, which meant that in the situations where Sub-section (1) applies, the rules made for the valuation of the properties would become applicable and would be binding upon the Wealth tax Officer but when Sub-section (3) of Section 7 provided a non obstante clause and excluded the application of Sub-section (1), the question of applying Rule 1BB still would not arise and the Valuation Officer is free to value this property in any manner he likes, the only limitation being that the value estimated by him should reflect the market value.
6. None was present on behalf of the assessee although notice was duly served but instead a letter of adjournment dated 11-4-1989 was received stating that the senior counsel would not be in station on that day and he would not be able to attend the hearing and that the case should be adjourned. Since sufficient notice had been given to the asseasee, it was expected of the assessee to make proper arrangements and this being a very old matter, it was considered unnecessary to adjourn the case. The case was therefore disposed of after hearing the Departmental Representative and on perusing the records.
7. I have already mentioned above the sharp controversy that arose in this case over the interpretation of the judgment of the Delhi High Court in the case of Sharbati Devi Jhalani (supra). I have also gone through this judgment both in the Court along with the Departmental Representative and also afterwards with a view to see whether the High Court had made any observations even by way of obiter dicta as to whether the rule laid down by the High Court would be applicable in relation to valuation of property other than unquoted shares. In this judgment I found that the main discussion centred round Rule 1-D, as to whether it is mandatory or directory and in that context the question of applicability of the rules to the Valuation Officer was discussed. The circumstances under which the Wealth-tax Officer would be compelled to refer the valuation of a property to the Valuation Officer were explained and in cases where the Valuation Officer was referred to, it was pointed out that the Valuation Officer would not be bound by the rules. By implication what was said was that he may keep those rules in view but he need not be bound by them. That was a judgment delivered on a Writ Petition filed by an assessee, Sharbati Devi Jhalani against an order passed by the Commissioner of Wealth-tax under Section 25(2) of the Wealth-tax Act. There the petitioner filed the return of wealth putting upon certain unquoted shares held in a private limited company of the particular value and later on a revised return was filed valuing those shares at a much less value. The original value was as per Rule 1D of the Wealth-tax Rules but the revised value was on the basis of yield method. The Wealth-tax Officer accepted this revised valuation and completed the assessment but the Commissioner of Wealth-tax acting' under Section 25(2) cancelled this assessment and directed the Wealth-tax Officer to revise the value of the unquoted shares as per the method prescribed in Rule 1-D. The petitioner thereafter moved the High Court by way of a writ and contended that Rule 1-D of the Wealth-tax Rules was not mandatory but only directory whereas the Revenue contended that the Rule was mandatory. The High Court after noticing and analysing Section 7, and Section 16A of the Wealth-tax Act and Rules 3B and 1-D of the Wealth-tax Rules came to the conclusion that Rule 1-D as it stood could not be applied in all situations and after pointing out the anomalies that would result in applying the Rule as if it is mandatory, the High Court pointed out that the Rule may have to be struck down as being contrary to the provisions of the Act. The High Court pointed out that by a rule, the provisions of the Act could not be nullified or altered. When the Act enjoins the determination of the net wealth of an assessee on a particular valuation date, a different date cannot in effect be fixed by a rule. That was what was sought to be done by Rule 1-D in case the balance sheet is not available on the valuation date. It was with reference to this aspect that the High Court held that the rule travelled beyond the scope of the Act and therefore it had to be struck down though it did not strike it down. In order to uphold the validity of Rule 1-D and at the same time not to do violence to the language of the relevant provisions, the High Court held that where the valuation date of the company and that of the assessee happened to be the same, then the application of Rule 1-D is mandatory but in cases where they are not the same, then the applicability of Rule 1-D would be only directory. It is only when the rule is directory that the Wealth-tax Officer would not be bound by the method provided for in Rule 1-D to value the shares. But if by the other method the Wealth-tax Officer comes to the conclusion that the value of the shares was more than the prescribed limits, then by virtue of Section 16A read with Rule 3B, the Wealth-tax Officer has to refer the question of valuation of shares to the Valuation Officer. In that event the Valuation Officer by virtue of the provisions of Sub-section (3) of Section 7 has to value the asset by determining as to what it would fetch if sold in the open market on the valuation date and therefore he would not be bound by Rule 1-D. Rule 1-D basically provided for the valuation of the shares on what is known as break-up value method. But the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 and CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 held that the proper method of valuation of shares is to adopt the profit earning capacity and not the break-up value method and that the break-up value method has to be resorted to in exceptional circumstances. Therefore the Wealth-tax Officer being bound by the law laid down by the Supreme Court has to value the shares on the basis of yield method and not by the break-up value method. It is in this context the High Court observed :
To summarise : the position, therefore, is that when a question arises as to the value of unquoted shares, the Wealth-tax Officer has to act according to the provisions of Section 7(1) read with Rule 1D, if applicable. He has to determine the break-up value of the shares in the manner prescribed in Rule 1D. If the value so determined is more than the value* returned and the provisions of Rule 3B are applicable, then the question of valuation of the said shares has to be referred by the Wealth-tax Officer to the Valuation Officer, under Section 16A. The Valuation Officer, when a reference has been made to him, has to determine the value of the unquoted shares in accordance with the provisions of Section 7(3) of the Act, i.e., he has to determine the price which those shares will fetch if sold in the open market on the valuation date. It is obvious that the Valuation Officer is not to determine the value of the unquoted shares by applying the break-up value method. The correct method in valuing such shares would be the method as approved by the Supreme Court in CWT v. Mahadeo Jalan [1972] 86 ITR 621 and CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38, which is applying the yield method. The break-up (value) method is to be used only if the company, on the valuation date, is ripe for winding up.
8. Then the High Court referred to the judgments of the Allahabad High Court in the cases of CWT v. Sripat Singhania [1978] 112 ITR 363 and Bharat Hart Singhania v. CWT [1979] 119 ITR 258 and held disagreeing with the view expressed by the Allahabad High Court that even the Tribunal was bound by Rule 1D and the unquoted equity shares had to be valued according to that rule, the Delhi High Court pointed out that the Appellate Authorities were not bound by the said rule even if the said rule was applicable because under Section 7 of the Wealth-tax Act, it was only the opinion of the Wealth-tax Officer as to the market value that was relevant for making the assessment and when the opinion of the Wealth-tax Officer was subject to an appeal to the Appellate Authorities and when the powers of the Appellate Authorities were governed by the other sections, it could not be said that the Appellate Authorities were bound by what was binding upon the Wealth-tax Officer. That would mean that the power of the Appellate Authorities was restricted by the provisions of Rule 1D and if such a construction was to be placed upon Rule 1D, it would amount to overriding, reconstructing or amending the provisions of the substantive Statute, which result could not be countenanced. Dealing with a contention addressed by the Revenue before the High Court that the Valuation Officer was bound by the rules contained in Rule 1D, the High Court pointed out that :
To read Section 16A in the manner in which the learned counsel for the respondents (i.e. Revenue) wants us to read, would amount to giving arbitrary powers to the Wealth-tax Officer. Giving of such a power may invite attack on it on the ground of its being arbitrary and thereby violative of Article 14 of the Constitution.
This would show that the High Court was categorical in its view that when a reference was made to the Valuation Officer, the Valuation Officer would not be bound by the method of valuation prescribed in the Rules.
9. Reading the judgment in this manner, it might give rise to a clue that the provisions of Section 16A would become applicable not only to shares but to all properties but there is an exception to it. That exception is, in my opinion, clearly provided in the judgment itself. While dealing with this aspect of the binding nature of the rules on the Valuation Officer after a reference was made to him, the Hon'ble High Court pointed out at page 559 that:
The Wealth-tax Officer cannot be expected to know the correct value of different types of assets. If the Wealth-tax Officer agrees that the value returned by an assessee is correct, then the question of applying Section 16A does not arise. If the value proposed by the Wealth-tax Officer is different from the value returned, then the Wealth-tax Officer should intimate to the assessee as to what should be the correct value of the asset. This is implicit in Section 16A. If the assessee agrees to the valuation proposed by the Wealth-tax Officer, then again the question of making any reference to the Valuation Officer would not arise. Where, however, the difference in the value returned and the value estimated is more than what is prescribed in Rule 3B, and if the assessee wants a reference to be made, then, in our opinion, the Wealth-tax Officer would have no option but to make the requisite reference.
The enunciation of law of the circumstances under which Section 16A would be applicable by the Delhi High Court would clearly show that the Wealth-tax Officer should first intimate to the assessee as to what should be the correct value of the asset and only when the assessee disagrees with that valuation and if the difference exceeds the limits prescribed in Rule 3B, a reference has to be made to the Valuation Officer. This according to me would mean that the Wealth-tax Officer should first value the property. When the Wealth-tax Officer values this property and if that property happens to be the residential house, there is no option to him to value that residential house otherwise than in accordance with the provisions of Rule 1BB because the High Court had pointed out in this case the mandatory nature of the rules prescribed in the method of valuation. Sub-section (3) of Section 7 would come into operation only where a reference has to be made to the Valuation Officer. Otherwise it is Sub-section (1) that has to be applied. In Sub-section (1) the Wealth-tax Officer has to arrive at the price of the assets as it would fetch if sold in the open market and that has to be done subject to the rules made in that beha]f. In this context the Delhi High Court pointed out that the rules would be binding on the Wealth-tax Officer. The binding nature of the rules would cease to have effect only when a reference is made to the Valuation Officer and that too on the Valuation Officer. But so far as the Wealth-tax Officer is concerned the rules are binding on him. This is the rule laid down by the Delhi High Court in the case of Sharbati Devi Jhalani (supra). So the Wealth-tax Officer when he has to value the property in the first instance has to value the property only in accordance with Rule IBB, whatever may be the price that that property would fetch if sold in the open market. He cannot under the rules forsake the valuation arrived at as per Rule 1BB and go to fix up the market value. This procedure would be against the legislative mandate. The Legislature with a view to confer a benefit upon the assessees owning residential houses and with a view to avoid fluctuation in the valuations of the properties and avoid litigation, laid down a particular procedure to be followed for the valuation of the residential house properbies. A residential house property's valuation is therefore linked with the rent that the property would fetch and was made relatable to the Municipal Valuation, the built up area and the unbuilt up area. There is no question of arriving at the value of the house property on the basis of the land and the super-structure value separately and by aggregating both. That value was deliberately abandoned and a different method relatable to the rent was adopted so as to give a stability and uniformity in the valuation of residential houses. When that is the object of the Legislature, the question of discarding that value and arriving at a different value and calling it market value and then adopting it would be certainly against the specific provisions of the Act. Therefore the Wealth-tax Officer has to ignore the market value and proceed to determine only the value as per Rule 1BB. Thus when the Wealth-tax Officer has to determine the value of the residential house as per Rule 1BB, the question of the value thus arrived at being different from the market value and the question of there being a difference between the market value and its value as per Rule 1BB does not simply arise. The question of therefore referring the valuation of this residential house to the Valuation Officer does not and cannot arise.
10. The learned Departmental Representative at this stage pointed out that if that is the interpretation to be placed upon Section 16A. Sub-section (3) of Section 7 would become redundant. In my opinion this argument is not tenable because in so far as the valuation of residential house is concerned, the Legislature deliberately wanted that they should not be valued as per market value and the value arrived at as per Rule 1BB is deemed as the market value and thus an exception is carved out for the application of Section 16A. Otherwise the purpose of enacting Rule 1BB would become a fruitless exercise. We cannot attribute to the Legislature a meaningless legislation. Every legislation has to be harmoniously understood and interpreted.
11. Except a discussion about the application of Rule 1D and as to what would happen about the binding nature of the rules on the Valuation Officer, the Delhi High Court, in my opinion, cannot be read as laying down a principle that the valuation of properties covered by Rule 1BB also is to be valued differently otherwise than in accordance with Rule 1BB, even though it can be said that the ratio enunciated by the Delhi High Court may become applicable to valuation of all other properties. That means according to me that in respect of properties covered by Rule 1BB, the ratio laid down by the Delhi High Court on the binding nature of the rules on the Valuation Officer cannot arise because in such cases the question of the Wealth-tax Officer referring the valuation to the Valuation Officer cannot arise. Therefore my opinion on the first point of difference of opinion is in the negative. It therefore follows that the direction given by the Appellate Asstt. Commissioner in the present case that value of the property at No. 2, Panch Sheel Marg, New Delhi should be determined in accordance with Rule 1BB of the Wealth-tax Rules is not erroneous. This is my opinion on the second question.
12. As a result, I agree with the conclusions reached by the learned Judicial Member.
13. The matter will now go before the regular Bench for disposal of the appeal according to the opinion of the majority.