Income Tax Appellate Tribunal - Delhi
Nachiketa Real Estates (P) Ltd., New ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN
WTA No. 32/Del/2010
Asstt. Yr: 2001-02
Nachiketa Real Estates (P) Ltd. Vs. Wealth-tax Officer,
[Now known as: DLF Building & Ward-13(1), New Delhi.
Services (P) Ltd.]
DLF Centre, (9th Floor),
Sansad Marg, New Delhi.
PAN/GIR No. AAACN9916F
(Appellant) ( Respondent )
Appellant by : Shri Pradeep Dinodia Adv. &
Shri R.K. Kapoor CA
Respondent by : Shri A.D. Mehrotra CIT (DR)
ORDER
PER R.P. TOLANI, J.M :
This is assessee's appeal against CWT (A)-XVI, New Delhi's order dated 31-3-2010 relating to A.Y. 2001-02. Following grounds are raised:
1. That on the facts and in the circumstances of the case and in accordance with the provisions of law, the Commissioner of Wealth Tax (Appeal) has erred in summarily confirming the action of the learned Assessing Officer in determining the value of urban land at the increased amount of Rs.20,09,06,586/-
ignoring the fact that the same has been sold to an agreed price to M/s DLF Universal Ltd in term of an agreement dated 25.10.1983 and the same being unwarranted, illegal and unjustified, deserves to be deleted in full.
1.1 That the order passed by WTO and confirmed by CWT (A) is bad in law.
WTA 32/Del/2010 2 Nachiketa Real Estates (P) Ltd 1.2 That the CWT(A) has grossly erred in law and on facts in rejecting the valuation report of a Govt. approved valuer on surmise, conjecture & untenable grounds.
1.3 That CWT(A) ought to have held that the land held by the appellant was not an un encumbered & free from liens & appellant could not have sold it in the open market.
2. That on the facts and in the circumstances of the case and in accordance with the provisions of law, the learned Commissioner of Wealth Tax (Appeal) has erred in confirming the action of the learned Assessing officer charging interest u/s 17B of the Wealth-tax Act, 1957, amounting to Rs.18,29,556/-.
3. That on the facts and in the circumstances of the case and in accordance with the provisions of law, the learned Commissioner Of Wealth Tax (Appeals) has erred in confirming the action of the learned Assessing Officer in initiating penalty proceedings u/s 18(1)(c) of the Wealth Tax Act, 1957 without recording his satisfaction that the appellant company had concealed the particulars of its wealth or furnished inaccurate particulars of such wealth.
4. That aforesaid grounds are without prejudice to one and another.
5. That the order passed by the learned Commissioner Of Wealth Tax (Appeals) is bad in law as well as wrong on facts and erroneous in points of law and right to assail the same on such other ground or ground as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing.
2. Ground nos. 1 & 2 raise only one dispute about the issue of valuation of land and ground nos. 3,4 & 5 are general in nature which do not call for adjudication.
3. Facts about ground nos. 1 & 2, in brief, are as under: Pursuant to notice u/s.17 of the Wealth-tax Act, issued by the AO for A.Y. 2001-02, the assessee filed its return of wealth declaring Nil taxable wealth. During WTA 32/Del/2010 3 Nachiketa Real Estates (P) Ltd the course of assessment proceedings, following facts were stated on behalf of assessee company:
i) 17 companies were amalgamated with the assessee company in terms of the amalgamation order dated 9.7.2004 passed by the Hon'ble High Court of Delhi w.e.f. 1.4.2003.
ii) Since the order of the Hon'ble High Court was effective from 1.4.2003 and proceedings initiated by the WTO pertained to assessment year 2001-02, the land held as stock-in-trade by the erstwhile companies, which amalgamated with the appellant company, has not been considered for filing the wealth-tax return. The WTO required the assessee to file details including all the stocks i.e. land etc. held by all the entities which merged with it. In response thereto the assessee submitted that only one of such amalgamated companies viz. Mayur Recreational & Development Ltd. held stock in trade of land in question, which was more than 10 years old. Though it was liable to be included in the net wealth of the assessee company, however, because of outstanding debts/liabilities against such stock in trade i.e. the amount of advance received in relation to such stock of land taxable wealth, still worked out to be Nil (as per the balance sheet of assessee company the value of assets liable to wealth tax).
iii) It was explained to the WTO that the land which came to be owned by the appellant company on account of the order of amalgamation was under obligation to sell at a pre agreed selling price inasmuch as that an agreement dated 25.10.1983 has been entered into with M/s. DLF Universal Ltd., wherein all the land held by M/s. Mayur Recreational & Development Ltd. ( in short WTA 32/Del/2010 4 Nachiketa Real Estates (P) Ltd 'MRDL'), was to be transferred to M/s. DLF Universal Ltd. at cost + Rs.2,000/- per acre and therefore, the land's selling price and buyer were already determined by contract. 3.2. The WTO thereafter proceeded to make the assessment and in the assessment order, the WTO determined the valuation of stock-in-trade of land (13.152 acres which was held for more than 10 years as on the valuation date i.e. 31.3.2001) at Rs.20,94,12,045/- as against assessee's valuation of Rs.32,82,412/- as per its agreement of 25.10.1983. The WTO, however, accepted the balance sheet otherwise and allowed the debts outstanding against the said land of Rs.85,05,459/- and determined the taxable wealth of the appellant company at Rs.20,09,06,586/-. The WTO for the valuation of land adopted purchase value of the land in 1998 and thereafter increased the value of the land by 10% each year on compound basis.. He ultimately increased the value of land by 30% as compared to the rate of 1998 and determined the estimated market valuation of the property.
3.3. In determining the market value of the property, the WTO referred to the Part H of Schedule III i.e. Residuary Rule 20 for the valuation of the property. As according to the WTO, there was no other rule available in the Schedule for determining the value of land held as stock-in-trade. 3.4. The WTO held that agreement dated 25.10.1983 was a self-serving agreement and such agreement could not come in the way of determining the market value of the asset as on the valuation date and went on to determine value of the stock-in-trade ignoring the selling rate established in the agreement with DLF Universal Ltd., thereby enhancing the value of the stock-in-trade of 13.152 acres from Rs.32,82,412/- (as per Agreement) to Rs.20,94,12,045/-.
WTA 32/Del/2010 5 Nachiketa Real Estates (P) Ltd 3.5. Aggrieved, assessee preferred first appeal before the CWT (Appeals), who confirmed the action of WTO. CWT(Appeals), referred to some clauses of agreement dated 25.10.1983 and was of the view that all the lands which were agreed to be sold by M/s. Mayur Recreational & Developments Ltd. had already been sold and the land held by M/s. Mayur Recreational Ltd. was not under sort of any obligation or compulsion to sell at a pre agreed rate and therefore the valuation determined by the WTO was upheld.
3.6. Aggrieved, the assessee is in appeal before us.
4. Learned counsel for the assessee Shri Pradeep Dinodia, made following submissions:
i) The agreement dated 25.10.1983 was a bona fide commercial arrangement creating valid contractual obligations. Besides, the agreement has been accepted by the department all through in various assessments of both M/s. Mayur Recreational Development Ltd., Nachiketa Real Estates Pvt. Ltd., as well as in the assessment proceedings of M/s. DLF Universal Ltd.
Reference was made to ITAT decision in the case of DLF Universal Ltd. in ITA No.1884/Del/98 placed in the IInd Paper Book pages 14 to 17, wherein this business model of procuring the land by DLF Universal Ltd. through its subsidiaries has been unequivocally upheld by following observations:
"5.3 These subsidiary companies never develop the land on their own. They have entered into agreements to sell these lands only to the appellant company or its nominees at a specified rate which is the cost of the land + Rs.2,000/- per acre. The WTA 32/Del/2010 6 Nachiketa Real Estates (P) Ltd subsidiaries have given to the appellant company the right to develop the land as per the terms of the license and to enter into agreements to sell with the prospective buyers and deal with various authorities. In fact, the subsidiaries are getting a fixed return of Rs.2000 per acre for acquiring lands and helping the appellant company in developing and selling large area of land despite ceiling laws. The subsidiary companies however declare the entire land so acquired by them as their stock in trade since it is registered in their names. When the land is conveyd in favour of DLF Universal or its nominees (final buyers) it is shown as sales and reduced from their stock-in trade."
ii) It is submitted that the sale made on the basis of this agreement to DLF Universal Ltd. is being accepted in the income-tax assessment proceedings of both the Buyer and the Seller. Reference is made to the orders of the Assessing Officers passed u/s.143(3) of the I.T. Act in the case of M/s. Mayur Recreational & Development Ltd. in A.Y. 2003-04 and that of assessee M/s. Nachiketa Real Estates Pvt. Ltd. for A.Y. 2006-07, which are placed on paper book. It is thus clear that the validity and effect of agreement dated 25.10.1983 in all the years has been accepted and recognized in the respective assessments by the department.
iii) The assessment order dated 27.3.2006 passed u/s.143(3) for assessment year 2003-04 of the Income-tax Act in the case of M/s. Mayur Recreational & Development Ltd. the system of sale/purchase agreement had been discussed and accepted in the assessment order as under: -
WTA 32/Del/2010
7 Nachiketa Real Estates (P) Ltd "The appellant company continued to carry on the real estate business and has acquired agriculture land in Distt. Gurgon (Haryana). The appellant company has agreed to sell the said land to its holding company M/s. DLF Universal Ltd. in terms of agreement to sell dated 25.10.1983 entered into between the appellant company and M/s. Universal Ltd. at the cost price of land plus a profit of Rs.2000/- per acre.
iv) Coming to the observations of the lower authorities that agreement dated 25.10.1983 is a self-serving document, it is contended that these allegations/observations of the lower authorities are fallacious, inasmuch as, when this agreement was entered into between M/s MRDL & DLF, the former was not even liable to wealth-tax on its stock-in-trade. The amended wealth-tax provisions applicable to a company were brought on statute w.e.f. 1.4.1989 by inserting clause 2(b) was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.1989, whereas the impugned agreement was executed much prior in 1983. Therefore, it cannot be called as self serving by any stretch of imagination.
v) It was, thus, argued that the revenue cannot probate and reprobate with regard to this issue in the income-tax proceedings and adotpt a contrary stand for same agreement in wealth-tax proceedings. A specific reliance was placed on the judgment of Co-ordinate Bench of Ahmedabad ITAT in the case of JCWT vs. Prayasvin B. Patel, 41 SOT 357 on this proposition. It was, thus, explained that the sole basis of rejecting the agreement dated 25.10.1983 between M/s. DLF Universal Ltd. and M/s. Mayur Recreational WTA 32/Del/2010 8 Nachiketa Real Estates (P) Ltd & Development Ltd. does not hold good. The WTO's method based on these observations, determining the valuation of the property on the alleged market rates is against the record and based on surmises and conjectures.
vi) It is pleaded that the various judicial authorities have held that while valuing the property, the advantages or disadvantages attached to the said property, cannot be ignored. Reliance is placed on the following judgments for this proposition:
- 107 ITR 922 - CWT, New Delhi vs. P.N. Sikand & Others (SC)
- CWT vs. Trustees of H.E.H. The Nizam's Jewellery Trust -
261 ITR 690 (SC).
- CWT vs. Simpson and General Finance Co. Ltd. 285 ITR 429 (Madras.)
- 150 ITR 619 - CWT vs. K.S. Ranganathan Mudaliar & Another (Madras.)
- 230 ITR 922 - CWT vs. R.P. Padmavathy Ammal (Madras.)
vii) Learned counsel contends that the judgments relied by authorities below are distinguishable. With regard to the judgment in the case of CWT vs. Prince Muffakham Jah Bahadur Chamlijan 247 ITR 351 ITR (SC), the AR submitted that it was on the proposition whether an "inalienable right" to live in a property for life is taxable asset under the Wealth-tax Act or not and method to work out the value of an inalienable right. Similarly, in the case of Ahmed G.H. Ariff and Others vs. CWT 76 ITR 471 (SC) relied upon by the authorities below, the Hon'ble Supreme Court was examining the issue as to whether WTA 32/Del/2010 9 Nachiketa Real Estates (P) Ltd "annuity" is a right capable of included in the wealth-tax or not. In the case of Purshottam N. Amarsay vs. CWT 88 ITR 417 (SC), relied upon by the authorities below, the Hon'ble Supreme Court was examining as to how the "right to support maintenance and advancement of life" was to be valued on a hypothetical basis, whereas assessee's case stands on totally different footing.
viii) It is emphasized by the learned counsel that the asset involved in this case is admittedly land held as stock-in-trade and the same was required to be determined as per Schedule III, part D of Rule 14(1) of the Wealth-tax Rules. There is no justification for AO to rely on 20, which is a residuary rule and needs to be applied only if the basis of valuation of an asset is not available in any of the other rules of Schedule III. Rule 14(1) and 14(2) of Schedule III specifically lay down the method of valuation of the business assets. Rule 14(1)( and 14(2) read as under: -
"Global value of assets of business.
"14(1) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the net value of the assets of the business as a whole, having regard to the balance-sheet of such business on the valuation date after adjustments specified in sub-rule (2) shall be taken as the value of such assets for the purposes of this Act.
(2) For the purposes of sub-rule (1) -
(a) The value of any asset as disclosed in the balance-
sheet shall be taken to be,-
WTA 32/Del/2010 10 Nachiketa Real Estates (P) Ltd
(i) In the case of an asset on which depreciation is admissible, its written-down value;
(ii) In the case of an asset on which no depreciation is admissible, its book value;
(iii) In the case of closing stock its value adopted for the purposes of assessment under the Income- tax Act for the previous year relevant to the corresponding assessment year.
(b) Where the value of any of the assets referred to in clause (a), determined in accordance with the provisions of this Schedule as applicable to that particular asset or if there are no such provisions, determined in accordance with rule 20 exceeds the value arrived at in accordance with clause (a) by more than 20 per cent, then the higher value shall be taken as the value of the asset."
ix) It is, thus, contended that when specific rules for assigning the value to business assets are available on the statute, then there is no occasion to go beyond such rules and apply tesiduary clause in determining the value of the asset. Assuming even if rule 14 is applicable, then rule 20(1) was required to be applied and value of an asset could be determined/estimated only at a price which it would fetch if sold in the open market on the valuation date. The land in question is stock-in-trade, which is under the obligations created by above agreement with M/s. DLF Universal Ltd., its binding nature is accepted by the Department. The land in question was subject to a charge i.e. its sale valuation in assessee's hand being its cost + Rs.2,000/- per acre. The WTO was not justified in arbitrarily determining the value of the land ignoring these vital facts and statutory rules of valuation.
WTA 32/Del/2010 11 Nachiketa Real Estates (P) Ltd
5. Learned CIT (DR) Shri A.D. Mehrotra filed a Paper Book containing 35 pages, consisting of photocopies of judgments, which are relied. Ld. DR referred to the provisions of Indian Contract Act, 1872, for the proposition that only an agreement, which is enforceable by law, is a valid contract. Any agreement which is not enforceable by law is said to be void or voidable. The impugned agreement between M/s. Mayur Recreational & Development Ltd. and M/s. DLF Universal Ltd. dated 25.10.1983 was a void agreement, as the same is in the nature of self serving device and not enforceable. By designing this agreement dated 25.10.1983, the group of assessee companies has avoided tax liabilities including wealth-tax liability, both in the hands of M/s. Mayur Recreational & Development Ltd. as well as in the amalgamated company. It is submitted that the agreement dated 25.10.1983 should be held as void and devoid of legal force as its purpose is to avoid wealth tax. The learned DR further submitted that assessee's counsel's arguments with regard to applicability of rule 14 in Part D of Schedule III should be rejected inasmuch as the same are being raised by the assessee company for the first time before the ITAT. Orders passed by the authorities below are relied.
6. In rejoinder, learned counsel for the assessee contends that assessee has challenged the valuation of land being illegal and arbitrary under this ground. A legal plea can be raised at any level of appellate proceedings as the challenge is ultimately on valuation. Besides, AO cannot go beyond the rules of valuation as prescribed by law.
7. We have heard rival contentions and gone through the entire material available on record. The main issue involved in this appeal is the WTA 32/Del/2010 12 Nachiketa Real Estates (P) Ltd valuation of land, held by M/s. Mayur Recreational & Development Ltd. (amalgamate entity) and after amalgamation by assessee. The assessee consequent to an approved amalgamation scheme by Hon'ble Delhi High Court has become owner of this land as a business asset. Holding is reckoned more than 10 years as of transferee's stock-in-trade. 7.1. The isues which arise are:
a) The agreement dated 25-10-1983 between M/s. Mayur Recreational & Development Ltd. and DLF is self serving, hence should not be considered.
b) The valuation is required to be determined based on the market value as estimated by the WTO and confirmed by the CWT (A).
c) Whether the valuation is to be made as per Rule 14(1) of the Wealth-
tax Rules in Schedule III part 'D' as claimed by assessee or the same is to be determined as per Rule 20 relied by AO.. 7.2. Learned counsel for the assessee stressed that WTO's valuation is unjustified and arbitrary, specially in view of the fact that agreement dated 25.10.1983 has been held as self-serving devise. This agreement has actually been implemented by concerned parties and department throughout a period of more than two decades. The impugned agreement has been examined by various Income-tax authorities in its assessments and appellate proceedings including the ITAT. In the case of DLF Universal Ltd., ITAT has specifically examined this aspect in ITA No.1884/Del/98 We are of the view that this fact cannot be denied, the assessee and group companies and department have all implemented the agreement dated 25.10.1983 without protest.
7.3. We are of the opinion that arguments made by assessee deserve merit; having accepted the agreement in all income-tax proceedings for WTA 32/Del/2010 13 Nachiketa Real Estates (P) Ltd more than two decades, it does not lie now with the Department to take a U turn and treat the agreement dated 25.10.1983 as self-serving document in wealth-tax assessments. There are numerous instances when the holding companies or for that matter subsidiary companies enter into business transactions with each other.
7.4. Hon'ble Supreme Court in the case of Vodafone Int. Holding B.U.V. Vs. Union of India has in substance adverted to the issue of separate entity principle; lifting of corporate viel; colourable device and tax avoidance methods; pre-ordained transaction. It has been held that burden is on revenue to prove these tax avoiding attempts by cogent evidence and reasoning, same which cannot be based on suspicion or conjectures. The issue that needs to be examined is, whether such transaction between the group concerns have been entered bona fide and for valid commercial reasons or for tax avoiding purposes. The law allows creation of holding companies and subsidiary companies in Income Tax as well as Companies Act. The impugned agreement has been examined at various levels, years after year by the Department and upheld by ITAT. Department cannot now discard the agreement in wealth-tax proceedings alleging it to be self serving, merely because it results in lower wealth tax. The agreement is demonstrated to be implemented by the parties and the same is being accepted in the income-tax assessment proceedings. 7.5. The valuation is required to be determined based on the market value. The agreement ordains that all the transactions of sale of land are fixed at cost + Rs.2,000/- per acre, the module has been held by ITAT and by department to be at the arms' length year after year. The findings by the ITAT in DLF Universal Ltd's case, findings of the AO in Mayur Recreational & Development Ltd. in A.Y. 2003-04 and findings of the AO WTA 32/Del/2010 14 Nachiketa Real Estates (P) Ltd in the appellant company's case for A.Y. 2006-07 bear testimony to this fact.
7.6. We, are therefore, of the considered view that AO was not justified in treating the said agreement dated 25.10.1983 as self-serving document. In these facts and circumstances, we are unable to accede to the arguments of learned DR that this agreement should be held as a void agreement for wealth tax purposes, as the department itself has held it to be a valid agreement in income-tax proceedings.
7.7. The Hon'ble Supreme Court while dealing with Vodafone case (supra) was examining a foreign company set up . In our view for an Indian Set up of holding and subsidiary companies tax evasion theoryrequires more rigid application of these tests to hold it a colourable devise. In our view accept raising some whisper of suspicion, WTO has not discharged the burden to prove the agreement as self serving on reasoning and material. Therefore, findings of authorities below that the agreement is a self-serving document and has been designed to defeat the provisions of W.T. Act, is to be rejected.
8. The CWT(A) has raised one more issue in his order that the land in question was not covered by the Agreement dated 25.10.1983 by only reproducing some and not all material clauses of the Agreement. As rightly pointed out by the AR, the clause which covers the lands in question is -
"That in case the area of the said land as detailed in the schedule attached thereto is more or less at site of according to revenue records, the said schedule shall stand modified accordingly. In case any other land is acquired by the First Party in the neighborhood, the same shall also be deemed to form part of the land which is subject matter of this agreement."
WTA 32/Del/2010 15 Nachiketa Real Estates (P) Ltd 8.1. It has not been disputed that the money advanced to buy this land was specifically given on loan by the buyer Co. i.e. DLF as per this agreement and has been allowed as debt owed by both the authorities below while calculating net wealth. Besides, as per the details filed by the assessee, this land has also actually been purchased by the buyer i.e. DLF as per the Agreement at cost + Rs.2,000/- per acre in the subsequent years. We are therefore of the opinion that the land held as a business asset i.e. stock-in-trade by the appellant company was also a part of the Agreement dated 25.10.1983.
8.2. This land has been admittedly held as a business asset as stock-in trade right from the date of purchase either by M/s. Mayur Recreational & Development Ltd. and after amalgamation by M/s. Nachiketa Real Estates Pvt. Ltd. and the sale proceeds thereof have been treated as business income in the respective hands right from the inception till date. In our view, this land falls under the definition of 'asset' u/s 2(ea)(v) of the Wealth Tax Act as 'urban land' and the definition of urban land given in Explanation (1)(b)(ii) states that urban land means land situate, but does not include unused land held by the appellant company as stock-in-trade for a period of ten years from the date of its acquisition by him. W.T.O. has pointed out that, this business asset/stock-in-trade was held by the appellant company for more than ten years from the date of its acquisition and, therefore, was a taxable asset as defined u/s 2(ea) referred to above with effect from 1.4.1993 assessment year.
9. The next question before us is as to how the asset needs to be valued for purposes of the Wealth Tax Act.
9.1. Learned DR contends that assessee had not raised the plea about valuation under rule 14. In our considered view, it is a legal plea and does WTA 32/Del/2010 16 Nachiketa Real Estates (P) Ltd not require examination of other record. Rule 14 is a statutory rule, binding on AO. Assessee has raised the ground about valuation and if this applicable statutory rule is not followed by WTO, then it is to be allowed to be raised for proper valuation. Accordingly, we are inclined to allow and examine this plea.
9.2. In our opinion, the value of the asset has to be determined in accordance with section 7 of the Wealth Tax Act which states "subject to the provisions of sub-section(2), the value of any asset, other than cash, for the purposes of this Act, shall be its value as on the valuation date determined in the manner laid down in Schedule III.". Section 7(2) is thus irrelevant. Schedule III lays down rules for determining the value of the asset. Rule 1 states that value of any asset, other than cash, for purposes of this Act shall be determined in the manner laid down in these Rules. If we come to relevant part 'D' of Schedule III, it lays down the rule for valuation of 'assets of business". Sub-rules (1) and (2) of Rule 14 of Schedule III have been reproduced by us abvoe. Rule 14(2)(a)(iii) is reproduced as under:-
"R.14(2)(iii) In the case of closing stock its value adopted for the purposes of assessment under the Income Tax Act for the previous year relevant to the corresponding assessment year".
Rule 14(2)(b) then lays down as under:-
"R.14(2)(b) Where the value of any of the assets referred to in clause
(a), determined in accordance with the provisions of this Schedule as applicable to that particular asset or if there are no such provisions, determined in accordance with rule 20 exceeds the value arrived at in accordance with clause (a) by more than 20 per cent, then the higher value shall be taken as the value of the asset."
9.3. Rule 20 referred to in rule 14(2)(b), this states as under:-
WTA 32/Del/2010 17 Nachiketa Real Estates (P) Ltd "R.20 (1) The value of any asset, other than cash, being an asset which is not covered by rules 3 to 19, for the purposes of this Act shall be estimated to be the price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date.
(2) Notwithstanding any thing contained in sub-rule (1) where the valuation of any asset referred to in that sub-rule is referred by the Assessing Officer to the Valuation Officer under section16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date.
(3) Where the value of any asset cannot be estimated under this rule because it is not saleable in the open market, the value shall be determined in accordance with such guidelines or principles as may be specified by the Board from time to time by general or special order."
9.4. In our view, the W.T.O. has not followed part 'D' of Schedule III. If this statutory rule was applied properly, AO would have held that the value of the closing stock has to be adopted as same as taken for the purpose of assessment proceedings under the Income Tax Act for the relevant previous year. We, therefore, are of the view that this set of rules was applicable for valuation of land and there was no scope for WTO, but to follow the rule. Our view is supported by the Apex court judgment in the case of Bharat Hari Singhania Vs. CWT 207 ITR 1 (SC).
9.5. Coming to Rule 20, sub-rule (2) cannot be invoked as the W.T.O.. has not referred the matter to the Valuation Officer u/s 16A of the Wealth Tax Act. As there are no guidelines specifically issued by the Board in this regard, sub-rule (3) also does not apply. Now coming to Rule 20(1), there the value of an asset is estimated to be the price which, in the opinion of the A.O., it would fetch if sold in the open market on the valuation date.
WTA 32/Del/2010 18 Nachiketa Real Estates (P) Ltd 9.6. From above facts, it is clear that the appellant company was able to purchase this land only by virtue of its agreement on 25.10.1983 where money was provided by the buyer i.e. DLF Universal Ltd.; the land was preordained to be sold to the said buyer at cost price plus Rs.2000/- per acre. This agreement, we have already held, to be bonafide commercial arrangement between the parties executed approximately 20 years earlier and accepted by department in income tax proceedings of both the buyer and the seller. At the time of the agreement, section 2(ea) of the Wealth Tax Act did not exist in the Statute Book, therefore, the allegation of self serving or tax avoidance device is ruled out. Business assets embedded in the urban land became liable to tax with effect from 1.4.1993 and it cannot be said that this agreement, even though valid for all other purposes is void for the purposes of the Wealth Tax Act by application of this section. We, therefore, hold that the value of the asset cannot be determined ignoring the agreement of 25.10.1983.
10. There are various judicial precedents holding that while valuing the property, for the of levy of wealth tax, advantages and disadvantages attached to the property cannot be ignored and are to be considered in valuation.
10.1. In the case of CWT, New Delhi Vs. P.N.Sikand & others - 107 ITR 922 (SC), the Hon'ble Court held as under: -
"Held, affirming the decision of the High Court, that in determining the value of the leasehold interest of the respondent in the land for the purpose of assessment to wealth-tax, the price which the leasehold interest would fetch in the open market were it not encumbered or affected by the burden or restriction contained in clause (13) of the lease deed, would have to be WTA 32/Del/2010 19 Nachiketa Real Estates (P) Ltd reduced by 50 per cent of the unearned increase in the value of the land on the basis of the hypothetical sale on the valuation date. The covenant in clause (13) was a covenant running with the land and it would bind whosoever was the holder of the leasehold interest for the time being. It was a constituent part of the rights and liabilities and advantages and disadvantages which went to make burden on the leasehold interest. It had the effect of depressing the value which the leasehold interest would fetch if it were free from the burden or disadvantage. Therefore, when the leasehold interest in the land had to be valued, this burden or disadvantage attaching to the leasehold interest had to be duly discounted in estimating the price which the leasehold interest would fetch. To value the leasehold interest on the basis that this burden or disadvantages were to be ignored would be to value an asset differently in content and quality from that actually owned by the respondent. The only way valuation could be done in a case of this kind was by taking the market value of the leasehold interest as if it were unencumbered or unaffected by the burden or restriction of clause (13) and deducting from it 50 per cent of the unearned increase in the value of the land on the basis of the hypothetical sale, as representing the value of such burden or restriction."
10.2. Similarly, the Hon'ble Supreme Court in the case of CWT Vs. Trustees of H.E.H. - The Nizam's Jewellery Trust 261 ITR 690 (SC), while discussing the issue of determining the basis of valuing a property held as under: -
"Whenever there is a charge or encumbrance on the property, the right to a seller to sell the same would be subject to such charge. The restrictions and disadvantages Attached to the right to the seller would indisputably diminish the value of the property to that extent."
WTA 32/Del/2010 20 Nachiketa Real Estates (P) Ltd 10.3. Hon'ble Madras High Court also in the case of CWT Vs. Simpson & General Insurance Co. Ltd. 285 ITR 429 (Mad.), while examining the issue of valuation of land for the purposes of wealth-tax valuation held as under:
"Held, that it was not open to the assessee to sell the land and therefore the value of the land could not be more than what the Government was to offer to the assessee under the provisions of the Land Ceiling Act. Therefore, the Tribunal was right tin holding that the immovable property subject to the urban land ceiling laws should only be valued s per the compensation payable under the Ceiling Act."
To the same effect are the following decisions -
- CWT Vs. K.S.Ranganathan Mudaliar & another 150 ITR 619.
- CWT Vs. R.P. Padmavathy Ammal (Mad.) 230 ITR 922.
10.4. The land was purchased with borrowed funds from DLF with a pre- determined sale price and was sold subsequently at its pre-determined sale price and the profits accordingly are assessed as business profit in the respective hands in prior and subsequent years as well.
10.5. After examining all facts and circumstances, in our considered view the AO was not justified in holding the agreement to be a self serving devise for avoidance of wealth-tax. Except raising an unfounded suspicion the allegation hs not been proved or substantiated. The land in question is held as stock in trade a business asset and the method of valuation as laid down in rule 14 and Schedule III part 'D' is also applicable and on both counts the valuation adopted by AO cannot be upheld. Respectfully following the ratio of various judicial authorities, mentioned above, we vacate the orders of the authorities below and delete the addition made by them. We hold that valuation of the property was required to be determined WTA 32/Del/2010 21 Nachiketa Real Estates (P) Ltd in accordance with the conditions attached with the impugned agreement and the said property and the same had been correctly determined by the assessee company and there was no scope to determine the valuation as adopted by the WTO/CWT(A) in this case.
11. In view of above, the valuation adopted by lower authorities is to be reversed and the additions on valuation are deleted.
12. Before parting, we wish to place on record the appreciations for the erudite arguments on facts and law advanced by Mr. Pradeep Dinodia for assessee and Shri A.D. Mehrotra for revenue during the course of hearing.
13. In the result, assessee's appeal is allowed.
Order pronounced in open court on 25-01-2012.
Sd/- Sd/-
( K.D. Ranjan ) ( R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 25-01-2012.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
WTA 32/Del/2010
22 Nachiketa Real Estates (P) Ltd