COMMISSIONER OF WEALTH TAX vs. SMT.BALLABH KUMARI

Instant Wealth Tax Reference u/Sec. 27(1) of the Wealth Tax Act has been referred by the Income Tax Appellate Tribunal, Jaipur Bench at the instance of this Court to refer the following question of law. It is relevant for the assessment years 1976-77 and 1977-78:- “Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the provisions of Urban Land (Ceiling & Regulation) Act, 1976 are applicable for determining the market value of the plot for purposes of Wealth-tax on the relevant valuation date ?”

The brief facts for disposal of the reference is about the fair market value of the land owned by respondent assessee admeasuring 16000 sq.mt. in Ajmer District though the assessee owned 18000 sq. mt. of land and the dispute confines to 16000 sq. mt. of land which according to the assessee in view of the Urban Land (Ceiling & Regulation) Act, 1976 (for short, 'ULCAR Act') came into force w.e.f. 17/02/1976 and 2 applicable in the State of Raj. On 09/03/1976 & any person holding excess land under the ULCAR Act was required to surrender to the State Govt. The valuation date being 31/03/1976 and 31/03/1977, the assessee in the return of wealth valued 18000 sq. mt. of land at Rs.1,16,000/- and it was claimed by the assessee in the return of wealth that “since the land has come under ULCAR Act, its value has been depressed”. However, the Assessing Officer (for short, 'AO') observed in the assessment order that the compensation under the ULCAR Act has not been declared and accepted by the assessee and therefore, the AO assessed the value of the land for both the assessment years of Rs.2,98,000/- which was noticed in the earlier assessment years.

The matter was assailed before the Commissioner of Income Tax (Appeals) (for short, CIT(A)') before whom it was reiterated that the Government of India restricted the area of the open vacant land by a person to be 2000 sq. mt. in so far as district Ajmer is concerned where the subject land is situated and it was contended that ULCAR Act provides that the compensation would be fixed at Rs.5 per sq. mt. and therefore, the value of such excess land could not have been more than Rs.5/- per sq. mt. and on account of applicability of ULCAR Act, no person of ordinary prudence would have purchased such land on higher value/rates and it was mandatory on the part of a person holding excess land to have 3 surrendered the same, thus the fair market value was the value which the assessee was entitled to receive from the Government. However, the CIT(A) was not inclined and accordingly rejected claim of the assessee and upheld the view of the AO.

The matter was assailed before the Tribunal and it was reiterated that under the Wealth Tax Act, only fair market value of an immovable property is required to be taken into consideration and once the land came under the ULCAR Act or hit by the said provisions, fair market value could not have been more than Rs.5/- per sq. mt as scheduled in the ULCAR Act. The Tribunal, noticing the above facts, came to the conclusion that in so far as the value of 2000 sq. mt of land, which the assessee can retain, valued at Rs.40/- per sq. mt. at the same time so far as remaining 16000 sq. mt. of land is concerned, agreed with the contention of the assessee and held that the value of the excess land be assessed @ Rs.5/- per sq. mt. and accordingly directed to value the excess land of 16000 sq. mt., totaling Rs.80,000/-.

Ld. counsel for the Revenue contended that there is no whisper in any of the proceedings that the assessee by that time filed declaration or declared the excess land under the ULCAR Act and merely mentioning that the aforesaid land has come under the ULCAR Act is no defence. No evidence was laid in furtherance of the claim about the said land having

Counsel further contended that in past the value was being shown at Rs.2,98,000/- and the Tribunal, as a matter of fact, expressed in so far as 2000 sq. mt.of land is concerned & judicial notice can be taken that the value of the land is certainly escalated by time. However, the AO accepted the same value as was assessed in the previous assessment years and taking into consideration the escalation, the valuation of land could be much higher but the Tribunal determining the market value at a figure of only Rs.5/- per sq. mt. is unjust and further contended that it is not that in every case only Rs.5/- per sq. mt. has to be adopted and the ULCAR Act provides that the maximum compensation could be at Rs.2 lac and therefore, in the alternative, she contented that the value is required to be assessed of the excess land maximum at Rs.2 lac and not Rs.5/- per sq. mt. or say Rs.80,000/-.

Per-contra, ld. counsel for the assessee contended that the ULCAR Act mandated that every person holding vacant land, in excess of the ceiling limit, was required to file a statement before the competent authority and once it became a law, everyone was duty bound to follow the same in letter & spirit and accordingly, one has to file a declaration to 5 the competent authority. Under the Wealth Tax Act, on valuation date, fair market value is required to be assessed and the fair market value being not more than Rs.5/- per sq. Karnataka : (2015) 378 ITR 9 (SC) and contended that the self same question about the fair market value under ULCAR Act has been duly considered by the Apex Court wherein it is held that the value gets depressed because of provisions of ULCAR Act.

We have heard ld. counsel for the parties and have perused the impugned order as well as the material available on record.

Admittedly, the ULCAR Act, has been enacted by the Parliament and after assent of the President of India on 17/02/1976 and it became applicable in the State of Rajasthan w.e.f. 09/03/1976. According to the ULCAR Act, the Government of India has restricted the area of the open vacant land to be 2000 sq. mts. in Ajmer district as admittedly the land falls in Ajmer and as per Schedule-I appended to the said Ceiling Act, Ajmer falls in category “D” with the maximum land holding being 2000 sq. mt. Sec. 6 of the ULCAR Act provides ad-infra:-

Sec.6 casts a statutory obligation on every person to make a declaration of holding vacant land in excess of the ceiling limit within the period prescribed to the competent authority with no discretion or justification left under the ULCAR Act.

Under the Wealth Tax Act fair market value of a property is required to be taken into consideration on the valuation date and admittedly, ULCAR Act came into force on or before the valuation date i.e. 31.3.1976 relevant for the assessment year 1976-77 and the ULCAR Act in the relevant year being in force, the value of an asset after the ULCAR Act having come into force indeed got depressed as none would have agreed to purchase land which was under the ULCAR Act. In fact, the ULCAR Act prohibits a person to sale or alienate or gift the property after the ULCAR Act having come into force.

Payment of amount for vacant land acquired.— (1) Where any vacant land is deemed to have been acquired by any State Government under sub-section (3) of section 10, such State Government shall pay to the person or persons having any interest therein,— (a) in a case where there is any income from such vacant land, an amount equal to eight and one-third times the net average annual income actually derived from such land during the period of five consecutive years immediately preceding the date of publication of the notification issued under sub-section (1) of section 10; or (b) in a case where no income is derived from such vacant land, an amount calculated at a rate not exceeding— (i) ten rupees per square metre in the case of vacant land situated in an urban agglomeration falling within category A or category B specified in Schedule I; and (ii) five rupees per square metre in the case of vacant land situated in an urban agglomeration falling within category C or category D specified in that Schedule. (2) The net average annual income referred to in clause (a) of sub-section (1) shall be calculated in the manner and in accordance with the principles set out in Schedule II. (3) For the purpose of clause (b) of sub- section (1), the State Government shall- (a) divide, by notification in the Official Gazette, every urban agglomeration situated within the State into different zones, having regard to the location and the general use of the land situated in an urban agglomeration, the utility of the land in that urban agglomeration for the orderly urban

The above section envisage that the State Govt. shall pay in so far as the land of the assessee is concerned @ of Rs.5/- per sq. mt.. Though there is a bar in sub-clause (6) of clause 3 of Sec.11 of the ULCAR Act that the compensation shall not exceed Rs.2 lac but that is if exceptional case is made out by a person to fall in the category of claiming an amount of Rs.2 lac. In other words, had it been a case, say of 10 50000 sq. mt. of excess land, the compensation could not have been Rs.2,50,000/- (50,000x5) as it could not have exceeded by Rs.2 lac. and thus restricted with outer limit of Rs. 2 lac. Therefore, once the Act envisages compensation of Rs.5/- per sq.mtr., the value of the land in so far as the assessee is concerned, was required to be computed at the rate of Rs.5/- per sq. mt. only.

Sec. 7 (1) of the Wealth Tax Act prescribes as under:- “7.(1).Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.”

The above envisages that the value of an asset should be estimated as if it would fetch if sold in the open market on the valuation date but in this case since the ULCAR Act had come into force, therefore, the value could not have been more that what was prescribed under the ULCAR Act and the said value becomes the fair market value so to say the State Government purchases the land @ Rs.5/- per sq.mtr which becomes the value, if sold in the open market on the valuation date.

The Apex Court in the case of Sri S.N. Wadiyar (Dead) through LR (supra) had an occasion to consider such issue arising out of the market value of the vacant land belonging to the assessee. It would be appropriate to quote the relevant observations made by the Apex Court in Para 29-31 which 11 reads ad-infra:- “29. The combined effect of the aforesaid provisions, in the context of instant appeals, is that the vacant land in excess of ceiling limit was not acquired by the State Government as notification Under Section 10(1) of the Ceiling Act had not been issued. However, the process had started as the Assessee had filed statement in the prescribed form as per the provisions of Section 6(1) of the Ceiling Act and the Competent Authority had also prepared a draft statement Under Section 8 which was duly served upon the Assessee. Fact remains that so long as the Act was operative, by virtue of Section 3 the Assessee was not entitled to hold any vacant land in excess of the ceiling limit. Order was also passed to the effect that the maximum compensation payable was Rs. 2 lakhs. Let us keep these factors in mind and on that basis apply the provisions of Section 7 of the Wealth Tax Act.

The Assessing Officer took into consideration the price which the property would have fetched on the valuation date, i.e. the market price, as if it was not under the rigors of Ceiling Act. Such estimation of the price which the asset would have fetched if sold in the open market on the valuation date(s), would clearly be wrong even on the analogy/rationale given by the High Court as it accepted that restrictions and prohibitions under the Ceiling Act would have depressing effect on the value of the asset. Therefore, the valuation as done by the Assessing Officer could not have been accepted.

Let us proceed on the same lines as delineated/drawn by the High Court itself, namely, one has to assume that the property in question is saleable in the open market and estimate the price which the assumed willing purchaser would pay for such a property. When the asset is under the clutches of the Ceiling Act and in respect of the said asset/vacant land, the Competent Authority under the Ceiling Act had already determined the maximum compensation of Rs. 2 lakhs, how much price such a property would fetch if sold in the open market? We have to keep in mind what a reasonably assumed buyer would pay for such a property if he were to buy the same. Such a property which is going to be taken over by the Government and is awaiting notification Under Section 10 of the Act for this purpose, would not fetch more than Rs. 2 lakhs as the assumed buyer knows that the moment this property is taken over by the Government, he will receive the compensation of Rs. 2 lakhs only. We are not oblivious of those categories of buyers who may buy "disputed properties" by taking risks with the hope that legal proceedings may ultimately be decided in favour of the Assessee and in such a eventuality they are going to get much higher value. However, as stated above, hypothetical presumptions of such sales are to be discarded as we have to keep in mind the conduct of a reasonable person and "ordinary way" of the presumptuous sale. When such a presumed buyer is not going to offer more than Rs. 2 lakhs, obvious answer is that the estimated price which such asset would fetch if sold in the open market on the valuation

Gujarat High Court in the case of Aims Oxygen Pvt. Ltd. Vs. Commissioner of Wealth-Tax: :(2012) 251 CTR 19 (Guj.), after analyzing the judgments not only of various High Courts but also the Apex Court, observed ad-infra:- “On the aforesaid facts, as it is evident that the land in question was declared surplus land under the Urban Land [Ceiling & Regulations ] Act, 1976 which was having depressing effect on the value of the asset, the valuation had to be made on the basis of assumption that the purchaser would be able to enjoy the property as the holder, but with restrictions and prohibitions contained in the ULC Act and in such case value of the property or land would be reduced. Following the same principle, the Revenue, having already accepted the depressed valuation during the Assessment Years 1988-89 to 1990 and then for Assessment Year 1991-92, it was not open to the Revenue to assess the property on the basis of the market value, which normally could have fetched without any restriction or prohibition, but ought to have accepted the value of open land with such restriction and prohibition at Rs. 1,44,146/-, as assessed by the Govt. Regd. Valuer by report dated 16th March, 1989. In view of the finding aforesaid and the settled law as discussed above, we are of the considered view that the Appellate Tribunal was incorrect in holding that immovable property should be valued as per the open market rate, without any restriction and prohibition. In the result, the question, as referred for our opinion is required to be answered in the negative, against the Revenue and in favour of the Assessee.”

Calcutta High Court in the case of Gauri Prasad Goenka and Family (HUF) Vs. Commissioner of Wealth Tax : [1993] 203 ITR 700 (Cal), while considering identical case relating to a 13 land falling under Urban Land Ceiling Act, held ad-infra:- “In our view, therefore, when land cannot be sold in the open market, the question of valuation on the hypothetical basis as to what price it would have fetched had it been sold in the open market could not arise even assuming that such land may be sold subject to the restrictions imposed by the Urban land Ceiling Act. In that process, one has to take into account the remote possibility of such land being granted full or partial exemption giving liberty to the assessee to dispose of it as he likes or subject to such restrictions as may be imposed as the conditions for exemption. In valuing such a property, one has to take into account the state of affairs as prevailing on the relevant valuation date. The Tribunal has not adverted to this aspect of the matter at all. In our view, admittedly, when the land is in excess within the meaning of the Urban Land Ceiling Act, the method which has been adopted for valuation of such land cannot be sustained. To ignore the prohibitions and restrictions of the Ceiling Act in valuing a vacant land in excess and liable to be acquired by the Government and to value it as freely transferable land will amount to an arbitrary act resulting in undue taxation.”

Same view has been taken by Madras High Court in the case of Commissioner of Wealth Tax, Tamil Nadu-II, Madras Vs. K.S. Ranganatha Mudaliar and ors.[1984] 150 ITR 619 (Mad) Temple: [2003] 264 ITR 517 (Guj.)

Taking note of the above principles and the law propounded by the Apex Court,in our view, once there is a restriction on transfer of any land falling under the ULCAR Act, the fair market value of the property would be depressed on account of such restrictions/considerations. Admittedly, in the instant case, it was not open to the assessee to sale the land on account of the restrictions imposed under the ULCAR Act and therefore, the value of the land in question cannot be 14 more than what the Government was to offer to an assessee under the provisions of the ULCAR Act, where the maximum rate of compensation is Rs.5/- per sq. mt., therefore, the same value has to be held to be the fair market value as on the valuation date and in our view, the Tribunal was just and proper in coming to the aforesaid conclusion that the fair market value of the excess land ad-measuring 16000 sq. mt., would be Rs.80,000/- @ Rs.5/- per sq.mt..

Consequently, the question of law is answered in favour of the assessee and against the revenue.

A copy of this order be sent to the Tribunal to pass appropriate order in conformity with the question of law answered. [J.K. Ranka],J. [Ajay Rastogi],J. Raghu/p.14/Kumawat