REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JUJRISDICTION CIVIL APPEAL NO. 3836 OF 2011 BIMAL KISHORE PALIWAL & ORS. APPELLANTS VERSUS COMMISSIONER OF WEALTH TAX RESPONDENT WITH CIVIL APPEAL NO.3837 OF 2011 RENUKA AGARWAL APPELLANT VERSUS COMMISSIONER OF WEALTH TAX RESPONDENT WITH CIVIL APPEAL NO.3838 OF 2011 MASTER RAHUL APPELLANT VERSUS COMMISSIONER OF WEALTH TAX RESPONDENT WITH CIVIL APPEAL NO.3839 OF 2011 SURENDRA KUMAR APPELLANT VERSUS COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH Signature Not Verified CIVIL APPEAL NO.3840 OF 2011 Digitally signed by BALA PARVATHI JITENDRA KUMAR(HUF) ... APPELLANT Date: 2017.10.13 17:32:49 IST Reason: VERSUS 2 COMMISSIONER OF WEALTH TAX ... RESPONDENT WITH CIVIL APPEAL NO.3841 OF 2011 SHYAMLAL(D) BY LRS. ... APPELLANT VERSUS COMMISSIONER OF WEALTH TAX ... RESPONDENT J U D G M E N T ASHOK BHUSHAN, J. All these appeals raising common questions of law have been heard together and are being decided by this common judgment. High Court vide its separate judgments dated 21.10.2005 decided six Wealth Tax References aggrieved by which, assessees have come up in appeal. All assessees are partners in firm M/s. G.D. & Sons. One of assets of partnership Firm is Cinema building known as Alpana Cinema situate at Model Town, New Delhi. question which was referred to High Court for answer relates to correct method of valuation of property that is 3 Alpana Cinema for assessment under Wealth Tax Act. Reference of facts and proceedings in C.A. NO.3836 of 2011 shall be sufficient to decide all these appeals. 2. M/s. G.D. & Sons of which firm appellants are partners, purchased land and building in semi constructed condition on 04.06.1965 for sum of Rs.8,00,000/ . construction was completed and Cinema Theatre, Alpana started running in premises. Alpana Cinema property was valued by assessment books of accounts. On pending assessment of Wealth Tax of one of partners, Wealth Tax Officer made reference for valuation of Alpana Cinema to Department Valuation Officer, New Delhi by Reference dated 29.04.1976. Valuation Officer after inspecting site submitted its report dated 26.04.1977 valuing property for assessment year 1970 71, 1971 72, 1972 73, 1973 74 and 1974 75. Notices under Section 17 of Wealth Tax Act, 1957 were issued to appellants on 30.03.1979. Assessees got property valued by approved Valuer adopting income capitalisation method. 4 assessment order was passed by Wealth Tax Officer in March, 1983 making assessment for period from 1970 71 to 1974 75. assessment was completed as per percentage of right of different assessees which they have in Firm. Assessing Officer relied on Valuation Report submitted by Departmental Valuer. assessee aggrieved by assessment order filed appeal before Appellate Assistant Commissioner of Wealth Tax. Appellate Authority by its detailed order dated 23.01.1986 affirmed assessment made by Assessing Officer on basis of valuation by land and building method. income capitalisation method as was relied on by assessee was not approved. 3. aggrieved by different assessment orders assessees filed Wealth Tax Appeal before Income Tax Appellate Tribunal (ITAT), Delhi Bench, Delhi. ITAT accepted case of assessee to effect that proper basis for valuing Cinema building would be capitalisation of income. ITAT held that since building could 5 be used only for film exhibition and it cannot be used for any other purpose method of its valuation has to be necessarily different from one normally adopted in case of buildings which are capable of being used as commercial buildings. Revenue aggrieved by Tribunal's order filed reference application through Department. Although, initially same was rejected by Tribunal, on direction of High Court following two questions were referred to High Court for decision: 1. Whether on facts and in circumstances of case Income tax Appellate Tribunal was right in law for purpose of Section 7(1) of Wealth Tax Act in determining assessee s interest in partnership firm by adopting fair market value of assets in question namely, cinema building on income mobilization basis instead of land and building method adopted by Wealth Tax Officer? 2. If answer to above question is in negative and against assessee then what ought to be correct fair market value of assets in question? 6 4. High Court vide its judgment and order dated 21.10.2005 answered questions in favour of Revenue and against assessee. High Court held that Wealth Tax Officer was justified in adopting land and building method. High Court held that yield/rent capitalisation method would not be correct method of valuation of property in question. High Court relied on its decision in Wealth Tax Reference 39 of 1985, Commissioner of Wealth Tax (Central) Kanpur vs. Bankey Lal and others decided on same day, i.e., 21.10.2005. assessee aggrieved by judgment of High Court dated 21.10.2005 has come up in appeal. As noted above, in all Wealth Tax References question was answered in favour of Revenue. 5. We have heard Shri Rohit Amit Sthalekar, learned counsel for appellants and learned counsel for Department. 6. Shri Sthalekar, learned counsel for appellants submits that Section 7(2)(a) of Wealth Tax Act begins with non obstante clause which is 7 stand alone provision prescribing income capitalisation method for assessing value of assets of running business which was applied by ITAT. He further submits that High Court did not controvert findings of fact returned by Tribunal. Tribunal being final fact finding authority, High Court ought not to have interfered with order of Tribunal. Each case is to be decided on its own facts and valuation of property is question of fact which having been correctly determined by ITAT, High Court erred in interfering with said judgment. It is further submitted by learned counsel for appellant that in case there are more than one method of valuing property, valuation which is in favour of assessee has to be adopted which is well settled rule of statutory interpretation. 7. Learned counsel for Department refuting submission of learned counsel for appellants contends that Wealth Tax Officer has rightly followed land and building method for assessing 8 property. He submits that provision of Section 7(1)(a) is enabling provision which gives discretion to Wealth Tax Officer to apply income capitalisation method in case of running business, if he so decides. It is submitted that it is not mandatory for Wealth Tax Officer to apply income capitalisation method in all cases. It is submitted that Cinema building was in ownership and possession of assessee which without being any encumbrances could have easily obtained best price in open market and in such cases land and building method is appropriate method to be adopted for valuing property. 8. Learned counsel for parties have relied on various judgments which shall be referred while considering their respective submissions. 9. We need to first notice provisions of Section 7 which fall for consideration in present case. Section 7 of Wealth Tax Act, 1957 as it stood at relevant time reads as follows: 9 7(1)Subject to any rules made in this behalf, value of any asset, other than cash, for purposes of this Act, shall be estimated to be price, which in opinion of Wealth Tax Officer it would fetch if sold in open market on valuation dated. (2) Notwithstanding anything contained in sub section(1) (a) Where assessee is carrying on business for which accounts are maintained by him regularly, Wealth Tax Officer may, instead of determining separately value of each asset held by assessee in such business, determine net value of assets of business as whole having regard to balance sheet of such business as on valuation date and making such adjustment therein as may be prescribed. (b) Where assessee carrying on business is company not resident in India and computation in accordance with clause(a) cannot be made by reason of absence of any separate balance sheet drawn up for affairs of such business in India Wealth Tax Officer may take net value of assets of business in India to be that proportion of net value of assets of business as whole wherever carried on determined as 10 aforesaid as income arising from business in India during year ending with valuation date bears to aggregate income from business wherever arising during that year. (3) Notwithstanding anything contained in sub Section(1), where valuation of any asset is referred by Wealth Tax Officer to Valuation Officer under Section 16 A, value of such asset shall be estimated to be price which, in opinion of Valuation Officer, it would fetch if sold in open market on valuation date. 10. normal rule for valuing asset for purposes of Wealth Tax Act is estimated price which in opinion of Wealth Tax Officer, asset would fetch if sold in open market. Sub section (2) begins with non obstante clause. Sub clause (a) of sub section (2) provides that where assessee is carrying on business for which accounts are maintained by him regularly, Wealth Tax Officer may, instead of determining separately value of each asset held by 11 assessee in such business, determine net value of assets of business as whole having regard to balance sheet of such business as on valuation date and making such adjustment therein as may be prescribed. 11. Further sub section (3) again begins with non obstante clause providing that where valuation of any asset is referred under Section 16A, value of such asset shall be estimated to be price which, in opinion of Valuation Officer, it would fetch if sold in open market. 12. Under Section 16A Wealth Tax Officer can make reference to Valuation Officer for any asset for valuation. Section 16A sub clause (1) is as follows: 16A Reference to Valuation Officer. (1) For purpose of making assessment (including assessment in respect of any assessment year commencing before date of coming into force of this section) under this Act, where under provisions of section 7 read with rules made under this Act or, as case may be, rules made in Schedule III, market value of any asset is to be taken into account in such assessment, 12 Assessing Officer may refer valuation of any asset to Valuation Officer (a) in case where value of asset as returned is in accordance with estimate made by registered valuer, if Assessing Officer is of opinion that value so returned is less than its fair market value; (b) in any other case, if Assessing Officer is of opinion (i) that fair market value of asset exceeds value of asset as returned by more than such percentage of value of asset as returned or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to nature of asset and other relevant circumstances, it is necessary so to do. 13. Present is case where Assessing Officer has made reference for Alpana Cinema on 29.04.1976. It has also come on record that order of reference to Valuation Officer was challenged by assessee by filing writ petition in Delhi High Court. Appellate Authority in its order had noted about challenge to reference made to Valuation Officer by Assessing Officer. There is nothing on record that Delhi High Court interfered with order of Assessing Officer referring Departmental Valuer to value Alpana Cinema. 14. It is true that sub section (2) of Section 7 begins with non obstante clause which enables Wealth Tax Officer to determine net value of assets of business as whole instead of determining separately value of each asset held by assessee in such business. language of sub section (2) which provides overriding power to Wealth Tax Officer to adopt and determining net value of business having regard to balance sheet of such business. enabling power has been given to Wealth Tax Officer to override normal rule of valuation of properties that is value which it may fetch in open market, Wealth Tax Officer can adopt in case where he may think it fit to adopt such methodology. appellants' submission is that provision of Section 7(2)(a) is stand alone provision and is to be applied in all cases where assessee is carrying on business. We do not agree with above submission. 15. Overriding power has been provided to override normal method of valuation of property as given by sub section 7(1) to arm Wealth Tax Officer to adopt method of valuation as given in sub section (2)(a). purpose and object of giving overriding power is not to fetter discretion. Wealth Tax Officer is not obliged to mandatorily adopt method provided in Section 7(2)(a) in all cases where assessee is carrying on business. language of sub section (2)(a) does not indicate that provisions mandate Wealth Tax Officer to adopt method in all cases of running business. Section 7 of Act has also come for interpretation before this Court in large number of cases. It is useful to refer to some of cases. In Commissioner of Wealth Tax, Calcutta vs. Tungabadra Industries Ltd., Calcutta, 1969 (2) SCC 528, this Court had occasion to consider Section 7 of Act. In aforesaid case following question came for consideration before Court: Whether on facts and in circumstances of case, for purpose of determining net value of assets of assessee under Section 7(2) of Wealth-tax Act, 1957 Tribunal was right in directing that written down value of fixed assets of assessee should be adopted as value thereof, instead of their balance-sheet value? 16. In paragraph 5 while considering Section 7 following was observed: 5......In our opinion there is justification for this argument. Under sub-section(1) of Section 7 of Act Wealth-tax Officer is authorised to estimate for purpose of determining value of any asset, price which it would fetch, if sold in open market on valuation date. But this rule in case of running business may often be inconvenient and may not yield true estimate of net value of total assets of business. Legislature has, therefore, provided in sub-section(2) (a) that where assessee is carrying on business for which accounts are maintained by him regularly, Wealth-tax Officer may determine net value of assets of business as whole, having regard to balance-sheet of such business as on valuation date and make such adjustments therein as circumstances of case may require...... 17. Learned counsel for appellants has placed reliance on State of Kerala vs. P.P. Hassan Koya, AIR 1968 SC 1201. above case was case of valuation of property in reference to Land Acquisition Act, 1894. In aforesaid case following observation was made in paragraphs 6 and 7: 6......An instance of sale which is proximate in time to date of notification under Section 4(1) of Land Acquisition Act in respect of land similarly situate and with similar advantages and which is proved to be transaction between willing vendor and willing purchaser would form reliable guide for determining market value. value which willing vendor might reasonably expect to receive from willing purchaser in respect of house generally depends upon variety of circumstances including nature of construction, its age situation, amenities available, its special advantages and host of other circumstances. When property sold is land with building, it is often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to date of notification under Section 4. Therefore method which is generally resorted to in determining value of land with buildings especially those used for business purposes, is method of capitalization of return actually received or which might reasonably be received from land and buildings. 7. That method was rightly adopted by trial court and High Court. unit under acquisition is used for business purposes and has prominent situation in town of Calicut. There was clear evidence about rental of building, and trial court proceeded to capitalize net annual rental, having regard to rate of return of 13 1/2 per cent from gilt-edged securities, by multiplying it by 35 times. High Court has slightly reduced multiple. 18. above observation made by Court was general observation not in context of Section 7 of Act. method of valuing building property on basis of rent capitalisation is no doubt provided in various statutes especially in cases of rent fixation. above observation does not help appellants in present case. 19. More appropriate judgment of this Court which is on facts of present case is judgment in Juggilal Kamlapat Bankers and another vs. Wealth Tax Officer, Special Circle, C Ward, Kanpur and others, 1984 (145) ITR 485. In above, case this Court had occasion to consider and interpret provisions of Section 7. Wealth Tax Officer had made reference to Valuation Officer for valuing certain buildings belonging to appellant Firm. appellant by means of writ petition challenged reference made by Assessing Officer to Departmental Valuer for valuing property. Two of submissions which were made before High Court as quoted in judgment are as below: ......(3)the interest of appellant No.2 in appellant No.1 firm had to be valued in accordance with r.2 of W.T.Rules, 1957, and hence s.16A of Act had no application; (4) valuation of concerned buildings forming part of assets of business of appellant No.1 firm had to be determined in accordance with commercial principles under s.7(2)(a) and not under s.7(1) of Act, and ....... 20. High Court considered submissions of parties and by rejecting above two submissions held following: .......With regard to third and fourth contentions High Court held that r.2, s.7 and s.16A(1)(b) (ii) had to be read harmoniously and r.2 did not exclude application of ss.7 and 16A for valuing asset of partner in partnership firm and that notwithstanding non obstante clause contained in s.7(2) it was enabling provision giving discretion to WTO either to value assets of business as whole or valuing each asset thereof separately and in that behalf WTO had power to refer such valuation to Valuation Officer under s.16A...... 21. Before this Court appellants had raised two submissions. second submission as noticed by this Court itself at page 490 of judgment is as follows: ......Secondly, counsel has urged that assuming that appellant No.2 s interest(as karta of his HUF) in appellant No.1 s firm is exigible to wealth tax under Act, valuation of such interest being governed by s.7(2)(a) of Act read with r.2A of Wealth tax Rules, 1957, it is not open to WTO to refer valuation of specific house properties belonging to firm to Valuation Officers under s.16A of Act; in fact, according to him, valuation of assets of partnership business of appellant No.1 as whole having regard to its balance sheets for concerned years ought to have been undertaken by WTO and as such book values of house properties as appearing in balance sheets ought to have been accepted by him and, therefore, reference made by WTO to Valuation Officers as well as notices issued by latter, being incompetent and unjustified in law, are liable to be quashed. For reasons which we shall presently indicate neither of contentions has any substance and both are liable to be rejected...... 22. This Court after considering above submission as well as provisions of Act including Section 7 of Wealth Tax Act, 1957 laid down following at page 495: ......On fair reading of aforesaid provisions it will appear clear that primary method of determining value of assets for purposes of Act is one indicated in s.7(1), inasmuch as it provides that value of any assets, other than cash, for purposes of this Act shall be estimated to be its market price on valuation date. Then comes sub s. (2) which provides that in case of business for which accounts are maintained by assessee regularly WTO may, instead of determining separately valuation of each asset held by assessee in such business, determine net value of business as whole having regard to balance sheet of such business as on valuation date and making such adjustment therein as may be prescribed. It is true that sub s.(2) commences with non obstante clause, but even so, provision itself is enabling one conferring discretion on WTO to determine net value of assets of business as whole having regard to its balance sheets as on valuation date, instead of proceeding under sub s. (1). In other words, it is optional for WTO to resort to either of methods even in case where net value of business carried on by assessee is to be determined...... 23. Further it was laid down by this Court that this is apart from position that resort to Section 7(2) itself is discretionary and optional, provision being enabling one . This Court thus has categorically laid down that resort to Section 7(2) (a) is discretionary and enabling provision to Wealth Tax Officer to adopt method as laid down in Section 7(2)(a) for running business but above enabling power cannot be held as obligation or shackles on right of Assessing Officer to adopt appropriate method. In present case reference was made to Departmental Valuer by Assessing Officer under Section 7(3). Thus there is conscious decision of Assessing Officer to obtain report from Departmental Valuer. above conscious decision itself contains decision of Assessing Officer not to resort to Section 7(2)(a). Valuation report of Departmental Valuer has been received which has been relied by Assessing Officer for assessing assessee in relevant year. We, thus, do not find any error in order of Assessing Officer in adopting land and building method by making reference to Departmental Valuer to value property on said method. Appellate Authority has considered in paragraph 17 of judgment objection of assessee against land and building method and repelled same by following reasons: "17.i) other objection which has been vehemently stressed is against valuation of Alpana Theatre by applying land and building method. In this connection, it may not be unwarranted repetition to state that Alpana Cinema was purchased by firm M/S G.D. & Sons in semi finished condition from M/s Gill and Bros. Asaf Ali Road, New Delhi and thereafter it has been uninterruptedly used by firm for film exhibition. What has, therefore, to be appreciated is that property in question has been used by owners without any adverse riders which enjoin property if it is let out. It has thus to be taken into account that firm owning this theatre had no encumbrances in case it decided to dispose it off at any moment. This factor is of great consequence while arriving at fair Market value. At one point, it has also been agitated by appellant that land over which Cinema building is situated could not be used for any purpose other than as Cinema Building, hence it was not proper for Valuation Officer to consider it as open piece of land and value it likewise. This objection if of no avail because appellant's claim beaten from very reasoning he has given. To make matter more than clear, it may be remarked that it is privilege to get licence for film exhibition on urban land. Such land use is only conducive to raise value and odes not in any way depreciate its value as has been wrongly assumed by appellant. 24. Learned counsel for appellants submits that reasons given by ITAT for holding that income capitalisation method is more appropriate method has not been adverted to by High Court. We have perused order of Tribunal. Tribunal has observed that once it is accepted that property is useable only as Cinema building then its method of valuation has to be necessarily different from one normally adopted in case of buildings which are capable of being used for other commercial purposes. mere fact that building is only for use of Cinema exhibition does not in any manner diminish marketable price. At relevant period uses of building as running Cinema were no less valuable. finding has been returned by Appellate Authority that it has not been further challenged that building was self occupied and in possession of assessee with no encumbrances. 25. It is true that High Court in so many words had not adverted to reasons given by ITAT. However, High Court has expressed opinion that Wealth Tax Officer was justified in adopting land and building method. One of reasons given by High Court is that if there is loss in business or in other words there is negative income, it cannot be possible to say that property in question has no marketable value. Learned counsel for appellants has submitted that in relevant year income was earned. 26. It is relevant to point out that Appellate Authority in its judgment has observed that there was loss shown by assessee himself in year 1969 70. In paragraph 17 sub paragraph (iv) following has been observed by Appellate Authority: "iv)....Even in case of appellant there is returned loss of Rs.1,16,845/ in first assessment year i.e. 1969 70. Thus if income capitalisation method is applied in such cases where assessee may have unfortunately suffered losses in initial years, valuation of asset will workout to negative figure. This will be certainly situation far from reality and not in any way intention of legislature while directing in Section 7 of W.T. Act for taking fair market value of asset. 27. above circumstances taken by High Court cannot be said to be irrelevant which apprehensions were duly found proved by facts as noticed by Appellate Authority. 28. Learned counsel for appellants has further submitted that in event there are more than one methods of valuation of asset of assessee, method under which valuation is in favour of assessee has to be accepted. He has relied on judgment of this Court in Commissioner of Income Tax, West Bengal, Calcutta vs. M/s. Vegetables Products Ltd., (1973) 1 SCC 442. This Court in paragraph 6 of judgment has laid down following: 6. There is no doubt that acceptance of one or other interpretation sought to be placed on Section 271(1)(a)(i) by parties would lead to some inconvenient result, but duty of court is to read section, understand its language and give effect to same. If language is plain, fact that consequence of giving effect to it may lead to some absurd result is not factor to be taken into account in interpreting provision. It is for Legislature to step in and remove absurdity. On other hand, if two reasonable constructions of taxing provision are possible that construction which favours assessee must be adopted. This is well accepted rule of construction recognised by this Court in several of its decisions. Hence all that we have to see is, what is true effect of language employed in Section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours assessee, more particularly so because provision relates to imposition of penalty. 29. proposition which was laid down by this Court was that if two reasonable constructions of taxing statute are possible, that construction which favours assessee must be adopted. above proposition cannot be read to mean that under two methods of valuation if value which is favourable to assessee should be adopted. Here in present case, provisions of Section 7 are neither unambiguous nor lead to two constructions. construction of Section 7 is clear as has already been elaborately considered by this Court in judgment of this Court in Juggilal Kamlapat Bankers (supra). 30. Wealth Tax Officer having referred Departmental Valuer to value property, in consequent to which reference for valuation report having already been received on 26.07.1977 which has relied in assessment. Objections to valuation report were considered by Appellate Authority and having been rejected, we do not find any fault with assessment made by Wealth Tax Officer. We are of view that High Court did not commit any error in interfering with order of ITAT. 31. In view of foregoing discussions all appeals are dismissed. ..........................J. ( A.K. SIKRI ) ..........................J. ( ASHOK BHUSHAN ) NEW DELHI, OCTOBER 13, 2017. ITEM NO.1501 COURT NO.4 SECTION III-A S U P R E M E C O U R T O F I N D I RECORD OF PROCEEDINGS Civil Appeal No(s).3836/2011 BIMAL KISHORE PALIWAL & ORS. Appellant(s) VERSUS COMMISSIONER OF WEALTH TAX Respondent(s) WITH C.A. No. 3837/2011 (III-A) C.A. No. 3839/2011 (III-A) C.A. No. 3838/2011 (III-A) C.A. No. 3840/2011 (III-A) C.A. No. 3841/2011 (III-A) Date : 13-10-2017 These appeals were called on for pronouncement of judgment today. For Appellant(s) Mr. Rohit Amit Sthalakar, Adv. Mr. Avi T. Adv. Ms. Vasudha Zutshi, Adv. Mr. Kamlendra Mishra, AOR Mr. Baij Nath Patel, Adv. Ms. Sweta, Adv. Ms. Romila, Adv. For Respondent(s) Ms. Anil Katiyar, AOR Hon'ble Mr. Justice Ashok Bhushan pronounced judgment of Bench comprising Hon'ble Mr. Justice A.K. Sikri and His Lordship. Appeals are dismissed in terms of signed Reportable judgment. Pending applications, if any, stand disposed of. (B.PARVATHI) (MALA KUMARI SHARMA) COURT MASTER COURT MASTER (Signed reportable judgment is placed on file) BimalKishorePaliwal&Ors. v. CommissionerofWealth-tax