IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No 118 of 2001 to TAX APPEAL No 121 of 2001 For Approval and Signature: HON'BLE MR.JUSTICE M.S.SHAH and HON'BLE MR.JUSTICE A.M.KAPADIA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- DR. K.M. SHAH Versus DY. C.I.T. -------------------------------------------------------------- Appearance: 1. TAX APPEAL No. 118 to 121 of 2001 MR KC PATEL Senior Counsel instructed by MR RK PATEL and MR BD KARIA for Petitioner No. 1 MR TANVISH U BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE M.S.SHAH and HON'BLE MR.JUSTICE A.M.KAPADIA Date of decision: 07/05/2004 COMMON C.A.V. JUDGEMENT (Per : HON'BLE MR.JUSTICE M.S.SHAH) These four appeals are filed by the assessee under Section 27A of the Wealth-tax Act, 1957 against the judgment and order dated 9.1.2001 passed by the Income-tax Appellate Tribunal, Ahmedabad in Wealth-tax Appeal Nos. 55 to 58 of 1999 for assessment years 1991-92 to 1994-95. Since the appeals involve common questions of law and fact, by consent of the learned counsel for the parties, the appeals were heard together and are being disposed of by this common judgment. 2. The appeals were admitted for considering the following substantial questions of law:- (i) Whether on the facts and in the circumstances of the case, the Tribunal substantially erred in law in dismissing the appeal of the appellant without taking into consideration the relevant material on record and without any 'speaking order' on merits? (ii) Whether on the facts and in the circumstances of the case, the Tribunal substantially erred in law in interpreting the provisions of the Wealth-tax Act with regard to definition of 'Urban Land' in Section 2(ea) clause (v) and Explanation to Section 2(ea) which stipulates that the area of land occupied by a building does not form part of Urban Land? (iii) Whether in the facts and circumstances of the case, the Tribunal was right in law in rejecting the contention of the assessee that by virtue of the provision of Section 7(2) of the Wealth-tax Act, 1957, as the property under consideration was exclusively used by the assessee throughout the period of twelve months immediately preceding the valuation date, its value was to be determined at the option of the assessee in the manner laid down under in Schedule III to the Act as on the 1st day of April 1971? F A C T S 3. The facts leading to filing of these appeals, briefly stated, and as found by the Tribunal and evident from the map of the property on record, are as under:- 3.1 The appellant- Dr KM Shah had purchased land bearing Revenue Survey No.114, Final Plot No.417/1 of proposed Town Planning Scheme No.3 in Ellisbridge, Ahmedabad admeasuring 2893 sq.mts. in 1954 in the name of his two minor sons Mrugesh and Bhadresh. At the time of finalization of Town Planning Scheme, the area of the plot became 2970.76 sq.mts. Thereafter, a lay out plan of the said land was prepared which was approved by the Ahmedabad Municipal Corporation on 26.10.1967. In the said lay out plan, the land was sub-plotted into four sub-plots as under:- Sub-plot No. Area in sq.mts. 417/1/1 1176.43 417/1/2 532.61 417/1/3 505.02 417/1/4 451.51 Cut in road 305.19 -------- 2970.76 -------- On 30.1.1968, Dr KM Shah executed a gift deed on behalf of his above named two sons gifting sub-plot No.417/1/3 to three daughters of Dr KM Shah. A residential bungalow was constructed on sub-plot No.417/1/1 in 1968 with the floor area of 351 sq.mtrs. on the ground floor plus construction on a part of the first floor. 3.2 In the year 1994, Bhadresh, one of the sons of the appellant, filed a suit in the City Civil Court against the appellant and against Mrugesh K Shah claiming the aforesaid property to be a joint family property and prayed for partition of the said property. The City Civil Court appointed an Arbitrator who gave an award dated 30.3.1995 holding that the property in question was HUF property and proposing a partition of the same by re-locating the sub-plots in Final Plot No.417/1. The Arbitrator allotted sub-plot No.417/1/1 to Bhadresh K Shah, sub-plot No.417/1/2 to appellant Dr KM Shah and 417/1/4 to Mrugesh K Shah. As per the re-location done by the Arbitrator, each of these three persons got an area of 818 sq.mts.. Of course, sub-plot No.417/1/1 allotted to Bhadresh K Shah had the residential bungalow constructed on it. On the basis of the aforesaid award, the City Civil Court passed decree dated 17.7.1995 in terms of the award. 3.3 The appellant, his two sons and his daughters entered into an agreement of sale dated 1.4.1995 for selling the entire property being Final Plot No.417/1 to the promoters of proposed Sugam Shops & Cooperative Housing Society etc.. The sale deeds were executed on 20.4.1996 showing sale consideration of Rs.6,54,71,500/(rounded off to Rs.6.55 Crores for convenience for the purposes of discussion in these appeals). The consideration was divided between the appellant and his two sons equally, that is, each one of them got nearly Rs.1.81 Crores and the three daughters got an amount of Rs.37.24 lakhs each. 3.4 The aforesaid property being Final Plot No.417/1 having four sub-plots and having a residential bungalow on sub-plot No.417/1/1 was shown as a property of appellant-Dr KM Shah as an individual in his income-tax and wealth-tax returns. In the wealth-tax returns of the appellant, the value of the said property was being assessed under Section 7(2) read with Rules 3 to 6 in Schedule III to the Wealth-tax Act, 1958 (the Act) at Rs.22593/- as on 1.4.1971 and was being claimed as exempt under Section 5(1)(iv) of the Act. 3.5 The Assessing Officer completed the assessment for all the four assessment years under appeal (A.Ys. 1991-92 to 1994-95) by including the property as belonging to the appellant in his individual capacity, as was also originally shown by the appellant before the arbitration award dated 30.3.1995. The Assessing Officer held that the bungalow built on sub-plot No.417/1/1 with the land of the said sub-plot qualified for deduction under Section 5(1)(iv) or (vi), as the case may be, being one house belonging to the assessee. The Assessing Officer further held that sub-plot Nos.417/1/2 and 417/1/4 were "urban land" as defined in the Wealth-tax Act. He got the properties in question valued through the Departmental Valuation Officer (DVO) under Section 16A of the Act and adopted the value as determined by the DVO for assessment framed for all the four relevant assessment years under appeal. The DVO gave the valuation by his report dated 15.7.1997 as under:- --------------------------------------------------------- Assessment Sub-plot Sub-plots Year 417/1/1 417/1/2 and 417/1/4 taken together (rounded off to nearest lakh) (Rs.) (Rs.) --------------------------------------------------------- 1991-92 3,33,420 60 lakhs 1992-93 " 137 lakhs 1993-94 " 188 lakhs 1994-95 " 221 lakhs --------------------------------------------------------- 3.6 The assessee challenged the assessment order in appeal. The learned Commissioner of Wealth-tax (Appeals) upheld the orders of the Assessing Officer. It, however, appears that the Commissioner of Wealth-tax (Appeals) heard the appeals under the Wealth-tax Act for the A.Ys. 1991-92 to 1994-95 along with the assessee's appeal under the Gift-tax Act for A.Y. 1995-96. The controversy involved in the appeals under the Wealth-tax Act was different from the controversy involved under the Gift-tax Act. However, the Commissioner (Appeals) heard all the five appeals together and by order dated 19.3.1999 dismissed the four appeals under the Wealth-tax Act as well as the appeal under the Gift-tax Act. 3.7 The assessee challenged the orders in the appeals under the Wealth-tax Act in Wealth-tax Appeal Nos.55 to 58 of 1999 before the Income-tax Appellate Tribunal. After hearing the learned counsel for the appellant and the learned departmental representative, the Tribunal dismissed the appeals under the Wealth-tax Act by its judgment and order dated 9.1.2001. Thereafter, the appellant filed Misc. Applications for rectification in all the four appeals. In the meantime, the appellant had already filed the present tax appeals for challenging the judgment and order dated 9.1.2001. The same were, therefore, disposed of on the ground of pendency of rectification applications with liberty to revive in case the rectification applications were dismissed. The rectification applications came to be dismissed by the Tribunal's order dated 25.5.2001. Hence, the appellant was permitted to revive these appeals. 4. We are informed that the separate appeal which the appellant-assessee filed before the Income-tax Appellate Tribunal against the order dated 25.3.1999 of the Commissioner (Appeals) dismissing the appeal under the Gift-tax Act has been recently allowed by the Tribunal during pendency of the present appeals holding the property to be HUF property. However, in these appeals, we are not concerned with the controversy under the Gift-tax Act which is now decided by the Tribunal in favour of the HUF. 5. We have heard MR KC Patel, learned counsel instructed by Mr RK Patel and Mr BD Karia for the appellant. We have also heard Mr Tanvish U Bhatt, learned Standing Counsel for the revenue. CONTENTIONS ON BEHALF OF APPELLANT 6. Mr KC Patel, learned counsel for the appellant has raised the following contentions:- 6.1 The Tribunal has not dealt with all the relevant material on record and has not given any reasons for not accepting several important contentions of the appellant and, therefore, the order under challenge is not a speaking order. 6.2.1 The Tribunal substantially erred in law in not taking into consideration all the relevant material on record. Strong reliance is placed on the sketch of the property under consideration and it is contended that when there are servant quarters in sub-plot Nos.417/1/1 and 417/1/2 and when there is a compound wall surrounding the entire property 417/1 and there are no boundaries or fencing to physically divide sub-plot No.417/1/1 from the other sub-plots, the Tribunal ought to have held that the entire property was a single property and that sub-plot Nos.417/1/2 and 417/1/4 were not required to be valued separately, but were required to be treated as a part of the same property. Strong reliance is placed on the decision of the Calcutta High Court in Kalipada Ghosh vs. Tulsidas Dutt, AIR 1960 Cal. 467 in support of the contention that a house includes land appurtenant to the house and also on the decision of this Court in CWT vs. Shri Shrenik Kasturbhai, Wealth-tax Reference No.48 of 1987 and connected matters decided on 18.10.1995 wherein it is held that occupation of quarters by servants engaged by the owner for household chores does not militate against occupation of house by the owner for his own use as residence. It is also contended that the Tribunal has not applied the correct tests as laid down in CIT vs. Zaibunnisa Begam, (1985) 151 ITR 320 and in CIT vs. Smt. M Kalpagam, (1997) 227 ITR 733. 6.2.2 The Tribunal erred in not taking into consideration the forms filed by the appellant's sons under Section 6 of the Urban Land Ceiling Act and also the orders passed by the authorities under the Urban Land Ceiling Act and the orders passed by this Court in the proceedings under the Urban Land Ceiling Act wherein it was held that there was no excess land held by the appellant's sons. 6.2.3 Several important documents like the tax bills issued by the Ahmedabad Municipal Corporation assessing the property as one property being plot No.417/1 have not at all been considered by the Tribunal and, therefore, the judgment under appeal is vitiated. 6.3 The property bearing No.417/1 was always treated as one property and the appellant's wealth-tax returns were also accepted in all the assessment years right from the beginning and the assessment was also made on the basis that there was only one property being plot No.417/1. The appellant had been valuing the said property as residential property as per its market value on 1st day of April 1971. There was no reason or justification on the part of the department in not accepting this valuation for the relevant four assessment years i.e. 1991-92 to 1994-95. 6.4 The Tribunal has erred in totally misconstruing the provisions of the Wealth-tax Act with regard to definition of "urban land" in Section 2(ea)(v) and Explanation (b) to Section 2(ea) which stipulates that the area of land occupied by a building does not form part of urban land. 6.5 Without prejudice to the above submissions, the Tribunal erred in not holding that the property under consideration was exclusively used by the assessee and his family members throughout the period of 12 months immediately preceding the valuation date in the relevant assessment years and, therefore, the value of the property was required to be determined at the option of the assessee in the manner laid down in Schedule III of the Act as on 1st April 1971. 6.6 In any view of the matter, the Tribunal erred in confirming the valuation adopted by the Wealth-tax Officer and confirmed by the Commissioner (Appeals) merely on the basis of the valuation made by the Departmental Valuation Officer on 15.7.1997. The DVO's report was made without considering the relevant statutory building byelaws of the Ahmedabad Municipal Corporation. While valuing the property, the Department was merely obsessed by the price fetched by the property in the financial year 1995-96 as the commercial property. Strong reliance has been placed on the building byelaws of the Ahmedabad Municipal Corporation and particularly the byelaws laying down the minimum area for a building unit. As per the said byelaws for buildings for shopping centres, minimum area of land must be at least 1000 sq.mts. (1200 sq.yds.). The DVO has valued the land under consideration by looking at the fact that the land under consideration as well as the other lands in the area have been sold at rates which are the rates paid by the purchasers for constructing shopping centres. Each of the two sub-plot Nos. 2 and 4 was admeasuring only about 500 sq.mts. and, therefore, the valuation was made on the basis of erroneous principles. 6.7 Amendments to Section 5(1)(iv) were made from time to time not merely to remove anomalies and practical difficulties but also to introduce some tax concessions and to remove some hardships and to provide certainty in the matter of wealth-tax assessments and to reduce litigation by incorporating rules for valuation of assets in the Wealth-tax Act itself. Strong reliance is, therefore, placed on Circular No.559 dated 4.5.1990 containing explanatory notes to various provisions of Direct Tax Laws (Amendment) Act, 1987 particularly para 18.1 thereof. SUBMISSIONS ON BEHALF OF REVENUE 7. On the other hand, Mr Tanvish U Bhatt, learned Standing Counsel for the revenue has supported the judgment and order of the Tribunal and has further made the following submissions:- 7.1 The judgment of the Tribunal being one of affirmance, it was not necessary for the Tribunal to give detailed reasons for accepting the findings given by the Commissioner for cogent reasons. It cannot, therefore, be said that the judgment and order of the Tribunal is not a speaking order. 7.2.1 The Tribunal has taken into consideration all the relevant material and the Tribunal has given cogent reasons for upholding the order of the Commissioner (Appeals). What is the weight to be attached to a particular piece of evidence or material on record is a matter of appreciation of evidence and the Court while exercising its power under Section 27A of the Wealth-tax Act would only consider substantial questions of law and would not enter into re-appreciation of evidence. 7.2.2 When the appellant himself had submitted a lay out plan for plot No.417/1 dividing it into four sub-plots which plan was sanctioned by the Ahmedabad Municipal Corporation on 26.10.1967 and when the said sanctioned plan was acted upon by appellant by executing gift deed on 30.1.1968 for gifting sub-plot No.417/1/3 admeasuring 505 sq.mts. in favour of the three daughters of the appellant and when the bungalow was constructed by the appellant on sub-plot No.417/1/1 admeasuring 1176.43 sq.mts. it was not open to the assessee to contend that the lay out plan sanctioned in the year 1967 was of no consequence and that the entire land was required to be treated as a single property. 7.2.3 In the proceedings under the Urban Land Ceiling Act, it was not the case of the appellant that the land admeasuring 2959 sq.mts. was one property. 7.3 As per the settled legal position, there is no res judicata in tax matters when the years involved are different. 7.4 The definition of urban land under Section 2(ea) is merely clarificatory. The land in question is always within the limits of Ahmedabad Municipal Corporation. 7.5 The revenue does not dispute that the valuation of sub-plot No.417/1/1 was required to be determined at the option of the assessee in the manner laid down in Schedule III to the Act as on 1.4.1971. The real controversy is about the valuation of sub-plot Nos. 417/1/2 and 414/1/4 as on the relevant valuation dates i.e. 31st March of each of the years 1991 to 1994. 7.6 Valuation of the properties in question is a question of fact. The DVO's report was placed on record and the findings contained in the report were not challenged before the departmental authorities. Hence, it is not open to challenge the valuation in these appeals. 7.7 Insertion of the rules for valuation of assets in the Wealth-tax Act itself was for the purposes of valuing immovable property being a building or land appurtenant thereto and the same was applied to the valuation of the building and the land on which the bungalow is situate viz. sub-plot Nos.417/1/1/. The said rules would not be applicable to the other two plots. STATUTORY PROVISIONS 8. Before considering the rival submissions, it is necessary to refer to the relevant statutory provisions. While the Wealth-tax Act at the time of its enactment provided for exemption in respect of one residential house belonging to the assessee in rural area, with passage of time, the restrictions about location of the house in rural area and about use of the house exclusively for residential purposes came to be removed, but for almost two decades from AYs. 1964-65 to 1984-85 the exemption in respect of the house belonging to the assessee was restricted to rupees one lakh which was raised to rupees two lakhs for AY 1985-86. For AYs 1986-87 to 1992-93, the assessee was entitled to exemption in respect of - "one house or part of a house belonging to the assessee" but the exemption was available within the overall ceiling limit of Rs.5 lakhs specified in Section 5(1A) in respect of several financial assets specified therein. This provision is, therefore, relevant for the appeals relating to AYs 1991-92 and 1992-93. It appears that there was no exemption for a house for A.Y. 1993-94. For the subsequent assessment years, the relevant provision is clause (vi) of Section 5 which, with effect from 1.4.1994, grants exemption for and from AY 1994-95 in respect of - "one house or part of a house belonging to an individual or a Hindu Undivided Family". For the period from 1.4.1976 to 31.3.1993, Section 5(ivc) granted a five year exemption to one or more dwelling units (each unit having a plinth area upto 80 sq.mts. and the land appurtenant thereto belonging to the assessee, where the construction of such unit is begun on or after 1.4.1976). The definition of "land appurtenant" in explanation (b) to this clause was very narrow (the minimum extent of land contiguous to the building required to be kept open as per building byelaws or in absence of such byelaws, one-third of the plinth area). However, it is not necessary to refer to clause 5(ivc) in the discussion as it is not the appellant's case that any such dwelling unit was constructed on the land/s in question after 1995 so as to give the benefit of exemption for A.Y. 1991-92 and 1992-93. Wealth-tax is charged on the net wealth on the corresponding valuation date. Net wealth means the amount by which the aggregate value of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on the said date which have been incurred in relation to the said assets. Section 2(ea) defines "assets" in relation to the assessment year commencing on 1.4.1993, or on any subsequent year as - (i) any building or land appurtenant thereto (hereinafter referred to as "house") whether used for residential or commercial purposes ... ..... (v) urban land ; Explanation for the purpose of this clause - (a) ....... .... (b) "urban land" means land situate - (i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation ...) ... ... and which has a population of not less than ten thousand ... ...; or (ii) ... ... (regarding area outside the Municipal limits), but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him or any land held by the assessee as a stock in trade for a period of five years from the date of its acquisition by him. The other relevant provision is Section 7 as introduced with effect from AY 1989-90 onwards which provides for determination of value of assets. Upto AY 1988-89, the value of the house was to be estimated to be a price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date, subject to the provisions contained in the Rules in that behalf. However, Section 7 as amended with effect from AY 1989-90 and which is applicable to the four AYs in this group of appeals reads as under:- SECTION 7 (OPERATIVE FOR AND FROM ASSESSMENT YEAR 1989-90) [S.7 Value of assets how to be determined- (1) Subject to the provisions of subsection (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. (2) The value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date, may, at the option of the assessee, be taken to be the value determined in the manner laid down in Schedule III as on the valuation date next following the date on which he became the owner of the house or the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later; **[Provided that where more than one house belonging to the assessee is exclusively used by him for residential purposes, the provisions of this sub-section shall apply only in respect of one of such houses which the assessee may, at his option, specify in his behalf in the return of net wealth]. ** Proviso omitted by the Finance Act, 1992 w.e.f. 1.4.1993. Explanation- For the purposes of this sub-section,- (i) where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of