Case Law Details
IN THE ITAT MUMBAI BENCH ‘WT’
Ramesh D Hariani
V/s.
Wealth Tax Officer
WT APPEAL NO. 41 (MUM.) OF 2009
[ASSESSMENT YEAR 2001-02]
MAY 11, 2012
ORDER
Vijay Pal Rao, Judicial Member
This appeal by the assessee is directed against the order dated 4.8.2009 of the CWT(A) for the Assessment Year 2001-01.
2. The assessee has raised the following effective grounds in this appeal:
“1. The learned Commissioner of Wealth Tax (Appeals) – XXVI [CWT(A)] erred in upholding the assessment u/s. 16(3) r.w.s. 17 of the Wealth Tax Act, 1957.
2. The learned CWT(A) erred in confirming the action of the Assessing Officer in reopening the assessment by issuing notice u/s. 17 of the Act and passing the order.
3. The learned CWT(A) erred in confirming the action of the Assessing Officer in passing the order u/s. 16(3) without issuing the notice uls.16(2) within the stipulated time.
4. The learned CWT(A) erred in confirming the action of the Assessing Officer in valuing the Awas Property at Rs. 22,22,068 at cost as against the same being included in the return at Rs. 26,563 under Third proviso to Rule 3 of Schedule Ill to the Act.
5. The learned CWT(A) erred in confirming the action of the Assessing Officer in holding that the Awas property was not exclusively used for residential purposes throughout the period of 12 months and thereby adopting the cost of the said property as value for the purpose of computing the net wealth.”
3. The assessee has challenged the valuation of the property in question as well as the validity of the reassessment u/s 16(3) r.w.s 17 of the W T Act.
4. First we take up the ground nos 4 & 5 pertaining to the valuation of the property in question as per Rule 3 of Schedule III of Wealth Tax Rules.
4.1 The assessee owned a property at Awas, Alibag, Dist Raigadh. In the return of wealth tax filed in response to notice u/s 17 of the W T Act, the assessee has valued the same at Rs. 26,563/- on the basis of capitalisation of the net maintainable rent as per the third proviso to Rule 3 of Schedule III of the Wealth Tax Rules. The Assessing Officer noticed that the assessee has not occupied the property in question for residential purpose for the period of 12 months ending on 31st March, 2001. Therefore, the Assessing Officer valued the property as per 2nd proviso to Rule 3 of Schedule III of WT Rules. The Assessing Officer was of the view that since the assessee did not occupy the property for residential purposes; therefore, the proviso to Rule 3 of Schedule III is not applicable; but 2nd proviso to Rules 3 of Schedule III would be applicable in the case of the assessee. Accordingly, the Assessing Officer valued the property at Rs. 22,22,068/- as per second proviso to Rule 3 of Schedule III.
4.2 The assessee challenged the action of the Assessing Officer before the CWT(A) and submitted that when the property in question is for residential use and retained by the assessee for his own residential purposes, then actual occupation of the house is not necessary for the purpose of third proviso to Rule 3 of Schedule III of the Wealth Tax Rules. The assessee has contended before the Commissioner that although the assessee was not in actual physical possession of the property during the period relevant to the assessment year under consideration; however, when the property was with the assessee, the same is deemed to be under the self occupation.
4.3 The CWT(A) did not agree with the contention of the assessee; but concurred with the view of the Assessing Officer and therefore, confirmed the addition made by the Assessing Officer on account of valuation of the property.
4a. Before us, the ld AR of the assessee has submitted that the property in question was not let out and therefore, it was in the occupation and use of the assessee alone. He has further submitted that the lower authorities have misinterpreted the third proviso to Rule 3 of Schedule III of W T Rules and held that the said house should be exclusively used by the assessee for his residential purpose to mean that he should stay and reside in that house only and no other house. The ld AR has submitted that the requirement of the said proviso is not that the assessee has to use only the said house for residence and no other house. He has further submitted that the requirement is fulfilled, if the house in question has not been used by any other person than the assessee. Exclusive user of the house should be the assessee and therefore, when the assessee has not let out the house to any other person and exclusively used by the assessee for his residential purposes. The ld AR has further submitted that when an assessee has more than one residential house and the same are not let out, each of the house is in exclusive possession of the assessee and the same is also used for his residential purposes though may not be on each and every day. The authorities below have denied the claim of the assessee on the ground that the assessee has resided at his Mumbai house and therefore, has not used the property in question for his residence.
4a.1 The ld AR has pointed out that if that is the requirement, then any individual, who for his business purpose or for vacation goes out of place of his usual residence and therefore would not be treated as exclusive user of the residential house. The ld AR has submitted that the condition of exclusive user for the residential purpose is satisfied when the assessee has used it for his own residence by keeping the house with himself and not letting it out. In support of his contention, he has relied upon the decision of the Full Bench of the Hon’ble Madras High Court in the case of CWT v. Smt. Muthu Zulaikha [2000] 245 ITR 800/[2001] 115 Taxman 185. The ld AR has also relied upon the decision of the Delhi Bench of the Tribunal in the case of Smt Poonam Sawhney v. Assessing Officer [2008] 20 SOT 69.
4a.2 On the other hand, the ld DR has submitted that the assessee is not using the house exclusively for his residential purposes because, admittedly, the assessee was not residing in the house in question and was residing at his office residence in Mumbai. He has further submitted that third proviso to Rule 3 exclusively mentioned the requirement of exclusive use by the assessee for his own residential purpose through out the period of 12 months and since the assessee has not occupied the house in question and resided in the other house; therefore, the conditions as prescribed under third proviso has not been satisfied. He has relied upon the orders of the authorities below.
5. We have considered the rival contention and relevant material on record. The dispute before us is only regarding the valuation of the property under Rule 3 of Schedule III of Wealth tax Rules. The controversy is revolving around the applicability of the second or third proviso to Rule 3 for valuation of the property in question. We quote Rule 3 of Schedule III as under:
“Valuation of immovable property.
3. Subject to the provisions of rules 4, 5, 6, 7 and 8, for the purposes of sub-section (1) of section 7, the value of any immovable property, being a building or land appurtenant thereto, or part thereof, shall be the amount arrived at by multiplying the net maintainable rent by the figure 12.5 :
Provided that in relation to any such property which is constructed on leasehold land, this rule shall have effect as if for the figure 12.5,-
(a) where the unexpired period of the lease of such land is fifty years or more, the figure 10.0 had been substituted ; and
(b) where the unexpired period of the lease of such land is less than fifty years, the figure 8.0 had been substituted :
Provided further that where such property is acquired or construction of which is completed after the 31st day of March, 1974, if the value so arrived at is lower than the cost of acquisition or the cost of construction, as increased, in either case, by the cost of any improvement to the property, the cost of acquisition or, as the case may be, the cost of construction, as so increased, shall be taken to be the value of the property under this rule :
Provided also that the provisions of the second proviso shall not apply for determining the value of one house belonging to the assessee, where such house is acquired or the construction whereof is completed after the 31st day of March, 1974, and the house is exclusively used by the assessee for his own residential purposes throughout the period of twelve months immediately preceding the valuation date and the cost of acquisition or, as the case may be, the cost of construction, as increased, in either case, by the cost of any improvement to the house, does not exceed,-
(a) if the house is situate at Bombay, Calcutta, Delhi or Madras, fifty lakh rupees;
(b) if the house is situate at any other place, twenty-five lakh rupees :
Provided also that where more than one house belonging to the assessee is exclusively used by him for residential purposes, the provisions of the third proviso shall apply only in respect of one of such houses which the assessee may, at his option, specify in this behalf.”
5.1 The assessee has valued the property by applying third proviso. Rule 3 enumerates the basis and method of valuation by applying the multiple of net maintainable rent for the immovable property. Second proviso to Rule 3 is exception to the general rule of valuation, if the property is acquired or constructed after 31.3.1974 and if the value was arrived at is less than the cost of the acquisition or cost of construction as increased by cost of any improvement, then the cost of acquisition or cost of construction as the case may be along with the cost of improvement shall be taken to the value of the property. But in case of one house belonging to the assessee and is exclusively used by the assessee for his own residential purposes throughout the relevant year ending immediately preceding the valuation date, the second proviso shall not apply as stipulated by third proviso. Thus, the authorities below have proceeded and decided the issue on the premises that the assessee should have stayed in the house in question for taking the benefit of third proviso to Rule 3.
5.2 It is pertinent to note that the third proviso specifically used the terms one house belonging to the assessee, which mean that in case of more than one houses belonging to the assessee and exclusively used by the assessee for his own residential purpose, the benefit of third proviso can be availed only in respect of one house. This aspect has been further clarified by fourth proviso to Rule 3 which clearly stipulates that where more than one house belonging to the assessee is exclusively used by the assessee for residential purposes, third proviso shall be applied only in respect of one such house at the option of the assessee.
5.3 Thus, the language of the third proviso and 4th proviso makes it clear that there may be more than one house and in that case the assessee may not stay in all the house; but still the benefit of third proviso is available to the assessee at his option to one of such house and no inference can be made from the proviso to Rule 3 that staying in the house is a mandatory condition. Otherwise, 4th proviso would become meaningless/otiose.
6. On this point, the decision of the Full Bench of the Hon’ble Madras High Court in the case of Smt Muthu Zulaikha (supra) is relevant. The Hon’ble High Court has discussed and adjudicated this issue in paras 15 & 16 as under:
“15 The purpose should be residential, meaning thereby it should not be used for commercial or non-residential, and it should be used exclusively for residential purposes. So, the argument of learned senior standing counsel for the Revenue that it should be read as “solely for residential purposes by the assessee” is not acceptable. What is required is that the house should have been exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date meaning thereby it should not have been let out for rent or for the use of commercial purposes. In the instant case, the assessee is the co- owner and the right of the property was not at all disputed. The finding of the Tribunal that mere right to use will not satisfy the condition. As stated, the interpretation given by the Revenue that the words “exclusive use” should be read as “solely for residential purposes by the assessee” is not acceptable. In our view, the right of the property alone will play a prominent role and not the exclusive use. What is to be seen is whether the intention of the assessee is to live in the house. We are of the view that the expression “exclusive use” should be read to mean that the house should be used for residential purposes meaning thereby it should not be let out for rent or given on licence or used for commercial purposes. We are in full agreement with the decision of the Andhra Pradesh High Court in CWT v. B.M. Bhandari [1980] 123 ITR 554, that the requirement of exclusive use of the building for residential purpose must, therefore, be construed in a practical and pragmatic way rather than in a pedantic sense.
16. Further, we also hold that the decision in V.T. Ramalingam’s case [1993] 201 ITR 839 (Mad), was based on the facts of the case, as it was found that the assessee had not even put forward any claim that at least a portion of the property referable to his share was in the occupation of the family members. In V.T. Ramalingam’s case [1993] 201 ITR 839 (Mad), it was also not found that some portion referable to the share owned by the assessee was used as residence by the assessee and the members of his family. Hence, the decision in V.T. Ramalingam’s case [1993] 201 ITR 839 (Mad), was based on the facts of the case. We also clarify that the observation made by this court in V.T. Ramalingam’s case [1993] 201 ITR 839 (Mad), that in order to avail of the benefit of section 5(1)(iv) of the Act, the mere existence of right would not be sufficient but the actual user must also be made out means that the court has not ruled out the possibility that the intention of the assessee to live in the house is not sufficient. As already observed, if there was any intention on the part of the assessee to live in the house or in any part thereof whenever she returned and she had not created any interest in the said property in favour of any other person, that is to say, there is no element of right in the property of any other person in the house, and so long as the property is not used for non- residential purposes, we hold that the assessee has satisfied the ingredient, viz., “exclusively used by her for residential purposes throughout the period of twelve months immediately preceding the valuation date” under section 7(4) of the Act. We hold that the assessee, on the facts of the case, has satisfied all the conditions prescribed in section 7(4) of the Act to get the benefit of the said sub-section.”
6.1 It is clear from the decision of the Full Bench of the Hon’ble Madras High Court (supra) that residential purpose means, it should not be used for commercial or non-residential purpose and it should be used exclusively for residential purpose. What is required is that the house should have been exclusively used by the assessee for residential purpose and should not have been let out for rent or used for any commercial or non- residential purpose.
6.2 It has also been clarified the right of the property alone will play a role. What is to be seen is the intention of the assessee to live in the house and not actually occupied or staying in the house.
7. In the case in hand, the property in question is residential house which has not been let out or used for the purpose other than residential; therefore, even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied.
7.1 In view of the above discussion and by following the decision of the Full Bench of the Hon’ble Madras High Court (supra), we delete the addition made by the Assessing Officer.
8. Ground nos 1 to 3 regarding validity of reopening of the assessment for want of notice u/s 16(2) within the stipulated time.
9. Since the issue on merit has been decided in favour of the assessee; therefore, we do not propose to go into the technical/legal objections raised by the assessee as the same become academic in nature in view of our findings on merit.
10. In the result, the appeal filed by the assessee is allowed.
