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Wednesday, September 30, 2015

Whether, for the purposes of Wealth Tax Act (hereinafter referred to as the 'Act'), the market value of the vacant land belonging to the assessee should be taken at the price which is the maximum compensation payable to the assessee under the Urban Land Ceiling Act, 1962? = 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 Government and is awaiting notification under Section 10 of the Act for 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 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 date(s) would not be more than Rs.2 lakhs. Having said so, one aspect needs to be pointed out, which was missed by the Commissioner (Appeals) and the Tribunal as well while deciding the case in favour of the assessee. The compensation of Rs.2 lakhs is in respect of only the “excess land” which is covered by Sections 3 and 4 of the Ceiling Act. The total vacant land for the purpose of Wealth Tax Act is not only excess land but other part of the land which would have remained with the assessee in any case. Therefore, the valuation of the excess land, which is the subject matter of Ceiling Act, would be Rs.2 lakhs. To that market value of the remaining land will have to be added for the purpose of arriving at the valuation for payment of Wealth Tax. The question formulated is answered in the aforesaid manner. In the result, the appeals succeed and are hereby allowed. There shall, however, be no order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS. 6873-6881 OF 2005


|SRI S.N. WADIYAR (DEAD) THROUGH LR         |.....APPELLANT(S)           |
|VERSUS                                     |                            |
|COMMISSIONER OF WEALTH TAX, KARNATAKA      |.....RESPONDENT(S)          |

                                   W I T H

                        CIVIL APPEAL NO. 6882 OF 2005

                        CIVIL APPEAL NO. 1338 OF 2006

                        CIVIL APPEAL NO. 7251 OF 2015
                 (ARISING OUT OF SLP (C) NO. 18960 OF 2006)
                                    A N D

                     CIVIL APPEAL NOS. 7377-7378 OF 2005



                               J U D G M E N T


A.K. SIKRI, J.
      Leave granted in SLP(C) No. 18960 of 2006.



The question of law that falls for determination  is  common  to  all  these
appeals, which is the following:
      Whether, for the purposes of Wealth Tax Act (hereinafter  referred  to
as the 'Act'), the  market  value  of  the  vacant  land  belonging  to  the
assessee should be taken at the price  which  is  the  maximum  compensation
payable to the assessee under the Urban Land Ceiling Act, 1962?

For the  purposes  of  understanding  the  circumstances  under  which  this
question has arisen, we are taking note of the facts of  Civil  Appeal  Nos.
6873-6881/2005:
      The appellant herein is assessed to wealth tax  under  the  Act.   The
Assessment  Years  in  these  appeals  are  1977-1978  to  1986-1987.    The
valuation of the property which is the subject matter of  wealth  tax  under
the Act is the urban  land  appurtenant  to  Bangalore  Palace  (hereinafter
referred to as the 'Property').  The total extent of  the  property  is  554
acres or 1837365.36 sq.  mtr.   It  comprises  of  residential  units,  non-
residential  units  and  land  appurtenant  thereto,  roads   and   masonary
structures along the contour and the vacant land.  The vacant land  measures
11,66,377.34 sq. mtr.  The aforesaid Property was the  private  property  of
late Sri Jaychamarajendra Wodeyar, the former ruler of  the  princely  state
of Mysore.  He died on 23.09.1974.  There were disputes with regard  to  the
wealth tax assessments pertaining to the Assessment Years 1967-1968 to 1976-
1977.  After the  death  of  Sri  Jayachamarajendra  Wodeyar,  his  son  Sri
Srikantadatta Wodeyar, the assessee applied to Settlement Commission to  get
the  dispute  settled  with  regard  to  valuation  of  Property  and  lands
appurtenant thereto for Assessment Years 1967-1968 to 1976-1977. While  this
application was still pending, the Urban Land (Ceiling and Regulation)  Act,
1976 (hereinafter referred to as the 'Ceiling Act') came into  force  w.e.f.
17.02.1976.  It was adopted by the State of Karnataka.   The  property  area
is within the Bangalore Urban Agglomeration, hence fell within  the  purview
of the Act.  The assessee filed statement as required under Section 6(1)  of
the Ceiling Act on 10.09.1976.   On  16.09.1976,  he  filed  an  application
under Section 20 of the Act for exemption of his  lands  under  the  Ceiling
Act to the State Government.

From the aforesaid, it is clear that the Property in question,  namely,  the
Bangalore Palace came within the purview of the Ceiling Act.

The application of the assessee before the  Settlement  Commission  for  the
Assessment Years 1967-1968 to  1976-1977  was  disposed  of  on  29.09.1988,
laying down norms for valuation of the property.   The  Wealth  Tax  Officer
adopted the value as per Settlement Commission for  Assessment  Years  1976-
1977, 1977-1978  and  1978-1979  at  Rs.13.18  crores  (for  both  land  and
buildings).  For the Assessment Year 1979-1980, since there  was  no  report
of the Valuation Officer, the Commissioner of Appeals worked out  the  value
of the Property at Rs.19.96 crores for the Assessment Year 1979-1980,  which
was adopted by Wealth Tax Officer for Assessment  Year  1980-1981  as  well.
For the Assessment Years 1981-1982, 1982-1983 and 1983-1984, the Wealth  Tax
Officer fixed the value of land and building at  Rs.18.78  crores,  Rs.29.85
crores and Rs.29.85 crores respectively.   For  Assessment  Year  1984-1985,
the Wealth Tax Officer took the value at Rs.31.22 crores  on  the  basis  of
the order passed by the Commissioner (Appeals) for earlier years.

On the other hand, in the proceedings under the Ceiling Act,  the  Competent
Authority  passed  an  order   No.ULC(A)(Z)   440/85-86   dated   27.07.1989
determining vacant land in excess of the ceiling limits, and ordered  action
be taken to acquire excess land under the Karnataka Town & Country  Planning
Act,  1961.   In  accordance  with  Section  30  of  the  Ceiling  Act,  the
declaration dated back to 17.02.1976 on  which  date  the  Ceiling  Act  was
promulgated in Karnataka.  The Bangalore Development  Authority  prepared  a
master plan and the planning report for  development  of  District  No.1  in
which the property area is included.  As per this proposal no  part  of  the
vacant area could be commercially exploited nor  colonised  for  residential
purposes.  The vacant land area was also not  transferable  under  the  Act.
Any sale was null and void.  As per Section 11(6) of the Urban Land  Ceiling
Act, the maximum compensation that could be received  by  the  assessee  was
Rs.2 lakhs.

Before any Notification could be issued under Section 10(1) of  the  Ceiling
Act, the assessee questioned the aforesaid order  passed  by  the  Competent
Authority under Sections 8 and 9 of the Ceiling  Act  before  the  Karnataka
Appellate Tribunal.

Simultaneously, the orders of the Wealth Tax Officer passed  under  the  Act
fixing the value of the land for different Assessment Years for the  purpose
of  Act  was  also  challenged  by  the  assessee  before  the  Commissioner
(Appeals). In these appeals, the contention of the  assessee  was  that  the
value of the property was covered by  the  Ceiling  Act  for  which  maximum
compensation that could be received by the assessee  was  only  Rs.2  lakhs.
The appeals filed for the Assessment  Years,  namely,  1980-1981,  1982-1983
and 1983-1984 were disposed off by the Commissioner of Income Tax  (Appeals)
by a common order dated 09.01.1990 in which he made slight modifications  to
value adopted for Assessment Years 1981-1982 and confirmed the valuation  of
Wealth Tax Officer for Assessment Years 1982-1983 and  1983-1984.   However,
in respect of appeals relating to Assessment Years 1977-1978  to  1980-1981,
the Commissioner (Appeals) passed  the  orders  dated  31.07.1990  accepting
that the urban land appurtenant to  Property  be  valued  at  Rs.2,00,000/-.
Similar orders  came  to  be  passed  by  the  Commissioner  of  Income  Tax
(Appeals) for the Assessment Years 1984-1985 and  1985-1986  also.   Against
these orders of Commissioner  (Appeals)  dated  09.06.1990,  31.07.1990  and
14.08.1990, both the assessee as well as the Revenue/Department went  up  in
appeals  before  the  Income  Tax  Appellate  Tribunal,   Bangalore   Bench,
Bangalore.   The appeals filed by the assessee and  the  Revenue  Department
were heard together by the Tribunal.

The issue before the Income Tax Appellate Tribunal was only with  regard  to
valuation of vacant land attached to the Property, since  the  assessee  had
accepted  the  valuation  in  regard  to  residential  and   non-residential
structures within the said property area and appurtenant land thereto.

The  Income  Tax  Appellate  Tribunal,  Bangalore  passed  the  order  dated
02.11.1993 directing the vacant land be valued at Rs.2 lakhs for  each  year
from Assessment Years 1977-1978 to 1985-1986.  Its reasoning  was  that  the
Competent Authority under the Ceiling Act had passed  an  order  determining
that the vacant land was in excess of the ceiling  limit,  and  had  ordered
that action be taken to acquire the excess land  under  the  Karnataka  Town
and Country Planning Act, 1901.  And under the Land Ceiling Act, an  embargo
was placed on the assessee to  sell  the  subject  land  and  exercise  full
rights.  The assessee was only eligible  to  maximum  compensation  of  Rs.2
lakhs under the Ceiling Act.  Hence given these facts and circumstances  the
subject land could only be valued at Rs.2 lakhs for wealth tax  purposes  on
the valuation date for the Assessment Years 1977-1978 to 1985-1986.

Against the order of the Tribunal, the Commissioner  of  Wealth  Tax  sought
reference before the Karnataka High Court in respect  of  Assessment  Years,
namely, 1977-1978 to 1985-1986 arising out of the consolidated order of  the
Tribunal in WTA Nos.315 to 317 and 485 to 490/1990  dated  02.11.1993.   The
Tribunal made a Statement for reference to the  High  Court.   The  question
that was raised for adjudication before the High Court was  whether  on  the
facts and in the circumstances of  the  case,  the  Tribunal  was  right  in
holding that the value of the vacant  land,  appurtenant  to  the  Property,
should be taken at Rs.2 lakhs for the purpose of wealth tax  assessment  for
the years in question, as having regard to the provisions of the Urban  Land
Ceiling Act, the maximum amount of compensation payable to the  assessee  is
only Rs.2 lakhs.

When the aforesaid reference was pending adjudication  by  the  High  Court,
certain important developments took place in  relation  to  the  proceedings
under the Ceiling Act.  The appeal which was filed by  the  assessee  before
the Karnataka Appellate Tribunal against the order dated  27.07.1989  passed
by the Competent Authority under  the  Ceiling  Act  was  dismissed  by  the
Tribunal on 15.07.1998.  The assessee took up the matter further before  the
High Court in the form of a writ  petition.   In  this  writ  petition,  the
assessee also challenged the constitutional validity of  the  provisions  of
the Ceiling Act and made an  interim  prayer  to  the  effect  that  pending
disposal of the writ  petition  notification  under  Section  10(1)  of  the
Ceiling Act be not issued.  Fact of the matter is that such  a  Notification
was not issued by  the  Government.   When  this  writ  petition  was  still
pending, the Ceiling Act was repealed by Legislature with the  enactment  of
the Urban Land (Ceiling and Regulation) Repeal Act, 1999 (Act 15  of  1999).


The factual position which existed at the  time  when  the  reference  cases
were to be decided by the High Court under the Act is recapitulated below:
(i)  The Assessment Years in respect of which question was to be  determined
were 1977-1978 to 1986-1987.
(ii)  Ceiling  Act  had  come  into  force  w.e.f.  17.02.1976  and  was  in
operation during the aforesaid Assessment Years.
(iii)  The Competent Authority under the Ceiling Act had  passed  orders  to
the effect that as per  Section  11(6)  of  the  Ceiling  Act,  the  maximum
compensation that could be received by the  assessee  was  Rs.2  lakhs.   In
accordance with Section 30 of the Ceiling Act, the  declaration  dates  back
to 17.02.1976 on which date the Ceiling Act was promulgated in Karnataka.
(iv)  The order of the Competent Authority was challenged  by  the  assessee
by filing appeal before the Karnataka Appellate Tribunal.  This appeal  was,
however, dismissed on 15.07.1998. Against  that  order,  writ  petition  was
filed wherein provisions of the Ceiling Act were also  challenged.   Because
of  the  pendency  of  these  proceedings  or  due  to  some  other  reason,
notification under Section 10(1) of the Ceiling Act was not passed.
(v)  In the year 1999, Ceiling Act was repealed.  At that  stage,  the  writ
petition filed by the assessee  was  still  pending.   The  effect  of  this
Repealing Act was that the Property in question remained with  the  assessee
and was not taken over by the Government.

We may remind ourselves that there is no dispute with  regard  to  valuation
in respect of residential and non-residential  structures  within  the  said
Property and appurtenant land thereto. The assessee has paid the wealth  tax
accepting the valuation. The dispute  of  valuation  has  arisen  only  with
regard to valuation of the vacant land attached to the  Property  which  had
come within the mischief of the Ceiling Act.

In the aforesaid factual background, the reference was answered by the  High
Court vide  impugned  order  dated  13.06.2005  holding  that  although  the
prohibition and restriction contained in the Ceiling Act had the  effect  of
decreasing the value of the Property still the value of the land  cannot  be
the maximum compensation  that  is  payable  under  the  provisions  of  the
Ceiling Act.  Thus, the question referred  has  been  answered  against  the
assessee.

The High Court, in its impugned order, took note of the aforesaid facts  and
accepted the position that the Property in  question  which  is  within  the
Bangalore urban agglomeration  was  covered  by  the  Ceiling  Act  and  the
provisions of the said Act applied to this Property.  It also noted that  by
virtue of Section 4 of the Repeal Act, all legal proceedings  pending  under
the Ceiling Act immediately before the commencement of the Repeal Act  stood
abated except those proceedings which are relatable to the  land  possession
whereof  has  been  taken  over  by  the  State  Government  or  any  person
authorized by the State Government or by the  Competent  Authority.   Since,
in the instant  case,  admittedly  possession  had  not  been  taken,  which
remained with the assessee for want of notification under  Section  10,  the
proceedings abated and the said vacant  land  remained  with  the  assessee.
Thereafter, the High Court took note of certain relevant provisions  of  the
Act and we may also capture the position contained in those provisions:
      Section 2(e) of the Act defines the meaning of the expression  'asset'
to include property  of  every  description,  both  movable  and  immovable,
except the few kinds of  property  specified  therein  for  the  purpose  of
ascertaining the net wealth of an individual.
      Section 2(m) of the Act defines the meaning  of  the  expression  'net
wealth' to mean  the  amount  by  which  the  aggregate  value  computed  in
accordance with the provisions of this  Act  of  all  the  assets,  wherever
located, belonging to the assessee on the valuation date.
      Section 2(q) of the Act defines 'valuation date' in  relation  to  any
year for which an assessment is to be made under this Act,  means  the  last
day of the previous year as defined in Section 3 of the Income Tax  Act,  if
an assessment were to be made under that Act for that year.
      Section 3  of  the  Act  is  the  charging  Section  which  imposes  a
liability to pay wealth tax on the net wealth as on the  valuation  date  of
every individual and Hindu Undivided Family.
      Section 7 of the Act is  a  machinery  provision  and  lays  down  the
method of valuation of an asset  for  the  purpose  of  computation  of  net
wealth of an assessee.  Sub-sections (1) and  (2)  provide  two  methods  of
valuation of assets.  To our  purpose,  provisions  of  sub-section  (1)  of
Section 7 of the Act is relevant and Section 7(1) of the Act  prior  to  its
substitution by the Direct Laws (Amendment) Act, 1989 w.e.f. 01.04.1989  was
as under:
“Section 7: Value of assets how to be determined:-(1) Subject to  any  rules
made in this behalf, the value of  any  asset,  other  than  cash,  for  the
purpose 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.”

      Explanation to sub-section (1) was inserted  by  Finance  (No.2)  Act,
1980 w.e.f. 01.04.1980.  The explanation is as under:
“Explanation: For the removal of doubts, it  is  hereby  declared  that  the
price or other consideration for which any property may be  acquired  by  or
transferred to any person under the terms of a deed of trust or  through  or
under any restrictive covenant  in  any  instrument  of  transfer  shall  be
ignored for the purpose of determining the price such property  would  fetch
if sold in the open market on the valuation date.”

Section 3 of the Act is the charging Section, whereas Section 7 of  the  Act
is the machinery provision which provides for procedure for determining  the
value of assets that are subject to wealth  tax.  The  High  Court  observed
that as per Section 7 of the Act, the value of the asset shall be  estimated
to the price, which in the opinion of the  Wealth  Tax  Officer,  the  asset
would fetch if sold in the open market on the  valuation  date.   The  words
“price it would fetch if sold in the open market” do not contemplate  actual
sale or the actual state of the market, but only enjoins that it  should  be
assumed that there is an open market and the property can  be  sold  in  the
open market and, on that basis, the value has to be found  out.   The  Court
noted that though the rules, namely, Wealth Tax  Rules,  1957  were  framed,
they did not provide for valuation of urban land and, therefore,  the  asset
must be valued in the ordinary way by determining what it would fetch if  it
were sold in the assumed market and what willing  purchaser  would  pay  for
it. The Court also accepted that in view of Ceiling Act coming  into  force,
the restrictions and prohibitions contained in the Ceiling  Act  would  have
the effect of depressing the value which the lands would fetch if they  were
free from  the  said  restrictions  and  prohibitions.   Thus,  the  willing
purchaser would definitely take these  factors  into  account,  which  could
affect the price of such  an  asset.   Therefore,  the  Wealth  Tax  Officer
cannot ignore such restricted provisions contained in the  Ceiling  Act  and
it is for him to find out what price the asset would fetch if it is sold  in
the  open  market  on  the  valuation  date,  keeping   in   view,   certain
restrictions in the Ceiling Act which will have  depressing  effect  on  the
value of the asset.

Having said so, which legal position even the  assessee  accepts,  the  High
Court went on to observe that it would not mean that the  valuation  has  to
be the compensation which the assessee would  be  getting  inasmuch  as  the
valuation as per Section 7 has to be the  price  which  the  property  would
fetch if sold in the open market.  Significantly, the High Court also  noted
the effect of Ceiling Act in the context of the present case and  the  legal
proceedings which had been initiated pursuant thereto whereby orders  passed
by the Competent Authority under Sections 8 and 9  were  challenged  and  no
Notification under Section 10 had been issued.  In this regard, it  observed
as under:
“29.  … It is not in dispute,  that  in  the  present  case,  the  competent
authority has neither issued any notification under Section 10(1) nor  under
Section 10(3) of the Act.  It is relevant at this  stage  itself  to  notice
that between the period of first notification under  Section  10(1)  of  the
Act and the second notification under Section 10(3) of the  Act,  the  owner
of the land can neither alter the use, nor transfer the land,  if  any,  and
if it is done, the same would be void.  After the publication of the  second
notification, the land is deemed to have been  acquired  by  the  Government
and what the assessee owns is the right to compensation  and  the  right  to
compensation will be assessed as a movable asset  and  maximum  compensation
payable under Section 11(6) of the Ceiling Act is Rs.2,00,000/- only.”

It also categorically accepted that after coming into force of  the  Ceiling
Act, since the vacant land was covered by the said Act, it was not  open  to
the assessee to sell the land in the open market, and whenever there is  any
restriction on the transfer of any land, it is  common  knowledge  that  the
value of the property or the land, as the case may  be,  would  normally  be
reduced.  However, it did not accept that  since  it  is  not  open  to  the
assessee to sell the land, 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 Ceiling Act.  The High Court concluded its answer  in  the
penultimate para as under:
“36.  Before we conclude, we once again emphasise that it sale of  the  land
or  the  property  is  subject  to  restrictions  under  Central  or   State
legislation's such as the Urban Land Ceiling  Act,  Karnataka  Land  Reforms
Act, etc., the property or the land has to be valued only after taking  note
of  the  restrictions  and  prohibitions  which  will  have  the  effect  of
depressing the value, which the land would  fetch  if  sold  free  from  any
restrictions  and  prohibitions,  for  the  reason,  if   there   are   such
restrictions, the value of  the  property  or  land  would  be  normally  be
reduced, but at the same time, it cannot be said that it  would  fetch  only
the maximum compensation payable under  the  urban  Land  Ceiling  Act.   As
stated earlier, Section 7 of the Wealth Tax Act, assumes  that  there  is  a
hypothetical  open  market  and  there  are  hypothetical   purchasers   and
hypothetical bids and hypothetical sale to a person  prepared  to  give  the
highest value, subject to all such restrictions and  prohibitions  contained
in the Ceiling Act.”

Challenging the aforesaid approach of the  High  Court,  it  was  argued  by
learned senior counsel appearing for the appellants in  these  appeals  that
once it is accepted that the property is covered by the Ceiling Act  and  it
would depress the value of the property, then the value could  not  be  more
than Rs.2 lakhs  which  was  the  maximum  compensation  payable  under  the
Ceiling Act.  It was also argued that provisions of the Ceiling Act did  not
impose only 'restrictions' but  there  was  categorical  'prohibition'  from
selling the land.  This land, therefore, had to be treated as  not  saleable
on the 'valuation date' and, therefore, as on that date, the price it  could
fetch would not be more  than  Rs.2  lakhs.   Learned  senior  counsel  also
referred extensively to the orders  passed  by  the  Commissioner  (Appeals)
under the Act giving detailed reasons while accepting the valuation  of  the
property at Rs.2 lakhs and submitted that there was  no  reason  to  take  a
contrary view by the High Court.

Learned counsel for the Revenue, on the other hand, emphasized  the  reasons
which have been given by the High  Court  in  support  of  its  opinion  and
submitted that no case was made out to interfere with the said proceedings.

We have considered the respective submissions by giving  our  deep  thoughts
thereto with reference to the record of the case.   It  is  clear  that  the
valuation of the asset in question has to be in the  manner  provided  under
Section 7 of the Act.  Such a valuation has to  be  on  the  valuation  date
which has reference to the last day of the previous year  as  defined  under
Section 3 of the Income Tax Act if an assessment was to be made  under  that
Act for that year.  In other words, it is 31st March  immediately  preceding
the assessment year.  The valuation arrived at as on that date of the  asset
is the valuation on which wealth tax is assessable.  It is  clear  from  the
reading of Section 7 of the Act that  the  Assessing  Officer  has  to  keep
hypothetical situation in mind, namely, if the asset in question  is  to  be
sold in the open market, what price it would fetch.  Assessing  Officer  has
to form an opinion about the estimation of such a price that  is  likely  to
be  received if the property were to be sold.  There is no actual  sale  and
only a hypothetical situation of  a  sale  is  to  be  contemplated  by  the
Assessing Officer.  It is so held by this  Court  in  Ahmed  G.H.  Ariff  v.
Commissioner of Wealth Tax[1] in the following words:
“...it does not contemplate actual sale or the actual state of  the  market,
but only enjoins that it should be assumed that there is an open market  and
the property can be sold in such a market and, on that basis, the value  has
to be found out. It is a hypothetical case, which is contemplated,  and  the
Tax Officer must assume that there is an open market in which the asset  can
be sold.  It is well settled that where the legislature uses a  legal  term,
which has received judicial interpretation, the Courts must assume that  the
term has been used in the sense, in which has been judicially interpreted.”


Following guidelines provided in the case of Commissioner of Wealth  Tax  v.
Prince Muffkham Jah Bahadur Chamlijan[2]  also  needs  to  be  noted  as  it
becomes very handy for our purposes:
“...in the absence of  a  rule  which  can  apply  to  the  valuation  of  a
particular asset, that  asset  must  be  valued  in  the  ordinary  way,  by
determining what it would fetch if it were sold in an  assumed  market,  the
value being what an assumed willing purchaser would pay for it.”


Thus, the Tax Officer has to form an opinion about the  estimated  price  if
the asset were to be sold in the assumed  market  and  the  estimated  price
would be the one which an assumed willing purchaser would pay  for  it.   On
these reckoning, the asset has to be valued in the ordinary way.

The High Court has accepted, and rightly so,  that  since  the  Property  in
question came  within  the  mischief  of  the  Ceiling  Act  it  would  have
depressing effect insofar as the price which the assumed  willing  purchaser
would pay for such property.

However, the question is as to what price the willing purchaser would  offer
in such a scenario?

In order to provide an answer to this question, we may take note of  certain
relevant provisions of the Ceiling Act, which, are even noticed by the  High
Court.  We will reproduce here Sections 3, 5, 10(1) and  10(3)  and  narrate
the scope of the other relevant  provisions  without  reproducing  the  text
thereof.
3.  Persons not entitled to hold  vacant  land  in  excess  of  the  ceiling
limit.—  Except  as  otherwise  provided  in  this  Act,  on  and  from  the
commencement of this Act, no person shall be entitled  to  hold  any  vacant
land in excess of the ceiling limit in the territories  to  which  this  Act
applies under sub-section (2) of section 1.


5.  Transfer of vacant land.—
(1)  In any State to which this Act applies in  the  first  instance,  where
any person who had held vacant land in excess of the ceiling  limit  at  any
time during the period commencing on the appointed day and ending  with  the
commencement of this Act, has transferred such land or part thereof  by  way
of sale, mortgage, gift, lease or otherwise,  the  extent  of  the  land  so
transferred shall also be taken into account in calculating  the  extent  of
vacant land held by such person and the excess vacant land  in  relation  to
such person shall, for the purposes of this Chapter, be selected out of  the
vacant land held by him after such transfer and in case  the  entire  excess
vacant land cannot be so selected, the balance, or where no vacant  land  is
held by him after the transfer, the entire  excess  vacant  land,  shall  be
selected out of the vacant land held by the transferee:
Provided that where such person has transferred  his  vacant  land  to  more
than one person, the balance, or, as the case  may  be,  the  entire  excess
vacant land aforesaid, shall be selected out of  the  vacant  land  held  by
each of the transferees in the same proportion as the  area  of  the  vacant
land transferred to him bears to the total area of the land  transferred  to
all the transferees.
(2)  Where any excess vacant  land  is  selected  out  of  the  vacant  land
transferred under sub-section (1), the transfer of the  excess  vacant  land
so selected shall be deemed to be null and void.
(3)  In any State to which this Act applies in the  first  instance  and  in
any State which adopts this Act under clause  (1)  of  article  252  of  the
Constitution, no person holding vacant land in excess of the  ceiling  limit
immediately before the commencement of this  Act  shall  transfer  any  such
land or part thereof by way of sale,  mortgage,  gift,  lease  or  otherwise
until he has furnished a  statement  under  section  6  and  a  notification
regarding the excess vacant land held by him has been published  under  sub-
section (1) of section 10; and any such transfer made  in  contravention  of
this provision shall be deemed to be null and void.

10.  Acquisition of vacant land in excess of ceiling limit. -  (1)  As  soon
as may be after the service of the statement under section 9 on  the  person
concerned, the competent authority shall cause  a  notification  giving  the
particulars of the vacant land held by such person in excess of the  ceiling
limit and stating that—
(i) such vacant land is to be acquired by the  concerned  State  Government;
and
(ii)  the claims of all person interested in such vacant land  may  be  made
by them personally or by their agents giving particulars of  the  nature  of
their interests in such land,
to be published for the information of the general public  in  the  Official
Gazette of  the  State  concerned  and  in  such  other  manner  as  may  be
prescribed.
(3)  At any time after  the  publication  of  the  notification  under  sub-
section (1) the competent authority may, by notification  published  in  the
Official Gazette of the State concerned,  declare  that  the  excess  vacant
land referred to in the notification published under sub-section (1)  shall,
with effect from such date as  may  be  specified  in  the  declaration,  be
deemed  to  have  been  acquired  by  the  State  Government  and  upon  the
publication of such declaration, such land shall be deemed  to  have  vested
absolutely in the State Government free from all  encumbrances  with  effect
from the date so specified.”

Section 3 of the Ceiling Act, as is clear from its  reading,  is  the   main
provision.   It   categorically  provides  that  the  person  shall  not  be
entitled to hold any vacant land in excess  of  the  ceiling  limit  in  the
territories to which this Act applies, except as  otherwise  provided  under
the Act itself, from the date of commencement of the  Act.   Act  came  into
force on 17.02.1976.  The effect of  this  Section  was  that  on  and  from
17.02.1976, the assessee was  not  entitled  to  hold  the  vacant  land  in
question, which was in excess of the ceiling limit.  Section 4  of  the  Act
provides for the manner in which the ceiling limit of the person  is  to  be
ascertained.
      Section 5(1) of the Ceiling Act deals  with  transfer  of  the  vacant
land in  excess  of  the  ceiling  limit  at  any  time  during  the  period
commencing on the appointed day i.e. 28th January 1976 and, ending with  the
commencement of this  Act,  i.e.  17th  February,  1976.   Under  this  sub-
section, if any person has transferred such land, the extent of the land  so
transferred shall also be taken into account in calculating  the  extent  of
vacant land held by such person.   Sub-section  (3)  of  Section  5  of  the
Ceiling Act contains a prohibition to transfer any vacant  land  held  by  a
person in excess of the ceiling limit immediately  before  the  commencement
of the Act till a statement under Section 6 is furnished and a  notification
regarding excess land has been published under Section  10(1)  of  the  Act.
Any transfer made in contravention of this sub-section shall  be  deemed  to
be null and void.
      Section 6(1) of the  Ceiling  Act  statutorily  obligates  that  every
person holding vacant land in excess of the ceiling limit  as  on  or  after
the 17th  day  February  1976  is  required  to  file  a  statement  in  the
prescribed form, specifying the vacant land within the ceiling  limit  which
he desires to retain.  The first proviso to Section 6(1) of the Ceiling  Act
makes the operation of the Act retrospective in fixing 17th  February  1975,
as the date to determine whether a person holds vacant  land  in  excess  of
the ceiling limit.  If for any reason, the statement is  not  filed  by  the
person holding vacant land in excess of the  ceiling  limit,  the  competent
authority may direct him to file such statement within a fixed period.
      Under Section 8 of the Ceiling Act, on  the  basis  of  the  statement
filed under Section 6 of the Ceiling Act, a draft statement is  prepared  by
the competent authority and the same is served on the applicant/person,  who
is given an opportunity to file his objections, if any.   After  considering
the objections that may be filed within the time prescribed,  the  competent
authority shall determine the vacant land held by the  person  concerned  in
excess of the ceiling limit and serve the draft statement so altered on  the
person concerned.  The altered  draft  statement  is  also  known  as  final
statement under the Act.
      Section 10 of the Ceiling Act provides for acquisition of vacant  land
in excess of the ceiling limit.  Section 10(1) of  the  act  envisages  that
the competent authority as soon as possible after  the  final  statement  is
served  on  the  concerned  person,  to  issue  a  notification  giving  the
particulars of the vacant land held by such person in excess of the  ceiling
limit, and further notify that such vacant land is to  be  acquired  by  the
concerned State Government and invite claims from all persons interested  in
such land, giving particulars of the nature of their interest in such  land.
 The notification requires to be published in the official  gazette  of  the
state concerned and also in such  other  manner  prescribed  in  the  rules.
Under sub-section (2), the competent authority is expected to  consider  any
claims that may be filed by  the  persons  interested  in  the  vacant  land
notified under sub-section (1) and determine the nature and extent  of  such
claims and pass such Order as he deems fit.
      Sub-section (3)  of  Section  10  of  the  Ceiling  Act  provides  for
issuance of notification vesting vacant land in the  State  Government  free
from all encumbrances.  Under  this  sub-section,  the  competent  authority
after the publication of notification in  the  official  gazette  concerned,
declare that excess vacant land  referred  in  sub-section  (1)  shall  with
effect from such date as may be specified in the declaration, be  deemed  to
have  been  acquired  by  the  State  Government.   Once   notification   is
published, and declaration is made,  such  land  shall  be  deemed  to  have
vested absolutely in the State Government free from  all  encumbrances  with
effect from the date specified.
      Sub-section (4)  of  Section  10  of  the  Ceiling  Act  provides  for
maintenance of status quo in respect of excess vacant land  proposed  to  be
acquired during the period commencing on the date of publication under  sub-
section (1) and ending with the  date  specified  in  the  declaration  made
under sub-section (3).
      Sub-section (5) of Section 10 of the Ceiling  Act  provides  that  the
competent authority shall issue a notice in writing to any  person  who  may
be in position to surrender or deliver possession to  the  State  Government
or to the person duly authorised in this behalf.  The  person  to  whom  the
notice is issued is given 30 days time to comply  with  the  notice.   Under
sub-section (6), if  a  person  fails  to  deliver  possession  within  that
period,  the  competent  authority  will  take  necessary  steps   to   take
possession itself.
      Sections 11 and 14 of the Ceiling Act  provide  for  determination  of
the amount payable to the person concerned for the vacant land acquired  and
for the mode of payment of the amount to such person.
      Section 18 of the Ceiling Act  lays  down  the  penalty  that  may  be
imposed for concealment of particulars in the statement filed under  Section
6 of the Act.
      Section 20 of the Ceiling Act confers  on  the  State  Government  the
power to exempt any person holding vacant land  in  excess  of  the  ceiling
limit from the provisions of the Act.
      Under Section 33 of the Ceiling Act, any person aggrieved by an  Order
passed by the competent authority under the Act may file an appeal before  a
forum created under the Act, except against those Orders made under  Section
11 or an Order made under sub-section (1) of Section 30.

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
Government and is awaiting notification under Section  10  of  the  Act  for
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
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 date(s) would not  be  more  than  Rs.2  lakhs.
Having said so, one aspect needs to be pointed out, which was missed by  the
Commissioner (Appeals) and the Tribunal as well while deciding the  case  in
favour of the assessee. The compensation of Rs.2  lakhs  is  in  respect  of
only the “excess land” which is covered by Sections 3 and 4 of  the  Ceiling
Act.  The total vacant land for the purpose of Wealth Tax Act  is  not  only
excess land but other part of the land which would have  remained  with  the
assessee in any case.  Therefore, the valuation of the  excess  land,  which
is the subject matter of Ceiling Act, would be Rs.2 lakhs.  To  that  market
value of the remaining land will  have  to  be  added  for  the  purpose  of
arriving  at  the  valuation  for  payment  of  Wealth  Tax.   The  question
formulated is answered in the aforesaid manner.
In the result, the appeals succeed and are  hereby  allowed.   There  shall,
however, be no order as to costs.
                             .............................................J.
                                                                (A.K. SIKRI)

                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)
NEW DELHI;
SEPTEMBER 21, 2015.
-----------------------
[1]   76 ITR 471
[2]   247 ITR 351

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