1. In this appeal by the assessee the issue raised is that the Commissioner (Appeals) has wrongly set aside the order of the WTO by invoking his powers under Section 2 of the Wealth-tax Act, 1957 ('the Act').
2. On behalf of the assessee, Mr. M.C. Mehta, the learned counsel for the assessee, submitted that the assessment order for wealth-tax was passed under Section 16(3) of the Act. In the assessment the value of the land and the building at Manikbagh, Indore, which was a self-occupied property of the assessee was assessed as opted by the assessee under Section 7(4) of the Act at a figure of Rs.3,27,968.
Reference to the notice of the Commissioner had a doubt as to whether the value of structures such as guard room and the land appurtenant to the self-occupied building as valued by the departmental valuer was incorrectly exempted in the wealth-tax assessment. He then referred to page 19 where under Section 25(2) of the Act the Commissioner had issued notice for the assessment year 1976-77 in respect of the same property in which year also the WTO had allowed to the assessee the option under Section 7(4) and assessed the value at Rs.3,23,958, even though in that year also there was a valuation by the WTO which was at Rs.6,32,600. Proceedings initiated for that year were apparently dropped as the assessee was not served with any order. Even in the present assessment year there was a valuation by the departmental valuer which valuation is at pages 25 to 30 according to which the value of the property was arrived at by the Valuation Officer at Rs.7,06,900. Mr. Mehta further submitted that the Commissioner was explained that the property was purchased sometime in 1973 and thereafter the assessee had carried out certain additions and alterations and renovations and the assessee had obtained an approved valuer's report in 1973 according to which the land and the then existing building was valued at Rs.1,98,000. In that valuation the approved valuer had taken note of the extra land that was available to the property and had taken into account the Urban Ceiling Act's provisions and valued it accordingly. It was also explained to the Commissioner that the entire land and the building therein is one unit and the entire unit is being used by the assessee for her self-occupation which fact is not even denied by the Commissioner.
Referring to the notice again, he submitted that the objection of the Commissioner was that the guard room and the land appurtenant thereto was perhaps omitted by the assessee and this doubt was due to the fact that the valuer's report had shown a figure of Rs.7 lakhs. The Commissioner has also drawn attention to the fact that on identical grounds when the issue was raised for the assessment year 1976-77 in which year also there was a valuation by the departmental valuer the proceedings were dropped but instead of dropping the proceedings, observed in his order that each assessment is separate and that there is no bar in taking a different view from the one already taken. He, therefore, set aside the orders of the WTO and directed him to decide as to whether the value of the structures like guard room and the land appurtenant and the land which is not appurtenant to the self-occupied building is to be included in the taxable wealth or not. Mr. Mehta's argument was that the Commissioner was aware of the Urban Land Ceiling Act as well as the Indore development plan wherein certain areas in the vicinity of the aerodrome have to be maintained as a green land and that any one intending to purchase the land would have to retain it as a green belt area and cannot carry on any construction activity thereon. He also placed reliance on the Tribunal's judgment of this Bench in the case of Seema Sanghi which has been filed at pages 53 to 55 of the paper book where the question of the valuation of the extra land had been taken into account and that it has been held that the valuation has to be in accordance with the Urban Land Ceiling Act which provided for the compensation which would be paid on acquisition of such excess land. He also placed reliance on this Bench's order in the case of Shobharam Gambhirmal 13 ITC 66.
3. The learned departmental representative argued that the WTO did not carry out any inquiry as to what is the compensation of the property and, therefore, his order was erroneous and also prejudical to the interests of the revenue especially when he had before him the report of the Valuation Officer who has valued the property at Rs.7 lakhs. He placed reliance on Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) and Addl. CIT v. Mukur Corporation [1978] 111 ITR 312 (Guj.).
4. We have given our very careful consideration to the arguments of both the parties. The revisional powers exercised by the Commissioner appears to be based on the difference in valuation of the property as shown by the assessee and as valued by the departmental valuer. It is not the case of the Commissioner that the guard room was constructed during the financial year ending on the valuation date of 31-3-1977. It is also not denied that the guard room as well as the extra land was existing even in the assessment year 1976-77. It is also not denied that the extra land has not been put into any other use but used by the assessee herself. The question, therefore, that needs to be considered is whether notwithstanding the fact that a reference was made to the Valuation Officer under Section 16A of the Act if the assessee has opted for the applicability of Section 7(4) can the WTO refuse to grant the exercise of such option. Section 7(3) and Section 7(4) are reproduced below : (3) Notwithstanding anything contained in Sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in Sub-section (4), the valuation date referred to in that sub-section.
(4) Notwithstanding anything contained in Sub-section (1), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date may, at the option of the assessee, be taken to be the price which in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on 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 this behalf in the return of net wealth.
(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 such house was completed ; (ii) 'house' includes a part of a house, being an independent residential unit.
A reading of the above two sub-sections goes to indicate that the Valuation Officer while estimating the value of the property should estimate it by reference to Sub-section (4) on the valuation date referred to in that sub-section. This further goes to clarify that once a property, namely, a house, which is used by him for his self-residence exclusively and throughout the 12 months' period, the value of such house shall have to be taken at the option of the assessee, the value as assessed in the assessment year 1971-72 and in case the house was constructed or acquired in the subsequent assessment year, the value as was assessed in that assessment year in which he became the owner of the property. In view of this specific provision contained in the Act which has been so specifically provided only to avoid unnecessary litigation, the WTO being a creature of law and required to implement the law, had no other option but to follow the law as it is. The Explanation that is contained in Section 7(4) also goes to indicate that the house means the house that is constructed and/or includes a part of the house so long as it is for an independent residential use.
The guard room of the assessee's house is a part of the house and cannot be treated as a separate residential unit. There is absolutely no restriction that a house cannot have a large open land. In the case of Shiv Narain Chaudhari v. CWT [1977] 108 ITR 104, the Allahabad High Court had come to the conclusion that several self-contained dwelling units which are contiguous and situate in the same compound and within the common boundary and having unity of structure should be regarded as one house. What made the Commissioner to come to the conclusion that the servant quarter is not contiguous to the main building is not at all stated by him but in view of the Allahabad High Court judgment it would be wrong to say that the servant quarters or the guard room are not contiguous to the main house. We are, therefore, of the view that the Commissioner has not been able to establish any error which is prejudicial to the interests of the revenue in the order of the WTO. It would be the paramount duty of the Commissioner while invoking his powers under Section 25(2) "to bring on record the error that has been committed and further explain the extent of prejudice that has been caused to the interests of the revenue. In the instant case, as already explained above, there was no error in the order of the WTO in allowing the assessee for adoption of Section 7(4) and freezing the value of the property as was purchased to the extent of cost added to the purchase value. When there is no error, there can be no prejudice caused to the revenue.
5. For the above reasons, we quash the order of the Commissioner (Appeals) and allow the appeal of the assessee.