1. This is an appeal filed by the assesses and it pertains to asst. yr.
1990-91. The assessee gifted a residential house located at Alibaugh to her brother Shri Viraf Irani on 30th March, 1990. In July, 1988, assessee purchased an agricultural land/Bagayati land with building thereon for a sum of Rs. 1,50,000. The assessee made certain alterations and renovations in 1989 by spending a sum of Rs. 2,48,530 and then the property was gifted to her brother. Though the total cost of the property in the hands of the assessee worked out to Rs. 3,98,530 (cost of plot Rs. 1,50,000 + cost of renovation Rs. 2,48,530), for gift-tax purposes, the assessee showed the value of the gift at Rs. 1,29,058 and in support of this valuation, she furnished a registered valuer's report valuing the property as on 31st March, 1990 at Rs. 1,29,058.
2. Since however, the assessee has declared the cost of plot and bungalow as on 31st March, 1990 at Rs. 3,98,530 in the return of income filed for the asst. yr. 1990-91, the GTO has not accepted the value adopted by the assessee for gift-tax purposes. He further observed that the assessee had 2 flats, one at Oshiwari and another at Parel and even as per the valuer's report, this property was only used as a weekend holiday resort. Thus, he concluded that it cannot be treated as a self-occupied property even if the property has to be valued as per WT Rules. He, therefore, made the gift-tax assessment on a taxable gift of Rs. 3,78,530. The CGT(A) confirmed the action of the AO. He observed that the assessee was trying to take advantage of wealth-tax valuation for determining the value of gift under the GT Act. He further observed that this property cannot be treated as a house used for residential purposes as it has been certified by the valuer as being used as weekend holiday resort. In addition, he also observed that the assessee admittedly spent Rs. 1,50,000 towards purchase of the land and in addition, she spent Rs. 2,48,530 on construction of the bungalow.
Further, the assessee is not assessed to wealth-tax and as far as the income-tax return is concerned, there is no indication that this property has been treated as residential premises. Hence the value cannot be freezed as per the provisions of the WT Act. He also observed that the assessee resides in the building on Budha Temple Lane, Parel, and not in Alibaugh.
3. Aggrieved by the order of CGT(A), the assessee is in appeal before us. The learned counsel contended that in the absence of any specific rule to value the property which was given as a gift, the rule framed under the WT Rules has to be taken as an aid in which event, the value shown by the assessee ought to have been accepted. He further submitted that the assessee used her Parel property as well as the Alibaugh property for her residence and for the purpose of wealth-tax, Alibaugh property was claimed as a residential property. Since the assessee is entitled to reside in more than one house but at the same time has option to claim the benefit under the Rules by declaring any one of those houses as house exclusively used for the purpose of her residence in which event, the AO will have no discretion. In this regard, he relied upon the decision of the Hon'ble Allahabad High Court reported in (1972) Tax L.R. 587 wherein the Court while interpreting the provisions of Section 23(2) of the IT Act, held that the words "property in occupation of owner for the purpose of residence" need not necessarily mean that such property has to be used daily so long as that house is retained for her own occupation even though others resided there. He thus strongly submitted that the value declared by the assessee for gift-tax purposes should have been accepted by the tax authorities.
4. On the other hand, the learned Departmental Representative submitted that the impugned property was not assessed to wealth-tax as a self-occupied property. In respect of the asst. yr. 1989-90, the assessee declared it as 'Plot at KIM' in the wealth-tax return and exemption/benefit was not claimed on the ground of self-occupation. He further submitted that in the asst. yr. 1990-91, assessee has not filed wealth-tax return and therefore, there is no question of the assessee availing option given to her under the WT Act. He thus strongly submitted that the value as declared in the income-tax return towards purchase of the plot and construction thereof, should be taken as the value of the gift and thus supported the orders of the tax authorities.
5. Joining the issue, the learned counsel submitted that the Alibaugh property was gifted tq the assessee before the valuation date relevant for the asst. yr. 1990-91 and sans that property, the assessee had no taxable wealth and hence, wealth-tax return was not filed. He again reiterated that the Alibaugh property which was gifted to the assessee should be valued as per Rule 3 of Schedule III to the WT Act by allowing the assessee to exercise the option to value one house which is exclusively used by her for residential purposes even though she retained more than one house for residential purposes.
6. We have carefully considered the rival submissions and perused the record. Schedule II to the GT Act provides that the value of any property transferred by way of gift should be determined in accordance with the provisions of Schedule HI to the WT Act. Clause (3) of Part-B to Schedule III to the WT Act which is relevant in this context reads as under : "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 100 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 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." 7. A careful perusal of Clause 3 shows that the assessee is entitled to compute the value by multiplying the net maintainable rent by the figure 12.5. However, if the property is purchased or constructed after 31st March, 1974, and if the cost of construction/alterations/improvement is higher than the value so arrived at i.e., by applying the net maintainable rent method, second proviso provides for taking the actual cost to the assessee. Fourth proviso provides for an exception to adoption of the actual cost of acquisition/construction/improvement. In order to avail the benefit under this proviso, assessee has to show that such house is exclusively used for residence. Reverting to the facts of the case on hand, admittedly the assessee maintained two houses, one in Mumbai and the other in Alibaugh. The property which was gifted to assessee's brother was not let out before the date of gift. As per the valuation report of the registered valuer, Alibaugh property was not let out to anybody and it was owner occupied for weekend stay. During the previous year relevant to assessment year under consideration, the building was renovated and it is not in dispute that the house which was fit for habitation and used for week end stay to her brother. Neither the AO nor the CGT(A) disputed these facts. The tax authorities were mainly obsessed with the fact that the cost of the plot and Bungalow as shown in the income tax records was Rs. 3,98,530 as against Rs. 1,29,058 declared in the gift-tax return. It is necessary to state here that the legislature in its wisdom provided for a method of valuation which may sometime benefit the assessee. Merely because the value arrived at by applying the rule is less, the tax authorities cannot discard such computation. In fact, the legislature has provided for such contingency by stating in categorical terms that the value arrived at by applying the net maintainable rent method has to be discarded only in a case where the assessee does not exercise the option to treat a impugned house as having been exclusively used for residential purposes, in a case where the assessee has more than one house. Fourth proviso gives the option to the assessee to choose one house as being exclusively used for residential purposes and if once the assessee avails such option, the tax authorities cannot reject the claim of the assessee merely on the ground that cost of construction to the assessee is more than the value declared in the return.
8. The tax authorities have also observed that the property at Alibaugh was only used as a weekend holiday resort and therefore, it will not pass the test of a residential house exclusively used by the assessee.
The words 'exclusively used for residential purpose' have come up for consideration before the Full Bench of the Hon'ble Madras High Court in the case of CWT v. Smt. Muthu Zulaikha (2000) 245 ITR 800 (Mad) wherein their Lordships observed that so long as the property is not used for non-residential purposes and if it is not let out, the assessee can be said to have satisfied the ingredients viz., 'exclusive use for residential purposes'. Their Lordships have also referred to the earlier decision of the same Court and also that of the Hon'ble Andhra Pradesh High Court in the case of CIT v. B.M. Bhandari (1980) 123 ITR 554 (AP) wherein the Court observed that requirement of exclusive use by the assessee of the house property for residential purposes must be construed pragmatically, fairly and reasonably and not in a pedantic sense or impracticable method. The Court further observed that an assessee may himself claim or allow any member of his family to live and it is not necessary that the assessee has to live in the building throughout the year; without any interruption. So long as the property is not let out for rent or allowed to be used for any commercial purpose it cannot be said that the assessee has not exclusively used it for residential purpose. The contention of the Revenue that the word 'exclusively' has to be interpreted to mean 'solely for residential purpose by the assessee' was not accepted by the Court. In the light of the decision of the Hon'ble Madras High Court cited supra and also that of the Hon'ble Andra Pradesh High Court (supra), we are of the view that the assessee has satisfied the test of exclusive use of Alibaugh property for residential purpose. The word 'resident' does not mean a place where an assessee has to live permanently and so long as the assessee keeps the property under his control and utilises it on the weekend, it can be said that the property is exclusively used for residential purpose. Consequently, the assessee is entitled to opt for valuation of such property as per the fourth proviso to Clause 3 of Schedule III to the WT Act, r/w Schedule II to the GT Act. The net maintainable rent as declared by the assessee is not disputed by the AO and hence the value adopted by the registered valuer by applying the net maintainable rent method is in order, Under the circumstances we direct the AO to accept the value as declared by the assessee in her gift-tax return.