Surinder Singh, J.
1. This judgment shall answer the points of reference and dispose of the appeals filed by the revenue under Section 27-A of the Wealth Tax Act, 1957, in short 'the Act'.
2. The facts giving rise to the reference and appeals aforesaid can be stated thus. There has been 7077 sq. yards land situated at New Delhi, having a multi storeyed house over 5000 sq. yards called 'Himalya House' and 2077 sq. yards land was located behind the said house having old built up structure and a vacant land, 1/3rd thereof i.e. 692 square yards fell in the share of the respondent-assessee. It was in the occupation of family members of HUF i.e. the respondent-assessee and the built up structure was partly rented out to one Shri Jagdish Mitra. It was having survey Mark No. 23, Kasturba Gandhi Marg, New Delhi.
3. The respondent-assessee filed the return for 1987-88 on 3-2-1988 with respect to his property which also included above mentioned property. Its assessment was made under Section 16(1) of the Act vide order dated 28-2-1989 on total wealth declared at Rs. 4, 62,900/- @ Rs. 200/- per square yard.
4. Sections 14 and 15 of the Act inter alia govern the procedure for filing the returns by any person, if his net income or the net wealth of any other person in respect of which he is assessable under the Act on the valuation date exceeded the amount which is not chargeable to the wealth- tax, in the prescribed manner setting forth particulars of such net wealth and such other particulars as may be prescribed or under a notice issued under Clause (i) of Sub-section (4) of Section 16 or amendment of the return already filed, as stated therein.
5. After assessment under Section 16(1) aforesaid, the Assessing Officer (A.O.) noticed that the Land and Development Officer of the Ministry of Urban Development, vide notification dated 1st June 1987 had fixed the value of land @ Rs. 23000/- per square meter as against Rs. 200/- sq. yard, therefore, the A.O. started the proceedings under Section 17 of the Act and reopened the assessment made under Section 16 (1) of the Act.
6. The respondent-assessee did not respond to the notices, thus the A.O. made the ex-parte assessment and made an addition to Rs. 65,15,500/- by taking the value of the above land @ Rs. 23000/- per Sq. mt. This addition was worked out after adjustment of unearned increase determined as 50% of the total value. Thus the A.O. determined total wealth of the respondent assessee at Rs. 69,78,400/- vide his order dated 28-2-1992.
7. The wealth declared by the respondent-assessee was Rs. 6,84,200/- for the assessment year 1988-89, it also included the above property, The A.O. applied the value of the land @ Rs. 23000/- Per sq.mt. as above and made an addition of Rs. 65,15,500/- in the wealth of assessee and after adjustment made in the same manner, as herein above assessed the total of the assessee at Rs. 71,99,700/- vide order 28-2-1992.
8. Further, the respondent-assessee also filed the return on 29-1-1991 for the assessment year 1989-90 declaring total wealth of Rs. 7,90,500/-. The A.O. started scrutiny assessment under Section 16(3) of the Act. During the course of hearing, the A.O. noticed the assessee's assets included the above mentioned property measuring 692 sq. yards valued @ Rs 200/- per sq. yard. Since the property measuring 692 sq. yards, which included the tenanted premises of Shri Jagdish Mitra and this portion was not surrendered to MCD nor any service lanes were constructed, but its part was used as a common passage to approach 'Himalya House' and back lawn measuring 147 sq. yards, remained in the possession of HUF. Under these circumstances, the A.O. held that it was neither possible to value this property under Rule 1BB nor in accordance with Rules 3 to 7 of schedule III appended to the Act, therefore, he determined it as per Rule 20 of the Rules framed under the Act. Thus he applied the value of the land @ Rs. 23000/- Per sq. mt. as aforesaid and made an addition of Rs. 65,15,500/- in the wealth of assessee and after adjustment made in the same manner as herein above assessed the total wealth of the assessee at Rs. 73,06,000/-.
9. The above valuation was upheld by the Commissioner Wealth Tax (Appeals), in quantum appeals.
10. In all the above three assessment years, the A.O. also started penalty proceedings, under Section 18(1) (c) of the Act for the concealment of the net taxable wealth.
11. The respondent-assessee challenged the above orders of assessments and also the orders with respect to the penalty before the Commissioner of Wealth Tax (Appeals) and Commissioner Income Tax (Appeals), respectively. The WTC (A) allowed the appeal No. WT/4/93-94/Sml against imposing the penalty under Section 18(1)(c) of the Act of the assessee for the assessment year 1987-88, whereas the other appeals of the assessee against the penalty were dismissed. Thus the Department assailed the orders passed against them in a further appeal before the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench and the respondent-assessee also challenged the dismissal of their appeals by the WTC (A) before the ITAT. The ITAT, Chandigarh Bench disposed of all the quantum appeals, i.e., W.T.A. Nos. 432, 433 and 434/Chandigarh/1992, for the assessment years 1987-88, 1988-89 and 1989-90, by a common order, dated 16th March, 1994. The operative portion of the order is reproduced as under:
16. After carefully considering the rival submissions as also the facts on record, we find that for assessment year 1987-88, the original assessment was made Under Section 16(1) only and hence whatever the assessee had declared had been accepted without any enquiry or investigation. However, while dealing with the assessee's case for the assessment year 1989-90, the Assessing Officer came to know that the value of the land as determined by the Ministry of Urban Development was much higher than the value of Rs. 200/- per sq. yd. shown by the assessee itself. According to us, this was a valid and relevant piece of information which could be made use of by the Assessing Officer for reopening the cases. Since the time limit Under Section 17(2)(b) was available for both the assessment years 1987-88 and 1988-89, we hold that the Assessing Officer was justified in reopening the assessments.
17. As regards the merits of the case, we find that both the learned Counsel for the assessee and the ld. D.R. reiterated the same arguments and same points which were made by them for assessment year 1989-90. For the reasons mentioned above while dealing with the assessee's appeal for assessment year 1989-90, we direct the Assessing Officer to value the built-up portion the property in the light of Rule 1BB so, however, that its value is not less than Rs. 20,730/- as shown by the assessee, ignore the value of 32 sq. yds. of land in respect of the front lawn and of 118 sq. yds. by way of passage. The Assessing Officer shall add 50% of the value of land at the back lawn measuring 147 sq. yds. at Rs. 8000/- per sq. m. The aggregate value thus arrived at shall stand substituted for the value thus arrived at shall stand substituted for the value of Rs. 1,59,130/- as shown by the assessee.
12. By allowing the appeals the ITAT allowed the substantial relief to the assessee. Aggrieved by the orders aforesaid the revenue filed a reference under Section 27 (1) of the Act and requested to draw the statement of the case for the opinion of the High Court on the question of law arising in appeal but the application of the department was dismissed on 19.7.1994. Aggrieved by the said order an application was filed before the High Court under Section 27(3) of the Act and the High Court vide order dated 18-7-1995 ordered ITAT to draw the statement and refer the matter for its opinion.
13. Thus ITAT made the reference on the following points for the opinion of this Court:
1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in directing the Assessing Officer to value the property in dispute under Rule 1BB of the Wealth-tax Rules on the basis of scheduled rates circulated by the Government of India for bifurcating the property in dispute for separate valuation?
2. Whether on the facts and circumstances of the case, the order of the ITAT is in accordance with law for bifurcation of property in dispute in the fact of evidence available on record?
14. During the pendency of the reference, the assessee filed appeals against the penalty imposed for the years 1988-89 and 1989-90 and the department filed the appeal for the assessment year 1987-88.
15. The ITAT in its combined order dated 24-5-2001 dismissed the appeals of the department for the assessment year 1987-88 but qua the assessment year 1988-89 and 1989-90 allowed the appeals of the respondent- assessee holding that the penalty imposed was unjustified.
16. The respondent-assessee moved an application under Section 35 of the Act, to recompute the penalty on the basis of the ITAT in the quantum case. In the meanwhile, the A.O. passed the order under Section 35 aforesaid and reduced the penalty following the order of WTC (A) directing the A.O. to recompute the penalty.
17. We have heard learned Counsel for the parties and have carefully examined the record.
18. In-fact, the market value of the aforesaid property was assessed by the Assessing Officer to the tune of Rs. 23,000/- per square yard, on the basis of the prevalent market rate fixed by the Land and Development Authority and the value of the land was worked out to Rs. 1,33,07,800/-, however, an amount equal to 50% of the value of the property as determined above was adjusted treating the same as unearned increase in the value of the land. Therefore, net value of the land is determined at Rs. 66,53,900/- as against the value of the land declared by the assessee at Rs. 1,38,400/-. Thus, the difference was worked out to Rs. 65,15,500/-, which was added back to the net wealth of the assessee.
19. The net wealth of the assessee was computed as under:
Net wealth as shown by the assessee Rs. 7,90,500/- Add back:
An addition of Rs. 65,15,500/- is made as Discussed in para 3 & 4 by the ITAT in details. Rs. 65,15,500/-Net wealth Rs. 73,06,000/- Less:
W.T. liability 87-88 & 88-89 (184135+199350) Rs. 3,83,485/-Net wealth Rs. 69,22,515/-. Rs. 69,22,500.
As stated above, less wealth tax liability for 1987-88 and 1988-89 was to the tune of Rs. 3,83,485/-, therefore, a penalty notice was issued under Section 18(1)(c) of the Act.
20. According to the assessee, although, the said property was owned by them, but the built up area over a portion of 395 square yards was leased out to one Shri Jagdish Mitra prior to 1969 at the rate of Rs. 1181/- per annum and this accommodation was having three rooms, verandah, kitchen, bath room, W.C. and open space lawn. Its split up was shown as under:
1. Built up portion 395 sq. yds.
2. Front law triangular 32 sq. yds.
3. Passage 118 sq. yds.
4. Lawn/yard on the back 147 sq. yds.
Total 692 sq. yds.
21. Assessee claimed that the said property should have been assessed by applying formula of Rule 1BB provided under the Rules.
22. As a matter of fact, Section 3 of the Act is the charging Section. It seeks to bring to charge for every assessment year the net wealth on the corresponding valuation date of every individual, Hindu undivided family and a Company. The expression 'net wealth' is defined in Section 2(m) of the Act. Section 2(q) defines 'valuation date'. Section 4 enumerates the assets to be included in computing 'net wealth'. Sections 5 and 6 exempt certain assets in India and outside from being included in computing the net wealth. Section 7 as it existed prior to its amendment, i.e., 1st April, 1989 speaks as to who the value of the assets has to be determined.
23. Section 7(1) as it stood during the relevant period, i.e., prior to 1st April, 1989, when it stood substituted by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1st April, 1989, provided:
7. (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 Wealth-tax Officer it would fetch if sold in the open market on the valuation date.
24. The Central Board of Revenue in pursuance of the rule- making power conferred by Section 46 of the Act promulgated rules known as the Wealth Tax Rules, 1957. These were amended from time to time and Rule 1BB with which we are now concerned, came to be inserted by the Wealth tax (Amendment) Rules, 1979, with effect from April 1, 1979. The relevant part of the rule reads as under:
1BB. (1) For the purpose of Sub-section (1) of Section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely:
(a) The amount arrived at by multiplying the net maintainable rent in respect of part of the house used for residential purposes by the fraction 100/8; and
(b) The amount arrived at by multiplying the net maintainable rent in respect of the remaining part of the house, if any, by the fraction 100/9: Provided that in relation to a house which is built on leasehold land, this sub-rule shall have effect, as if for the fraction 100/8 in Clause (a), or as the case may be, the fraction of 100/9 in Clause (b), the fraction 100/9 and 100/10, respectively, have been substituted.
Sub-rule (2) (a) defines the expression 'gross maintainable rent'; sub-rule 2(b) defines 'house' as including an independent residential unit and sub- rule (2)(c) the expression 'net maintainable rent'.
Sub-rule (5), however, envisages a departure from the regime of Sub-rule (1) and provides that where the Wealth-tax Officer, having regard to the facts and circumstances of the case, is of the opinion that it is not practicable to apply the provisions of the rules to such a case, he may apply the rule with the previous approval of the Inspecting Assistant Commissioner.
25. Rule 1BB thus partakes the character of the Rule of evidence and not a substantive law. It deems the market value to be the one arrived at on the application of a particular method of valuation, which is also one of the recognized and accepted methods. Therefore, on consideration of the matter, in our opinion, prior to 1st April, 1989 the property of the assessee was required to be assessed as per the provision of Rule 1BB which was then in existence, on the basis of the scheduled rates circulated by the Government of India for bifurcating the property in dispute for separate valuation, but for the assessment year 1989-90 the wealth assessment has to be determined in the manner laid down in Part B of Schedule-III, as per amended provision referred to hereinabove. The above points of reference are accordingly answered.
26. In so far as the penalty appeals are concerned, the record reveals that the respondent-assessee had been showing the same value of their property w.e.f. 1967-68 onwards without a supportable document of valuation, but surprisingly the department had accepted the same value. Even the A.O. had accepted the same value under Section 16 (3) of the Act for the year 1988-89. There is nothing on record to show that the Notification issued by Ministry of Urban Development was within the knowledge of the respondent-assessee when they had filed their disputed returns. Further, the substantial portion was rented out in the said property and the assessee had a reason to believe that value was required to be assessed in view of the basis of capitalization method as the said property was under lis. Therefore, under these circumstances, we feel that it was not a case falling under Section 18(1)( c) of the Act for imposing penalty and in no case it could be linked with the quantum case of the respondent-assessee. Therefore, the order of the ITAT in penalty appeals cannot be faulted at all as it has very elaborately dealt with the matter against the factual background. Thus, the substantial question framed in all the three appeals, on 22nd November 2001, is accordingly answered.
27. In result the appeals filed by the revenue are dismissed and the reference stands accordingly answered.
28. Let a copy of this judgment under the seal of the Court and the signature of the Registrar General be sent to the ITAT and the ITAT shall pass such order as are necessary to dispose of the quantum cases in question conformably to this judgment. On reconsideration of the matter the authorities concerned would hear the parties to this lis and the respondent-assessee is at liberty to take any defence available to them under the law.
29. All matters stand disposed of.