SRI.S.N.WADITAR(DEAD) THROUGH LR Vs COMMNR. OF WEALTH TAX,KARNATAKA
Bench: A.K. SIKRI,ROHINTON FALI NARIMAN
Case number: C.A. No.-006873-006881 / 2005
Diary number: 19952 / 2005
Advocates: VIKAS MEHTA Vs
B. V. BALARAM DAS
Page 1
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.
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 1 of 30
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2. 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?
3. 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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 2 of 30
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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.
4. From the aforesaid, it is clear that the Property in question,
namely, the Bangalore Palace came within the purview of the
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 3 of 30
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Ceiling Act.
5. 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.
6. On the other hand, in the proceedings under the Ceiling Act, the
Competent Authority passed an order No.ULC(A)(Z) 440/85-86
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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.
7. 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.
8. Simultaneously, the orders of the Wealth Tax Officer passed
under the Act fixing the value of the land for different Assessment
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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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 6 of 30
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Bench, Bangalore. The appeals filed by the assessee and the
Revenue Department were heard together by the Tribunal.
9. 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.
10. 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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 7 of 30
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purposes on the valuation date for the Assessment Years
1977-1978 to 1985-1986.
11. 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.
12. 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
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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).
13. 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
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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.
14. 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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 10 of 30
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vacant land attached to the Property which had come within the
mischief of the Ceiling Act.
15. 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.
16. 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,
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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
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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.”
17. Section 3 of the Act is the charging Section, whereas Section 7 of
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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
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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.
18. 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)
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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.”
19. 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
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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.”
20. 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
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submitted that there was no reason to take a contrary view by the
High Court.
21. 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.
22. 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
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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 Tax1 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.”
23. Following guidelines provided in the case of Commissioner of
Wealth Tax v. Prince Muffkham Jah Bahadur Chamlijan2 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.”
1 76 ITR 471 2 247 ITR 351
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24. 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.
25. 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.
26. However, the question is as to what price the willing purchaser
would offer in such a scenario?
27. 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.
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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
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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.”
28. 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
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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.
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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.
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Page 25
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
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Page 26
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
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Page 27
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.
29. 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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 27 of 30
Page 28
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.
30. 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.
31. 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
Civil Appeal Nos. 6873-6881 of 2005 & Ors. Page 28 of 30
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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 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 Government and is awaiting
notification under Section 10 of the Act for 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
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Page 30
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.
32. 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.
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