ORDER–Discrepancy in value of certain property in different years.
Ratio:
In the circumstances of the case acceptance of property’s value as on 1-1-1964 at Rs. 1 lakh was erroneous and prejudicial to the interest of revenue and, therefore, revision was justified.
Held:
Even if the assessee’s contention be correct about application of the provisions of section 7(4) of the Wealth Tax Act read with rule 1BB, it would mean that the value of the property as on 1-4-1971) was Rs. 96,000 only. In the circumstances, it would be unbelievable that the value of the same property was Rs. 1 lakh as on 1-1-1964. The Commissioner has not given a definite direction to the Income Tax Officer about the value of the property to be accepted as on 1-1-1964. On the other hand, he has left the matter wide open for the Income Tax Officer to arrive at his own valuation of the building, having due regard only to the cost of construction and the market value of the property declared by the assessee in the wealth-tax assessments. Acceptance of the value of Rs. 1 lakh as on 1-1-1964 as declared by the Income Tax Officer is, therefore, very much erroneous and prejudicial to the interests of revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
Revision under s. 263–ERRONEOUS AND PREJUDICIAL ORDER–Exemption under s. 53.
Ratio:
Commissioner’s action under section 263 was justified where assessee failed to establish that property in question was actually in the nature of a residential house for purpose of exemption under section 53.
Held:
This is not a case where the assessee simply omitted to show the income from the self-occupied property in his returns of income for assessment year 1982-83 onward. On the other hand, when a specific question in that regard was put up to him during the course of his income-tax assessments for those later years, hehad given a reply that during the period covering the assessment years 1982-83 to 1984-85, and until the sale of the property, it was being used for practicing the profession of cost of accountancy. It is thus clear that the assessee escaped paying tax on the allegedly self-occupied property by asserting at that time that the house was being used for his profession only. The facts are clear that apart from simply making assertion that his mother and sister were actually residing in the said building, the assessee did not bring on record any evidence to support this new stand. Assessee has failed to establish his stand that the house was actually of the nature of a residential house. As to the argument of the assessee that a house is to be considered as a residential house merely from the angle of its construction, viz., if it be equipped with a kitchen, bath room, etc., the Tribunal is unable to accept this argument. The same house may be utilised for residential purpose at some point of time and for commercial purpose at some other point of time by making slightest alterations. It cannot subscribe to the view that a permanent stamp like a residential house is to be given to a house since its construction. Taking into consideration all these aspects, Commissioner is right in invoking section 263.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
Revision under s. 263–ERRONEOUS AND PREJUDICIAL ORDER–Perquisite value of residential quarters accepted by assessing officer without inquiry.
Ratio:
In the circumstances of the case Commissioner was justified in directing assessing officer to apply rule 3 for evaluating perquisite value of residential house.
Held:
In the instant case, the Income Tax Officer had accepted the perquisite value of the residential quarters as returned by the assessee even without making any enquiry. The Commissioner has merely directed the application of rule 3 of the Income Tax Rules for evaluating the said perquisite value. The proviso to that rule itself takes care of the situation where the fair rental value of the accommodation is less than the value arrived at by using the percentage as prescribed in the said rule. The argument of the learned counsel for the assessee that the fair rental value of the quarters was much less than 10 per cent of the total salary of the assessee, is thus well taken care of by the rule itself. In this case also, the Commissioner, in his impugned order, has not come up with a definite value of the perquisite under consideration and on the other hand, he has simply directed the assessing officer to apply rule 3. There is no fault with his direction.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
S. Bandyopadhyay, Accountant Member
1. The present appeal has been filed by the assessee against the order- passed by the CIT under Section 263.
2. The assessee sold a property belonging to him on 1-10-1984 for a consideration of Rs. 3,75,000. The CIT found out that for the purpose of computation of capital gains, the value of the building as on 1-1 -1964 had been declared by the assessee to be Rs. 1 lakh and the same had also been accepted by the ITO. He found out that the value of the same property had been declared by the assessee in his WT return for assessment year 1984-85 at Rs. 96,000 only. He thus came to the conclusion that the value of the property 20 years earlier should have been much less than Rs. 96,000. He, therefore, directed the ITO to adopt fair market value of the property as on 1-1-1964 having due regard to the cost of construction and market value of the property as declared by the assessee himself in the WT assessments for the later years.
The CIT discussed in his order that it is an undisputed fact that the site on which the above-mentioned house was constructed, had been allotted by the City Improvement Trust Board in 1956 for a consideration of Rs. 1,600 only and a building was constructed thereon during the period 1957-58 and 3 further following years. The total cost of construction was about Rs. 45,000. The assessee took the value of the land as on 1-1-1964 to be Rs. 36,000 at the rate of Rs. 15 per sq. ft. The value of the building on the other hand, was estimated by the assessee to be Rs. 66,000 and the property as a whole was taken at Rs. 1 lakh. The learned Counsel for the assessee argued before the CIT and before us also that although for WT purpose the value of the building might have been returned at Rs. 96,000 only for assessment year 1984-85, the valuation for WT purpose cannot be considered to represent the real value of a property inasmuch as the building was valued tor WT purpose as per Section 7(4) of the WT Act r.w. Rule 1BB. The CIT did not accept the above argument of the learned Counsel for the assessee. He commented that even under Section 7(4) of the WT Act, the value to be considered was the market value as on 1-4-1971 and furthermore that Rule 1BB had no application since it came into effect only from assessment year 1979-80.
3. On a proper examination of the facts of the case, we are inclined to agree with the contentions of the CIT. Even if the assessee’s contention be correct about application of the provisions of Section 7(4) of the WT Act read with Rule 1BB, it would mean that the value of the property as on 1 -4-1971 was Rs. 96,000 only. In the circumstances, it would be unbelievable that the value of the same property was Rs. 1 lakh as on 1 -1 -1964. The CIT has not given a definite direction to the ITO about the value of the property to be accepted as on 1 -1 -1964. On the other hand, he has left the matter wide open for the ITO to arrive at his own valuation of the building, having due regard only to the cost of construction and the market value of the property declared by the assessee in the WT assessments. Acceptance of the value of Rs. 1 lakh as on l-l-1964as declared by the ITO is, therefore, very much erroneous and prejudicial to the interests of revenue. Hence, we uphold the action of the CIT in giving the above-mentioned direction.
4. The CIT furthermore found that the assessee had claimed and was also allowed deduction under Section 53 in respect of the said property. Such a deduction is allowable only in case of a residential property. It has been the plea of the assessee before the CIT as well as before us that the assessee was using only one room in the said property for his professional purpose, whereas the other portion of the building was being usred by his mother and sister for their personal residences. It is also claimed that the notional income from self-occupied portion of the building was declared by the assessee and was also assessed up to assessment year 1981-82 and thereafter there was an omission on the part of the assessee to show the income from the self-occupied building in his returns of income for the subsequent years. The learned Counsel for the assessee has argued in this connection that what is required for allowance of deduction under Section 53 is that the house transferred should be a residential house and that it is not at all necessary that the house should be occupied by the assessee lor his personal residence. It is furthermore argued that for determining the question of whether the house is a residential house, it is the nature and the mode of construction only which is required to be examined and that the actual user of the property is not at all material. The learned Counsel for the assessee has relied on the decision of the Karnataka High Court in the case of CIT v. J.R. Subramanya Bhat[1987] 165 ITR 571 in support of this contention.
We find from the impugned order of the CIT that this is not a case where the assessee simply omitted to show the income from the self-occupied property in his returns of income for assessment year 1982-83 onward. On the other hand, when a specific question in that regard was put up to him during the course of his IT assessments for those later years, he had given a reply that during the period covering the assessment years 1982-83 to 1984-85, and until the sale of the property, it was being used for practicing the profession of cost of accountancy. It is thus clear that the assessee escaped paying tax on the allegedly self-occupied property by asserting at that time that the house was being used for his profession only. At that time no inkling had been given by the assessee that his mother and sister actually resided in the said house. This plea seems to have been taken by the assessee for the first time only when he was confronted with the difficulty of availing himself of the benefit under Section 53 on sale of the property. It is thus evident that the assessee goes on taking varying stands before the department to suit his purposes from tax-angle from time to time. Be that as it may, the facts are clear that apart from simply making assertion that his mother and sister were actually residing in the said building, the assessee did not bring on record any evidence to support this new stand. When the assessee had earlier taken a completely different factual stand, the onus lay heavily on him to fully establish his new stand, in support of which no evidence has been sought to be adduced even before us. Furthermore, the CIT has also discussed in detail in his impugned order under Section 263 that in assessment year 1985-86, the assessee had professional gross receipt as cost accountant of Rs. 54,500 which included salary paid to 4 employees of the approximate aggregate amount of Rs. 35,000. The learned Counsel for the assessee takes up the plea now that the profession was conducted in a very limited scale because the assessee was a salaried employee of M/s. United Breweries Ltd., and that the assessee was utilising the services of some retired persons only. The figures of gross earning and the expenses as claimed clearly show that the profession of the assessee was at least on a moderate scale. We have not been provided with the description of the house under consideration and especially of its covered area. Utilisation of the entire house by the assessee for his professional purposes cannot therefore be considered to be quite improbable. On the other hand, we feel that the assessee has failed to establish his stand that the house was actually of the nature of a residential house. We also do not find much merits in the argument of the assessee that a house is to be considered as a residential house merely from the angle of its construction, viz., if it be equipped with a kitchen, bath room etc., we are unable to accept this argument. The same house may be utilised for residential purpose at some point of time and for commercial purpose at some other point of time by making slightest alterations. We cannot subscribe to the view that a permanent stamp like a residential house is to be given to a house since its construction. Taking into consideration allthese aspects, we are of the view that the CIT is right in coming to the conclusion that the house cannot be considered to be a residential house and in directing the ITO to disallow the claim made by the assessee under Section 53. The case of J.R. Subra-manya Bhat (supra) as referred to by the learned Counsel for the assessee is of no help. In that case, the proposition laid down by the Karnataka High Court was that where the Tribunal had found out that a substantial portion of the house was occupied by the assessee for residential purpose, the assessee was entitled to exemption on account of the residential nature of the house. In the instant case, we are unable to find out any evidence to conclude that any portion of the house was being used for residential purpose at the time of the sale of the property.
5. The assessee was a salaried employee of M/s. United Breweries Ltd. At the relevant time, he was in receipt of actual emoluments of Rs. 1,72,800 as salary alone. He was allowed the occupation of a house belonging to the company for his residence. The perquisite value of the said house was however declared by the company and also the assessee to be Rs. 3,000 only for the entire year. The assessee actually returned 40 per cent of the same being Rs. 1,200 as the perquisite value of user of the quarters provided by the company. The CIT also found out that the value of perquisite in respect of power, fuel, water charges and furniture had been worked out by the employer by taking 40 per cent of the amount expended in respect of them. He, therefore, finally directed the ITO to value the perquisite of the rent-free accommodation as per Rule 3 of the IT Rules. He furthermore gave a direction to value the aforesaid perquisites also under the relevant IT Rules and having regard to the amounts spent by the employer in providing these facilities.
The learned Counsel for the assessee strongly contends in this connection that the assessee returned the perquisite value of the rent-free quarters in accordance with the particulars provided to him by his employer. Reliance has also been placed in this connection on the decision of the Mysore High Court in the case of CIT v. T. Narayana Pai [1975] 98ITR 422 (Kar.) in support of the contention that unless the Commissioner records any definite finding, he cannot exercise his powers under Section 263. In that case however, the facts were that the CIT had not recorded any finding to the effect that the consideration for transfer of shares declared by the assessee was less than the fair market value of the shares and furthermore that there was no material to come to the conclusion that Section 52(2) was attracted to the facts of that case.
6. The learned DR has, on the other hand strongly contended that where the version of the assessee is blindly accepted by the Assessing Officer without making any necessary enquiries about essential matters, it is possible for the CIT to treat the assessment order as erroneous and prej udicial to the interests of revenue and thereby to exercise his revision-ary powers under Section 263, by relying on the following decisions :
(i) Swarup Vegetable Products Industries Ltd. (No. 1) v. CIT [1991] 187 ITR 412 (All.)
(ii) Umashankar Rice Mill v. CIT[1991] 187 ITR 638 (Ori.)
(iii) Thalibai F. Jain v. ITO [1975] 101 ITR 1 (Kar.)
(iv) Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375 (Delhi).
7. We find that in the instant case, the ITO had accepted the perquisite value of the residential quarters as returned by the assessee even without making any enquiry. The CIT has merely directed the application of Rule 3 of the IT Rules for evaluating the said perquisite value. The proviso to that rule itself takes care of the situation where the fair rental value of the accommodation is less than the value arrived at by using the percentage as prescribed in the said rule. The argument of the learned Counsel for the assessee that the fair rental value of the quarters was much less than 10 per cent of the total salary of the assessee, is thus well taken care of by the rule itself. In this case also, we find that the CIT, in his impugned order, has not come up with a definite value of the perquisite under consideration and on the other hand, he has simply directed the Assessing Officer to apply Rule 3. We again find no fault with his direction. We have got to uphold the same.
8. In the result, we uphold the order passed by the CIT under Section 263 and dismiss the appeal filed by the assessee.