ORDER
A.V. Balasubramanyam, Judicial Member
1. These bunch of appeals are being disposed of by a common order for convenience sake. The assessee is Sri kantadattanarasimharaja Wadiyar (minor HUF), Mysore. The appeals arise from wealth-tax assessments for the assessment years 1977-78 to 1985-86.
2. Bangalore palace which belongs to the assessee comprises of four components – portion let out, the palace, land appurtenant to the palace and the vacant land. The question to be resolved in these appeals is the valuation of the vacant land within the palace area.
3. The total extent of land of Bangalore palace is 454 acres or 1837365.36 sq.m. Deducting the area covered by the residential units, non-residential units and land appurtenant thereto, roads and masonry structure along the contour, the vacant land admeasures 11,66,377.34 sq.m.
4. Bangalore palace was the private property of Sri J.C. Wadiyar, the former ruler of the princely State of Mysore, as per the inventory approved by the Government of India at the time of accession of the State to Union of India in 1950. There were disputes arising out of the wealth-tax assessments of Sri J.C. Wadiyar pertaining to assessment years 1967-68 to 1976-77. Sri J.C. Wadiyar died on 23-9-1974. His only son, Sri Sri kantadattanarasimharaja Wadiyar, had applied to Settlement Commission to have the disputes settled. The Settlement Commission admitted the application and gave a final decision on all the issues and for the purpose of these appeals we need state only facts in relation to Bangalore palace. The said order is dated 29-9-1988. In that, it was held that Bangalore palace was assessable in the hands of Shri J.C. Wadiyar (HUF) for those years.
5. The Settlement Commission fixed norms, for completing the assessments. The departmental valuation officer had estimated the value of Bangalore palace. The Settlement Commission held that the value fixed for 1967-68 should be adopted for the assessment years 1968-69 and 1969-70 so that there could be a uniform valuation for a block period of three years. Likewise, the next block of three years comprised of 1970-71, 1971-72 and 1972-73 and so on.
6. With regard to valuation, the Settlement Commission estimated it at 25% less of the value fixed by the departmental valuation officer. On that basis, the value of the Bangalore palace, lands, etc., worked out as under:
Value as on Estimated value
31-3-1967
31-3-1968 Rs. 2,47,10,250
31-3-1969
31-3-1970
31-3-1971 Rs. 4,50,65,250
31-3-1972
31-3-1973
1-3-1974 Rs. 7,43,90,250
31-3-1975
31-3-1976 Rs. 12,57,95,250
7. When the question of framing an assessment for 1977-78 against Shri Srikantadattanarasimharaja Wadiyar (HUF) arose the WTO proceeded on the basis of valuation fixed by the Settlement Commission for 1976-77 and the figure was Rs. 13,18,44,000. He adopted the same valuation for the block period commencing from 1976-77. Therefore, the same value came to be adopted in the assessment for the assessment years 1977-78 and 1978-79. He may clarify here that Rs. 13,18,44,000 was for both land and building – the bifurcation being Rs. 12,57,95,250 for land and Rs. 60,48,750 for building.
8. For the assessment year 1979-80, there was no report of the departmental valuation officer. The Commissioner of Income-tax (Appeals) had worked out the value of this property at Rs. 19.96 crores for the assessment year 1981-82. Therefore, the Wealth-tax Officer adopted that valuation for the assessment years 1979-80 and 1980-81. Here also the bifurcated valuation for land and building and it was Rs. 18,85,00,000 and Rs. 1,11,00,000 respectively.
9. For the assessment years 1981-82 to 1983-84, this asset was valued at Rs. 18,78,64,000, Rs. 29,85,06,000 and Rs. 29,85,06,000 respectively. For the assessment year 1984-85 the Wealth-tax Officer determined the value of this asset at Rs. 31,72,91,000 on the basis of the order passed by the Commissioner (Appeals) for assessment years 1982-83 and 1983-84. The figure is the total value for both land and building.
10. For the assessment year 1985-86, the value was taken at Rs. 57,92,89,000 on the basis of valuation adopted by the Settlement Commission in the case of Sri J.C. Wadiyar (Major HUF) -Rs. 56,56,13,000 for land and Rs. 1,36,73,000 for building. The increase in valuation was on the reason of appreciation in the market value of urban properties though the basic position was the valuation fixed by the Settlement Commission for the assessment year 1976-77.
11. The assessee had taken appeals aggrieved by the valuation fixed by the Wealth-tax Officer. There were also issues other than the valuation of the Bangalore palace. In these appeals we are not concerned with any of them. The appeals for assessment years 1981-82, 1982-83 and 1983-84 were disposed of by the Commissioner (Appeals) at the first instance by a common order dated 9-1-1990. His conclusion was as hereunder:
I would therefore reasonably estimate the value of the entire property for assessment year 1979-80 at about 3 crores less than the value for 1980-81 fixed by the departmental valuation officer of Rs. 28.66 crores. The value to be taken for assessment for the block of three years 1979-80, 1980-81 and 1981-82 would therefore be 25.66 crores less 25% of the value of vacant land which equals Rs. 19.96 crores. This value includes the value of land appurtenant to the palace and the value of the let out properties which were omitted in the original assessment.
This was in regard to assessment year 1981-82.
12. With regard to 1982-83 and 1983-84, he confirmed the valuation fixed by the Wealth-tax Officer. But the value of appurtenant land and the let out portions had been omitted to be included in the assessments. This mistake was corrected and it may be mentioned that the assessee had no objection to it. The Wealth-tax Officer’s order was otherwise sustained. The assessee has filed appeals and they are WTA Nos. 315 to 317/Bang. /1990.
13. The appeals for 1977-78 to 1980-81 were consolidated and disposed of by the Commissioner (Appeals) by an order dated 31-7-1990. He accepted a plea advanced on behalf of the assessee and reduced the value of the vacant land to Rs. 2 lakhs in each of these years. In other respects, the assessments were affirmed. Objecting to that the revenue is in appeal and the proceedings are WTA Nos. 485 to 488/Bang/1990.
14. Appeals for 1984-85 and 1985-86 were next taken up by the Commissioner (Appeals). By an order dated 14-8-1990, he held that vacant land of the Bangalore palace should be valued at Rs. 2 lakhs. Suffice it to say that he followed his earlier order dated 31-7-1990 passed in regard to assessments for the years 1977-78 to 1980-81. The revenue has appealed in respect of these years.
15. As can be seen, there is no dispute in regard to valuation of the residential and non-residential structures within the Palace area or the appurtenant land thereto. The assessee has accepted the value fixed. His grievance is only in regard to valuation of the vacant land.
16. The Urban Land (Ceiling and Regulation) Act, 1976 (Ceiling Act, for short) received the assent of the President on 17-2-1986 and gazetted on the same day. It has been adopted by the State of Karnataka.
17. The Bangalore palace area is within the Bangalore urban agglomeration. The provisions of Ceiling Act have application. The assessee and other members of the family had filed statements under Section 6(1) of the Ceiling Act and the competent authority appointed thereunder had passed an order on 27-7-1989 declaring the extent of the vacant land and also what is retainable by Srikantadattanarasimharaja Wadiyar and other heirs of his father. The competent authority, over-ruling all objections, determined the vacant land in excess of the ceiling limit under the provisions of Section 8 and further ordered for action to be taken under Section 18(1) of the Ceiling Act to publish a notification in the Gazette to acquire the excess land.
18. The heirs of Srikantadattanarasimharaja Wadiyar and other family members interested in Bangalore palace had appealed to the Chairman under Section 33 of the Ceiling Act who is the appellate authority for appeals from orders passed by the competent authority. The appellate authority rejected the plea that the provisions of the Land Ceiling Act would not apply. He upheld the orders passed by the competent authority declaring the excess vacant land and the action he proposed for acquiring. It was stated at the Bar that this matter is now before the Karnataka High Court in a writ proceeding.
19. Under the provisions of Karnataka Town and Country Planning, 1961, the Bangalore Development Authority has prepared a Master Plan and a planning report for development of District No. 1 in which the Bangalore palace area is included. As per the proposal made, a major level City Park is proposed in the Bangalore palace area. As per this proposal, no part of the vacant land could be commercially exploited. Neither it could be colonised for residential purposes. The vacant land is also not transferable.
20. The Commissioner (Appeals) who disposed of the first batch of appeals by an order dated 9-1-1990 did not consider the impact of the Ceiling Act or the proposal made by the Bangalore Development Authority on the value of urban land. As we see, these contentions had not been advanced before him. He simply examined the valuation point bearing in mind the valuation fixed by the Settlement Commission for assessment year 1976-77 for which the valuation date was 31 -3-1976. When he took up for consideration the second batch of appeals, this point had been urged before him which found his acceptance. This is how he reduced the valuation to Rs. 2 lakhs in the orders he passed on 31-7-1990 and 14-8-1990.
21. Shri Srinivas, the learned representative of the assessee, strenuously argued that the question of valuation of this Palace property has to be examined bearing in mind the special circumstances that surround the issue. The argument of the learned departmental representative, Shri S.K. Iyer, was that the valuation is estimated price which in the opinon of the Wealth-tax Officer would fetch if sold in market on the relevant valuation date. Proceeding further, he submitted that one has to imaginatively think of a sale to know the price which it may fetch the owner and such exercise is possible whether or not the property is transferable or not. On that premise he sought to support the assessments made.
22. The open land is an urban land as defined in Section 2(o) of the Ceiling Act. Holding of the assessee was/is in excess of the ceiling limit and this is clear from the order passed by the competent authority under the Ceiling Act. The owners who hold In excess of the ceiling limit are required to file statements before the competent authority who shall determine the excess area. The excess land can be acquired by issue of a notification in Gazette and from the date specified by the competent authority the vacant land vests with the State Government, vide Section 10, Ceiling Act.
23. The right of the erstwhile owner is only to get compensation vide Section 11(1), the Ceiling Act, for the vacant land, the amount payable as compensation can in no way exceed Rs. 1 lakh; vide Section 11(6), the Ceiling Act.
24. No person can sell or otherwise alienate any urban land except with the previous permission of the competent authority, vide Section 27, Land Ceiling Act. It does not appear that the assessee had applied for permission. Even so, it was unlikely that permission would have been granted as the Competent Authority had proceeded to act under Section 8(4) declaring the vacant land in excess of the Ceiling limit. That apart, the holding of the assessee was indisputably far in excess of the Ceiling limit when the relevant Act came into force and as such alienation by way of sale etc. would be null and void unless the person furnished a statement under Section 6 and a Notification regarding the excess land held by him had been p ublished – see Section 5(3), Ceiling Act. In the instant case, the competent authority has already declared the excess vacant land and a direction is given to publish a Notification under Section 10(1) for acquisition. Perhaps the Notification is not yet out because of the pendency of the writ petition. Be that as it may, there is no escape from the fact that the assessee could not have dealt with the vacant land as he wished. There was embargo on his powers which but for the provisions of this Act he could have, exercised as owner of the land.
25. One cannot think of a sale in a vacuum chamber oblivious to the restrictions imposed by regulations and arrive at an imaginative figure thinking that would be the price which the owner would have got in that notional sale. It is apposite to refer to the decision of the Madras High Court in the case of CWT v. K.S. Ranganatha Mudaliar [1984] 150 ITR619. That was a case of agricultural lands held by an assessee in excess of the Ceiling limit fixed under Tamil Nadu Land Reforms Act and the question was of valuation of the said land for the purpose of wealth-tax assessment. Their Lordships observed:
That if the restrictions and prohibitions contained in the Ceiling Act were ignored in valuing the excess land, that would amount to valuing the asset differently in content and quality from that actually owned by the assessees. Consequently, such land would have to be valued only after taking note of the restrictions and prohibitions, which would have the effect of depressing its value. Hence, the valuation on the basis of compensation receivable under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, was justifed.
26. The Bangalore Bench of the Tribunal has in the case of Hazi A. Seth [WT Appeal Nos. 87 to 90 (Bang.) of 1985 dated 1-9-1985] that vacant land in excess of the Ceiling limit situated in Bangalore Metropolitan area should be valued on the basis of compensation awardable by the State Government. Such compensation awardable in the present case is not beyond Rs. 2 lakhs.
27. When the Settlement Commission decided the valuation of the Bangalore palace for assessment year 1976-77 (and earlier years) the Land Ceiling Act was not on the Statute Book. 1977-78 is the first year of assessment after the Ceiling Act came into force. The relevance of this Act in valuing vacant land in an agglomeration had not been put before the CIT(A) when the first batch of appeals were heard. This plea was first taken before him when the appeals for 1977-78 to 1980-81 were argued and he, very rightly, acceded to the submission.
28. The Ceiling Act has reduced the holding to mere empty ownership. The Planning Report of the Bangalore Development Authority has, further, put a gloss on the powers of the assessee as owner. Disregarding these underlying realities he cannot value the asset in a sweeping-up manner and that would be opposed to all canons of justice. The true index is to value on the basis of compensation awardable upon acquisition.
29. For the discussion we have made, we direct that the vacant land in the Bangalore palace be valued at. Rs. 2 lakhs for each of the assessment years from 1977-78- to 1985 86. We reverse the order of the CIT(A) dated 9-1-1990 and direct the Wealth tax Officer to re-compute the net taxable wealth accordingly. We affirm the order of the C1T(A) dated 31 -7-1990 and 14-9 1980.
30. Appeals for 1981 82 to 1983 84 are allowed. Appeals for 1979-80 to 1980-81 and 1984 85 and 1985 86 are dismissed.