Can a Wealth Tax Officer value urban land on his own without referring it to valuation officer ?

 Introduction :

1.1 An assessee who is subject to wealth tax has to get his assets ‘valued’ as per the procedure laid down in the Wealth Tax Act and Rules for the purpose of levy of the said tax.

In case of urban land, the assessee is required to get the land valued by a registered valuer.

The Assessing Officer is under no legal obligation to accept this valuation and may value the asset again as per the law. In this respect, the word ‘may’ used in S. 16A creates a confusion. This article seeks to analyse whether reference to a Valuation Officer by the Assessing Officer is mandatory in such a case, or whether the Assessing Officer is empowered to value the asset on his own ?

Legal status :

The relevant portion of the Wealth Tax Act is as follows :

S. 7 : Value of assets, how to be determined.

“Subject to the provisions of Ss.(2), the value of any asset, other than cash, for the purpose of this Act shall be its value as on the valuation date determined in the manner laid down in Schedule III . . . . .”

Schedule III which deals with Rules for determining the value of assets :

PART A

General

“Value of assets how to be determined — The value of any asset, other than cash, for the purposes of this Act, shall be determined in the manner laid down in these Rules . . . . .”

The question of valuation of land will be dealt with by Part ‘H’ of Schedule III which reads as follows :

“Residuary :

Valuation of assets in other cases :

(1) The value of any asset, other than cash, being an asset which is not covered by Rules 3 to 19, for the purposes 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. (Emphasis supplied.)

(2) Notwithstanding anything contained in subrule (1), where the valuation of any asset referred to in that sub-rule is referred by the Assessing Officer u/s.16A, the value of such asset shall be estimated to be the price, which in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date.

(3) Where the value of any asset cannot be estimated under this rule, because it is not saleable in the open market, the value shall be determined in accordance with such guidelines or principles as may be specified by the Board from time to time by general or special order.

S. 16A : Reference to Valuation Officer :

(1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into the force of this Section) under this Act, where under the provisions of S. 7 read with the rules made under this Act or, as the case may be, the rules in Schedule III, the market value of any asset is to be taken into account in such assessment, Assessing Officer may refer the valuation of any asset to a Valuation Officer :

(a) In a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so returned is less than its fair market value;

(b) In any other case, if the Assessing Officer is of the opinion :

(i) that the market value of the asset exceeds the value of the asset as returned, by more than such percentage of the value of the Can a Wealth Tax Officer value urban land on his own without referring it to valuation officer ? asset as returned or by more than such amount as may be prescribed in this behalf; or

(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do . . . . . . .

(6) On receipt of the order u/ss.(3) or Ss.(5) from the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.

Circular No. 96, dated 25-11-1972 :

Para 35 of the Circular states :

“A new S. 16A has been inserted enabling the WTO to refer the valuation of any capital asset to the Valuation Officer with a view to ascertaining the market value of such asset. Under this provision, the WTO may refer the valuation of any capital asset to a Valuation Officer in a case where the assessee has got the asset valued by a registered valuer and the value returned is in accordance with the estimate made by the registered valuer if he is of opinion that the value as estimated by the registered valuer is less than the fair market value of the asset. Other cases in which reference may be made to the Valuation Officer would be where the WTO is of opinion that the fair market value of the asset exceeds the value of the asset as returned by more than 33a per cent of the value returned or by more than Rs.50000, whichever is less, or where, having regard to the nature of the asset and other relevant consideration, the WTO considers it necessary to do so. In cases covered by S. 16(1), it will be incumbent on the WTO to refer the valuation of asset in question to the Valuation Officer and it will not be open to him to decide the question of valuation on his own.”

Relevant Case Laws :

Raj Paul Oswal v. Commissioner of Wealth Tax, (P&H)

In this case, the Punjab & Haryana High Court held that :

“If the legislative intent had been to accord total discretion to the WTO to make a reference to the Valuation Officer or not, in cases which were covered by clauses (a) & (b) of Ss.(1) of S. 16A of the WT Act, then there was no necessity of providing the guidelines in clause (a) or in subclause (b) of Ss.(1) of S. 16A. The Legislature by prescribing the contingencies, in which, by implication, it would not be necessary to make a reference, also again by necessary implication be taken to have intended that the reference to Valuation Officer was must if the given contingencies did not exist. There is no doubt about the fact that the use of expression ‘may’ and ‘shall’ to some extent serves an indicia to the intention of the Legislature and helps in deciding as to whether the given requirement is directory or mandatory in character, but the use of expression ‘may’ or ‘shall’ is never considered decisive in that regard. If the provision of S. 16A of the WT Act is to be interpreted that it vests a discretion in the WTO to make a reference to the Valuation Officer or not, even when the case is covered by clause (a) or (b) of Ss.(1) of S. 16A of the said Act, then it would invest the provision with the voice of arbitrariness and thus rendering it ultra vires the provisions of Article 14 of the Constitution of India. And the Courts ought to avoid such a construction. The moment the estimated value exceeded the returned value of the asset more than what is envisaged by Rule 3B, then the WTO had no option, but to make a reference and he is not to wait for a request from the assessee to make a reference . . . . .

Assistant Commissioner of Wealth Tax v. Kartikeya Sarabhai (N) Trust No. 27, (1998) 60 TTJ (Ahd.) 97

In this case, the Ahmedabad Tribunal held that :

“The value of the shares and bonds as shown by the assessee as per report of the registered valuer and the said report was also filed before the AO at the time of assessment. The AO did not refer the matter to the Departmental Valuation Officer and he made his own valuation, instead of assessing the value as shown by the assessee’s registered valuer. This act of the AO is clearly contrary to the Departmental Circular No. 96, dated 25th Nov., 1972, which clearly states that when a case is covered by S. 16A(1), it will be incumbent on the WTO to refer the valuation of the asset in question to the Valuation Officer and it will not be open to him to decide the question of valuation on his own. Accordingly, the AO did not act in accordance with the binding Departmental Circular and the value as declared by the assessee deserves to be accepted . . . . . .”

Conclusion :

The Wealth Tax Act, and/or Income-tax Act has provided for a special machinery for valuation of assets wherever the facts of the case warrant so. It seems that the Legislature has accepted the limitations of the Assessing Officer in terms of technical knowledge to value an asset and has therefore provided for this special machinery for valuation of asset.

This legislative intent is reiterated by CBDT’s Circular referred to hereinabove.

Often the word ‘may’ has been interpreted to mean ‘discretion’. However, rules for interpretation for statutes also provide that the legislative intent shall prevail and substance prevails over form.

In view of above discussion, it is clear that the Assessing Officer has to mandatorily refer the matter to the Valuation Officer and he is not empowered to value the asset on his own.

Article by Mr. Sunil Shenoy Chartered Accountant