Wealth Tax – To claim exemption of SOP, stay in house not mandatory

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IN THE ITAT MUMBAI BENCH ‘WT’

Ramesh D Hariani

v.

Wealth Tax Officer

WT APPEAL NO. 41 (MUM.) OF 2009

[ASSESSMENT YEAR 2001-02]

MAY 11, 2012

Rule 3 of Schedule III enumerates the basis and method of valuation by applying the multiple of net maintainable rent for the immovable property. Second proviso to rule 3 of Schedule III is exception to the general rule of valuation, if the property is acquired or constructed after 31-3-1974 and if the value so arrived at is less than the cost of the acquisition or cost of construction, as increased by cost of any improvement, then the cost of acquisition or cost of construction, as the case may be, along with the cost of improvement shall be taken to the value of the property. But in case of one house belonging to the assessee and is exclusively used by the assessee for his own residential purposes throughout the relevant year ending immediately preceding the valuation date, the second proviso shall not apply as stipulated by third proviso. Thus, the authorities below have proceeded and decided the issue on the premises that the assessee should have stayed in the house in question for taking the benefit of third proviso to rule 3 of Schedule III.

It is pertinent to note that the third proviso to rule 3 of Schedule III specifically used the term one house belonging to the assessee, which mean that in case of more than one house belonging to the assessee and exclusively used by the assessee for his own residential purpose, the benefit of third proviso can be availed only in respect of one house. This aspect has been further clarified by fourth proviso to rule 3, which clearly stipulates that where more than one house belonging to the assessee is exclusively used by the assessee for residential purposes, third proviso shall be applied only in respect of one such house at the option of the assessee.

Thus, the language of the third proviso and fourth proviso to rule 3 of Schedule III makes it clear that there may be more than one house and in that case the assessee may not stay in all the house, but still the benefit of third proviso is available to the assessee at his option to one of such house and no inference can be made from the third proviso to rule 3 that staying in the house is a mandatory condition. Otherwise, fourth proviso would become meaningless/otiose.

The Madras High Court dealing with the similar issue in the case of CWT v. Smt. Muthu Zulaikha [2000] 245 ITR 800/[2001] 115 Taxman 185 (FB) has clarified that residential purpose means, it should not be used for commercial or non-residential purpose and it should be used exclusively for residential purpose. What is required is that the house should have been exclusively used by the assessee for residential purpose and should not have been let out for rent or used for any commercial or non-residential purpose. It has also been clarified that the right of the property alone will play a role. What is to be seen is the intention of the assessee to live in the house and not actually occupied or staying in the house. In the instant case, the property in question is residential house, which has not been let out or used for the purpose other than residential. Therefore, even though the assessee did not stay in the house so long, this house is exclusively for residential purpose. Therefore, the conditions as enumerated in the third proviso to rule 3 are satisfied.