1984 (9) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Valuation of the flat for estate duty purposes.
2. Applicability of Rule IBB of the Wealth-tax Rules.
3. Constitutional validity of sub-s. (3) of s. 36 of the Estate Duty Act.

Summary:

1. Valuation of the flat for estate duty purposes:
The deceased, Mr. M. C. Chagla, owned a flat valued at Rs. 54,700 in his wealth tax returns. Upon his death, the petitioners, as legal representatives, valued the flat at Rs. 1,09,000 based on a new valuation report. The Additional First Assistant Controller of Estate Duty referred the valuation to the Valuation Officer, who determined the value at Rs. 7,50,000 using the land and building method. The petitioners challenged this valuation, arguing that it should be determined using the rental method as per Rule IBB of the Wealth-tax Rules.

2. Applicability of Rule IBB of the Wealth-tax Rules:
The petitioners contended that the flat's value should be determined using Rule IBB of the Wealth-tax Rules, which considers the net maintainable rent. The court noted that the valuation of properties in Bombay for municipal taxes is based on standard rent, and this principle should apply to estate duty as well. The court held that the annual value method, recognized for municipal tax, income-tax, and wealth-tax, should also be used for estate duty, even if the death occurred before March 1, 1981.

3. Constitutional validity of sub-s. (3) of s. 36 of the Estate Duty Act:
The petitioners argued that sub-s. (3) of s. 36, which was introduced with retrospective effect from March 1, 1981, was arbitrary and violated Article 14 of the Constitution. The court did not delve deeply into this argument, as it concluded that Rule IBB of the Wealth-tax Rules is the only permissible method for determining the flat's value under s. 36 of the Estate Duty Act, regardless of the death date.

Conclusion:
The court quashed the assessment order based on the land and building method and directed the respondent to pass a fresh assessment order using the principles under Rule IBB of the Wealth-tax Rules. The notice of demand issued pursuant to the assessment order was also quashed. The rule was made absolute with no order as to costs.