1981 (8) TMI 22 - HC - Income Tax

Summary

Issues Involved:

1. Basis for determining the annual value of the disputed property.
2. Admissibility and reliance on additional evidence introduced at the stage of the first appeal.
3. Proper legal basis for estimating the present cost of construction and depreciation.
4. Inclusion of the estimated value of the land appurtenant to the building.
5. Scope of powers of the second appellate court in an appeal under section 476 of the Adhiniyam.

Detailed Analysis:

1. Basis for determining the annual value of the disputed property:
The primary issue was whether a proper basis was adopted for the determination of the annual value by the assessing authority and the appellate authorities. The court noted that Section 174 of the Nagar Mahapalika Adhiniyam defines "annual value" and is akin to the definition in Section 140 of the Municipalities Act, 1916. The annual value for buildings such as factories is to be determined by estimating the present cost of erecting the building, deducting depreciation, and adding the estimated value of the land appurtenant thereto. The court found that the Nagar Mahapalika, Allahabad, had not framed any rules for fixing the rate of depreciation. The court referred to the decision in Union of India through E.I. Rly. v. Municipal Board, Lucknow, which emphasized that the cost should be calculated as if a new building were to be erected on the date of assessment, allowing for depreciation based on the building's condition. The court concluded that the assessing authority did have some basis for determining the annual value but did not comply with legal requirements, making the estimate legally improper.

2. Admissibility and reliance on additional evidence introduced at the stage of the first appeal:
At the first appeal stage, the respondent, Nagar Mahapalika, filed an affidavit from another engineer, which was introduced as additional evidence. The petitioner-company objected to this affidavit and provided their own engineer's estimate. The judge, Small Causes, did not rely on this additional evidence and determined a lower annual value. The second appellate court, however, took a different view and considered this additional evidence. The court noted that this evidence was already on record when the second appeal was considered, and the appellate court could refer to it. Thus, the grievance of the petitioner-company regarding the reliance on this evidence was found to be without substance.

3. Proper legal basis for estimating the present cost of construction and depreciation:
The court found that the second appellate court did not adopt a proper legal basis for estimating the present cost of construction. The P.W.D. rates were used, but the court noted that the nature and condition of the building, type of material used, and other factors should be considered. The second appellate court assumed a building life of 100 years and calculated depreciation at 5 percent, referencing Section 32 of the I.T. Act. The court disagreed, stating that considerations for depreciation under Section 32 are different and the reference was wholly misconceived. The court emphasized that depreciation should be based on the building's condition, and the matter required fresh consideration by the assessing authority.

4. Inclusion of the estimated value of the land appurtenant to the building:
The court noted that it was undisputed that while determining the cost of the building, the estimated value of the land appurtenant to it should be included. Depreciation is to be allowed only for the building, not the land. The annual value is to be determined at not below 5 percent of the cost calculated by adding the estimated value of the land to the depreciated cost of the building.

5. Scope of powers of the second appellate court in an appeal under section 476 of the Adhiniyam:
The court observed that the second appellate court made its own determination of the annual value, which was higher than the assessing authority's figure. The court found that the second appellate court did not adopt a proper basis for its determination and noted that the condition of the building was not considered by any of the authorities below. The court concluded that the matter required fresh consideration by the assessing authority.

Conclusion:
The court allowed the petition in part, quashing the orders of the assessing authority, the first appellate court, and the second appellate court. The matter was referred back to the assessing authority for fresh consideration. No order as to costs was made.