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Issues: Valuation of property for assessment years 1969-70 to 1975-76; Method of valuation - land and building basis vs. income capitalisation method; Standard rent determination under Rent Control Act; Rate of capitalisation for leasehold property; Interpretation of inter-relations between parties in property transactions.
Valuation of Property: The judgment pertains to 7 appeals filed by the assessee challenging the valuation of property known as Navrang Cinema for the assessment years 1969-70 to 1975-76. The District Valuation Officer valued the property at different amounts for each relevant valuation date, which the WTO adopted for assessment purposes. The property's history, including acquisition in 1926 and subsequent legal disputes, was detailed in the judgment. Method of Valuation - Land and Building vs. Income Capitalisation: The main contention was whether the valuation of Navrang Cinema should be based on the land and building method or the income capitalisation method. The CIT(A) opined that the valuation should be on a land and building basis due to the complete control and ownership by a single HUF, with inter-related parties involved in the property transactions. However, the ITAT disagreed, holding that the income capitalisation method was appropriate for valuing the property, considering the agreed rent and the circumstances of the lease to a limited company for a hotel. Standard Rent Determination under Rent Control Act: The assessee argued that the standard rent under the Rent Control Act should be the basis for determining the property's value. Citing legal precedents, the ITAT agreed that the rental value could not exceed the standard rent, emphasizing the importance of fair rent determination even in the absence of a fixed fair rent. Rate of Capitalisation for Leasehold Property: There was a dispute regarding the rate of capitalisation for the leasehold property, with the assessee advocating for a higher rate based on legal decisions. The ITAT held that a reasonable yield of 12% should be applied, as per the Gujarat High Court's ruling, rejecting the lower rate adopted by the District Valuation Officer. Interpretation of Inter-Relations Between Parties: The judgment analyzed the inter-relations between the assessee, the partners of the firm, and the limited company involved in the property transactions. The ITAT concluded that the capitalisation method was the correct approach for valuation, considering the circumstances and agreements between the parties, emphasizing that the low rent of the theatre did not reflect its true value. In conclusion, the ITAT allowed the appeals, endorsing the income capitalisation method for valuing the property, setting the rate of capitalisation at 12% for the leasehold property, and emphasizing the importance of fair rent determination under the Rent Control Act in property valuation.
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