1998 (5) TMI 35 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the appropriate multiple for valuing rented properties.
2. Allowance of deductions from gross rental income to determine net rental value.

Detailed Analysis:

1. Determination of the Appropriate Multiple for Valuing Rented Properties:
The primary issue in these wealth-tax appeals was the appropriate multiple to be applied to the net rental income to determine the value of rented properties. The Revenue argued that the Appellate Assistant Commissioner (AAC) erred in reducing the multiple from 12.5 times (applied by the Wealth Tax Officer, WTO) to 10 times. The AAC's decision was based on the valuation report of an approved valuer and supported by various legal precedents.

The Revenue relied heavily on the Punjab and Haryana High Court decision in CIT v. Prem Nath Anand [1977] 108 ITR 549, where a multiple of 12 times was considered reasonable. The Department also cited previous Tribunal decisions supporting a higher multiple.

Conversely, the assessee's representative argued for the multiple of 10, citing the Supreme Court decision in Union of India v. Smt. Shanti Devi AIR 1983 SC 1190, which discussed the method of capitalizing net income based on the prevailing interest rates on safe investments. The representative also referenced expert opinions and other judicial decisions supporting a lower multiple.

The Tribunal, after considering various authorities and the prevailing interest rates on long-term deposits, concluded that a multiple of 10 times was reasonable. It noted that the principles of market value determination could be derived from different legal authorities and that the rate of return on investments was a significant factor.

2. Allowance of Deductions from Gross Rental Income:
The second issue was whether deductions from gross rental income should be allowed to determine the net rental value. The AAC allowed a deduction of 33 1/3 percent from the gross rental income, which was not disputed by the departmental representative.

The Tribunal upheld the deduction, finding it reasonable and consistent with the principles of determining net rental value for valuation purposes. The Tribunal emphasized that the determination of market value should consider the net income that the property could fairly be expected to produce.

Separate Judgments:
Accountant Member's Judgment:
The Accountant Member supported the AAC's decision to apply a multiple of 10 times and allow deductions of 33 1/3 percent from gross rental income. The judgment highlighted the importance of considering the prevailing interest rates on safe investments and referenced various legal precedents and expert opinions supporting the lower multiple.

Judicial Member's Judgment:
The Judicial Member disagreed with the Accountant Member, advocating for a multiple of 12 times based on the Punjab and Haryana High Court decision in Prem Nath Anand and the Tribunal's previous decisions. The Judicial Member emphasized the need for consistency in judicial decisions and argued that the Tribunal should not deviate from established precedents unless there were compelling reasons.

Third Member's Judgment:
Due to the difference of opinion between the Accountant Member and the Judicial Member, the matter was referred to a Third Member. The Third Member agreed with the Judicial Member that a multiple of 12 times should be applied but clarified that it should be applied to the net rental value, not the gross rental value. This approach aligned with the jurisdictional High Court's view and ensured consistency in applying the law.

Final Decision:
The matter was referred back to the Division Bench to pass appropriate orders in accordance with the majority decision, which supported applying a multiple of 12 times to the net rental value for determining the market value of the rented properties.