1990 (1) TMI 99 - AT - Wealth-tax

Summary

Issues Involved:

1. Valuation of the property for wealth-tax purposes.
2. Method of valuation: Rent capitalisation vs. market value.
3. Consideration of solatium in property valuation.

Issue-Wise Detailed Analysis:

1. Valuation of the Property for Wealth-Tax Purposes:

The primary issue in these appeals was the valuation of the Arthur Road property for the assessment years 1981-82 and 1982-83. The property was fully occupied by tenants, and its value had been declared using the rent capitalisation method at Rs. 76,000, which had been accepted by the Wealth-Tax Officer (WTO) up to the assessment year 1980-81. However, the WTO noticed that the property was acquired by the Special Land Acquisition Officer, Bombay, and BSD Municipal Corporation for Rs. 26,35,390 with a solatium of Rs. 13,49,871, totaling Rs. 39,85,561. The WTO considered this amount as the fair market value for the years under consideration.

2. Method of Valuation: Rent Capitalisation vs. Market Value:

The Commissioner of Wealth-Tax (Appeals) [CWT(A)] held that since the property was fully tenanted and the tenants were protected under the Bombay Rent Control Act, the proper method of valuation was rent capitalisation. This view was supported by references to various judicial decisions, including the Supreme Court case of State of Kerala v. P.P. Hassan Koya and decisions from the Calcutta and Punjab & Haryana High Courts. The Departmental Representative argued that the best evidence of market value is the actual price at which the property was sold or acquired compulsorily, which was Rs. 39,85,561. The counsel for the assessee contended that the rent capitalisation method was appropriate for a fully tenanted property and that the subsequent acquisition price should not influence the earlier valuation date.

The Tribunal noted that valuation is an art, not an exact science, and section 7 of the Wealth-tax Act provides for the estimated price of the property. Various judicial decisions were cited to support the view that the method of valuation depends on the nature of the property, its location, and other factors. The Tribunal concluded that rent capitalisation is only one method and not conclusive. The best evidence of market value is the price at which the property was sold or acquired near the valuation date.

3. Consideration of Solatium in Property Valuation:

The Tribunal agreed with the assessee's alternate argument that the solatium received should not represent the market value of the asset. It was an amount paid for the deprivation of the right to hold the property, not for the transfer of the property itself. The Tribunal cited the Kerala High Court's decision in P.I. George and other judicial precedents to support this view. The Tribunal concluded that the market value of the property should be estimated at Rs. 18 lakhs for the assessment year 1981-82 and Rs. 20 lakhs for the assessment year 1982-83, excluding the solatium.

Conclusion:

The appeals were partly allowed, with the Tribunal determining that the market value of the property should be based on the actual acquisition price, excluding the solatium, and estimated at Rs. 18 lakhs and Rs. 20 lakhs for the respective assessment years.