1988 (4) TMI 103 - AT - Wealth-tax

Issues Involved:
1. Valuation of Hirangaon Factory.
2. Valuation of actionable claim.
3. Valuation of Jainnagar property.
4. Exemption under section 5(1)(iv) of the Wealth-tax Act.

Detailed Analysis:

1. Valuation of Hirangaon Factory:
The primary issue was the correct valuation of Hirangaon Factory for the assessment years 1975-76 and 1976-77. The factory comprised two parts: Hirangaon quarters and the factory itself. The appellant, a joint Hindu family, initially returned the composite value at Rs. 4,27,029. The Income Tax Officer (ITO) referred the valuation to the Valuation Officer, who valued it at Rs. 26 lakhs. The Commissioner of Wealth Tax (Appeals) [CWT(A)] scaled it down to Rs. 11,23,750.

The valuation dispute centered around whether the factory's valuation should be based on the rental income or the land and building method. The factory was leased to M/s. Jain Glass Works Pvt. Ltd. for an annual rent of Rs. 21,000, with an additional 1% commission on the total sales turnover. The assessee argued that the commission should not be considered part of the rental income due to its variability, which would lead to fluctuating property values.

The Tribunal held that the commission payment should not be linked to the rent payable under the lease agreement. They emphasized that rent is a fixed sum payable during a period for the use and occupation of premises, and it does not vary during that time. Hence, the valuation should be based solely on the fixed annual rent of Rs. 21,000, and not include the commission. The Tribunal directed the WTO to work out the value of the factory building based on rental income only, disregarding the commission payment.

2. Valuation of Actionable Claim:
The assessee had returned the value of an actionable claim at nil, while the WTO assessed it at Rs. 1 lakh, following past history. The CWT(A) upheld this valuation. The assessee argued that due to the bad financial state of the vendee, M/s. Veer Industries Ltd., and their liquidation, the actionable claim had no realisable value.

The Tribunal dismissed the assessee's plea, stating that the value of the actionable claim had already been determined at Rs. 1 lakh in previous years, and there was no change in the facts to warrant a different valuation. Therefore, the Tribunal upheld the finding of the CWT(A).

3. Valuation of Jainnagar Property:
The assessee contended that the Jainnagar property had been transferred to a trust as per a trust-deed dated 14-11-1947, and thus should not be included in their wealth. The WTO and CWT(A) included the value of the Jainnagar property in the appellant's assessment, valuing it at Rs. 76,000 based on net rental income capitalized at 12 times.

The Tribunal followed the Appellate Tribunal's decision for the earlier year, which directed the inclusion of the property's value in the appellant's total wealth. The Tribunal upheld the CWT(A)'s finding and rejected the assessee's plea.

4. Exemption Under Section 5(1)(iv) of the Wealth-tax Act:
The assessee sought exemption under section 5(1)(iv) of the Wealth-tax Act, which the WTO denied on the ground that the value of the self-occupied property (SOP) included in the net wealth could not exceed Rs. 50,000. The CWT(A) allowed exemption to the extent of Rs. 50,000 for Missouri Kothi.

The Tribunal found that the CWT(A) had not considered the amendment to clause (iv) of section 5, effective from 1-4-1971, which allowed exemption for the entire house property, whether let out or self-occupied. Therefore, the Tribunal vacated the findings of the lower authorities and directed that the assessee be allowed the benefit of exemption for the entire Jainnagar property.

Conclusion:
The Tribunal partly allowed the appeals for both assessment years, directing the valuation of the Hirangaon factory based on the fixed annual rent of Rs. 21,000, excluding the commission. The valuation of the actionable claim and the inclusion of the Jainnagar property in the appellant's wealth were upheld. The Tribunal also directed the exemption under section 5(1)(iv) of the Wealth-tax Act to be applied to the entire Jainnagar property.

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