1994 (7) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Valuation of gifted property.
2. Applicability of rent capitalisation method.
3. Validity of valuation report by the Valuation Officer.
4. Collusion in setting rent.
5. Application of Rules 3, 8, and 20 of Schedule III of the Wealth-tax Act, 1957.

Detailed Analysis:

1. Valuation of Gifted Property:
The primary issue in this case was the valuation of the gifted properties for the gift-tax assessment year 1990-91. The assessee declared the net value of the taxable gift as Rs. 2,12,000. However, the Gift Tax Officer (GTO) referred the valuation to the Valuation Officer, who assessed the fair market value at Rs. 60.93 lakhs. The GTO adopted this valuation, leading to a higher gift-tax levy.

2. Applicability of Rent Capitalisation Method:
The assessee contended that the rent capitalisation method, as provided in Schedule II to the Gift-tax Act of 1958 read with Rule 3 of Schedule III of the Wealth-tax Act, 1957, should be adopted. The GTO rejected this method, arguing that the rent charged was nominal due to the close relationship between the assessee and the donees. The Commissioner (A) supported this view, concluding that the rent was concessional and collusive.

3. Validity of Valuation Report by the Valuation Officer:
The assessee objected to the valuation report, pointing out technical defects. The GTO and Commissioner (A) dismissed these objections, relying on the Valuation Officer's assessment. The Tribunal found that the department did not provide adequate evidence to support the higher valuation and failed to give the assessee a fair opportunity to rebut the evidence collected.

4. Collusion in Setting Rent:
The Commissioner (A) concluded that the rent charged was collusive, influenced by the relationship between the assessee and the donees. However, the Tribunal found no concrete evidence to support this conclusion. It noted that the property was let out in 1983, long before the gift, and the rent had been accepted by the Income-tax Department for several years. The Tribunal ruled out collusion, emphasizing that the rent was consistent with the rateable value fixed by the Municipal Corporation.

5. Application of Rules 3, 8, and 20 of Schedule III of the Wealth-tax Act, 1957:
The Tribunal examined the applicability of Rules 3, 8, and 20. Rule 3 provides for the valuation of immovable properties based on net maintainable rent. Rule 8 excludes the application of Rule 3 under certain conditions, allowing the use of Rule 20 to estimate the market value. The Tribunal found that the conditions for invoking Rule 8 were not met, as the net maintainable rent was available and the Assessing Officer did not obtain the required approval from the Deputy Commissioner of Income-tax. Therefore, Rule 3 should have been applied, and the valuation should have been based on the rent received by the owner.

Conclusion:
The Tribunal concluded that the department was not justified in discarding the value disclosed by the assessee and applying the Valuation Officer's assessment. The appeal was allowed, and the assessment was directed to be made based on the value disclosed by the assessee.