1975 (2) TMI 34 - AT - Wealth-tax

Summary

Issues Involved:
1. Valuation of House Property at 112 Sunder Nagar, New Delhi.
2. Deduction of 50% unearned increment in land value.
3. Appropriate multiple for capitalizing rental income.
4. Basis for determining rental income (actual rent vs. standard rent).

Detailed Analysis:

1. Valuation of House Property at 112 Sunder Nagar, New Delhi
The primary issue in both the Revenue's appeals and the assessee's cross objections is the valuation of the house property located at 112 Sunder Nagar, New Delhi. The property includes a two and a half storey building on a leased plot of land measuring 867 sq. yds. The assessee declared the valuation of the property at Rs. 2,49,000 based on an approved valuer's report, which was contested by the Wealth Tax Officer (WTO). The WTO valued the property at Rs. 4,89,561 by averaging the cost of land and construction with the rental income method. The Appellate Assistant Commissioner (AAC) agreed with the WTO's approach but made adjustments, reducing the valuation to Rs. 4,14,861.

2. Deduction of 50% Unearned Increment in Land Value
The WTO disagreed with the valuer's deduction of 50% of the unearned increment in the land value, arguing that the premium payable to the Government would only arise upon sale. The AAC, however, accepted this deduction, citing a restrictive clause in the lease deed with the Delhi Development Authority (DDA) and supported by the Delhi High Court's decision in P.N. Sikand vs. CWT. The Tribunal upheld the AAC's decision, stating that the deduction was justified due to the lease deed's restrictive clause.

3. Appropriate Multiple for Capitalizing Rental Income
The WTO applied a multiple of 16 to the net annual rental income to determine the property's value, while the AAC reduced this to 14. The Revenue contended that the multiple of 16 was fair given the property's location in a posh area. The Tribunal, however, found the AAC's application of a multiple of 14 to be reasonable, considering the property's characteristics and previous Tribunal decisions.

4. Basis for Determining Rental Income (Actual Rent vs. Standard Rent)
The Revenue argued that the actual rent received by the assessee should be used for valuation, as supported by the Delhi High Court's decision in Diwan Daulat Ram Kapur. The assessee, however, contended that the rent paid by foreign tenants included an element of "fancy rent" and that the standard rent under the Delhi Rent Control Act should be considered. The Tribunal agreed with the assessee, noting that the rent paid by foreign tenants was higher than the standard rent and that the valuation should be adjusted accordingly. The Tribunal directed that the actual rent be reduced proportionally to reflect the standard rent, and the multiple of 14 be applied to this adjusted rent to eliminate the element of fancy rent.

Conclusion
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross objections. The valuation of the property was to be recomputed using the adjusted rental income and a multiple of 14, considering the standard rent under the Delhi Rent Control Act and eliminating the element of fancy rent paid by foreign tenants.