1991 (7) TMI 163 - AT - Wealth-tax

Summary

Issues Involved:
1. Determination of the market value of Hotel Alankar for the assessment years 1983-84 and 1984-85.
2. Appropriate method for valuation: land and building method vs. income capitalization method.
3. Adoption of belting system for land valuation.
4. Consideration of various expenses and deductions in profit calculation for income capitalization.

Issue-wise Detailed Analysis:

1. Determination of the Market Value of Hotel Alankar:
The primary issue in these appeals is the determination of the market value of Hotel Alankar at Coimbatore for the assessment years 1983-84 and 1984-85. The hotel was originally constructed in the years relevant to the assessment years 1963-64, 1964-65, and 1965-66, with an admitted construction cost of Rs. 5,14,647. Over the years, different valuation methods were employed, leading to varying assessments of the hotel's value.

2. Appropriate Method for Valuation:
The Commissioner(A) and the Tribunal had to decide between the land and building method and the income capitalization method. The Commissioner(A) initially used an average of both methods, resulting in values of Rs. 19,18,900 for 1983-84 and Rs. 19,77,900 for 1984-85. However, the Tribunal found that since the asset is a commercial property, the income capitalization method is the most appropriate. This method was already used by the Commissioner(A) for earlier years and was deemed suitable for the current assessment years as well.

3. Adoption of Belting System for Land Valuation:
The Commissioner(A) adopted the belting system for land valuation as approved by the Supreme Court in Mathura Prosad Rajgharia & Ors. vs. State of West Bengal, AIR 1971 SC 465. This system differentiates the value of land based on its proximity to the main road, with front belts valued higher than the second and third belts. For the assessment year 1983-84, the land values were Rs. 18,000 per cent for the front belt, Rs. 12,000 per cent for the second belt, and Rs. 9,000 per cent for the third belt. For 1984-85, the values were Rs. 21,000, Rs. 14,000, and Rs. 10,500 per cent, respectively.

4. Consideration of Various Expenses and Deductions in Profit Calculation for Income Capitalization:
The Tribunal noted that the Commissioner(A) disallowed the entire interest debited, which was incorrect. The Tribunal referred to the Hyderabad Bench decision in 34 ITD 112, which allowed for deductions towards owner's risk, entrepreneurship, and interest on working capital. The Commissioner(A) had adjusted profits by excluding certain expenses like vehicle maintenance and excessive generator expenses, resulting in adjusted profits of Rs. 1,85,181 on average. The Tribunal agreed that these adjustments were necessary but emphasized the need to allow for interest on working capital and deductions for the owner's risk and entrepreneurship.

Conclusion:
The Tribunal concluded that the income capitalization method is the best method for valuing a commercial asset like Hotel Alankar. They directed that the valuation of the hotel should be fixed at Rs. 13 lakhs for each of the assessment years 1983-84 and 1984-85, considering the necessary adjustments for interest on working capital and deductions for the owner's risk and entrepreneurship. The appeals of the assessee were partly allowed, and the appeals of the Department were dismissed.