1989 (6) TMI 112 - AT - Wealth-tax

Assessment Year, Fair Market Value, Firm Assessment, Interest In Firm, Partner In Firm, Valuation Date, Valuation Officer

Summary

Issues Involved:
1. Valuation of the interest of the assessees in different firms.
2. Methodology for valuing land and buildings.
3. Methodology for valuing plant and machinery.
4. Deduction for limited marketability.
5. Deduction for joint ownership.
6. Exclusion of assets due to overriding title.

Detailed Analysis:

1. Valuation of the Interest of the Assessees in Different Firms:
The central issue in these appeals concerns the valuation of the interest of the assessees in different firms for the assessment years 1975-76 to 1979-80. The assessees had shown their interest based on the balance sheet figures of the respective firms on various valuation dates. However, the assessing officer referred the valuation to the Departmental Valuation Officer under Section 16A of the Act. The valuation by the Departmental Valuation Officers included the fair market value of land and buildings, and plant and machinery. The Commissioner (A) found that the Departmental Valuation Officers had taken great pains to identify each item and arrive at values based on certain norms, but the assessees contested these valuations on the grounds that they were not done on a realistic basis.

2. Methodology for Valuing Land and Buildings:
The valuation of land and buildings was done separately, with land valued at prevailing market rates and buildings valued after accounting for depreciation based on the estimated life of the building. The Commissioner (A) noted that the method of valuing land and buildings separately was in order and that the life span of buildings ranging from 45 to 60 years was reasonable. However, the assessees raised objections, arguing that the plinth area rates were excessive, the depreciation allowed was low, and the land rates adopted were high. They also contended that appropriate reductions should have been allowed for limited marketability and joint ownership.

3. Methodology for Valuing Plant and Machinery:
The valuation of plant and machinery involved estimating the replacement value of each item as of the valuation date, then providing for depreciation. The assessees argued that this method led to excessive valuations compared to their essential worth. They contended that the life of the machinery should be based on the depreciation rates prescribed by the Income-tax Act, which assume a useful life ranging from 7 to 10 years. The Commissioner (A) found that the Valuation Officers had taken pains to ascertain the price prevailing on the valuation date and provided for depreciation, but noted that the grievance of the assessees was that the valuation was excessive if market constraints were considered.

4. Deduction for Limited Marketability:
The Commissioner (A) allowed a deduction of 30% for limited marketability from the values estimated by the Valuation Officers, noting that the values adopted did not fully appreciate the factors contributing to limited marketability. The assessees contended that this deduction was insufficient, while the Department argued that it was excessive. The Tribunal found that the deduction of 30% was fair and reasonable.

5. Deduction for Joint Ownership:
The Commissioner (A) allowed a further reduction for joint ownership: 10% if the asset was jointly owned by two persons and 15% if owned by more than two persons. The assessees argued for a uniform deduction of 15%, while the Department contended that the deduction should not exceed 10%. The Tribunal upheld the Commissioner (A)'s decision, finding it fair and reasonable.

6. Exclusion of Assets Due to Overriding Title:
In the case of J.K.K. Sundararajah and J.K.S. Manickam, the Commissioner (A) directed the exclusion of assets belonging to the assessees' sons by overriding title, following the decision of the Madras High Court. The Department appealed to keep the issue alive, but the Tribunal upheld the Commissioner (A)'s decision. Similarly, in the case of J.K.K. Angappa Chettiar, the Commissioner (A) directed the exclusion of the shares belonging to the assessee's sons, following the Madras High Court's judgment. The Tribunal upheld this decision as well.

Conclusion:
The Tribunal directed the assessing officers to modify the valuations of land and buildings and plant and machinery based on the deductions allowed for limited marketability, obsolescence, and joint ownership. The departmental grounds relating to deductions for limited marketability and joint ownership were dismissed, while the assessees' grounds for further deduction on account of obsolescence were allowed. The appeals relating to the exclusion of assets due to overriding title were dismissed, upholding the Commissioner (A)'s decisions.