1969 (12) TMI 18 - HC - Income Tax

Estate Duty Act, 1953 - In allowing deductions from gross annual rental to arrive at the figure of net annual rental in the deductions allowed by the Board of Revenue deduction for repairs is to be allowed at the rate of 1/6th of the rent and not at the rate of 1/12th - there is no provision in the Estate Duty which says that report of valuation of property made by a valuer appointed under s. 4(3) is binding on the authorities under the Act.

Summary

Issues Involved:
1. Valuation of property for estate duty purposes.
2. Rejection of valuation reports by property dealers and approved valuer.
3. Method of valuation used by the Assistant Controller of Estate Duty and the Central Board of Revenue.
4. Allowance for repairs in the valuation process.

Detailed Analysis:

1. Valuation of property for estate duty purposes:
The primary issue in this case was the valuation of the property known as Shri Karam Chand Jain Market in Jullundur City for estate duty purposes after the death of Jaswanti Devi. The accountable person, Dina Nath, initially valued the property at Rs. 78,000, supported by annual rental figures and letters from property dealers. However, the Assistant Controller of Estate Duty and subsequently the Central Board of Revenue rejected these valuations and used their own methods to determine the market value.

2. Rejection of valuation reports by property dealers and approved valuer:
The Assistant Controller of Estate Duty dismissed the valuation letters from property dealers and a certificate from a chartered engineer, Mr. Hari Chand. The reasons for rejection included reliance on non-existent factors like Marla tax, political unrest, and the use of pre-war P.W.D. rates stepped up by 175%. The Central Board of Revenue also rejected the valuer's report, finding it unreliable and exaggerated. They noted that the valuer's construction cost estimates were absurdly low and the expected yield on properties in Jullundur was very high, making the report neither correct nor reliable.

3. Method of valuation used by the Assistant Controller of Estate Duty and the Central Board of Revenue:
The Assistant Controller of Estate Duty valued the property using the rental method, arriving at a market value of Rs. 2,66,980 by capitalizing the net annual letting value twenty times. The Central Board of Revenue, upon appeal, recalculated the value using a different approach. They started with the gross rent, deducted outgoings, and used a formula from Parks' Principles and Practice of Valuations to capitalize the net annual rental value seventeen times, resulting in a valuation of Rs. 2,25,000. This method was deemed appropriate given the lack of reliable market value evidence on the crucial date.

4. Allowance for repairs in the valuation process:
The accountable person argued that the deduction for repairs should be at the rate of 1/6th of the annual rental value, as per the Indian Income-tax Act, rather than the 1/12th used by the Central Board of Revenue. The court agreed with this argument, stating that the deduction for repairs should indeed be 1/6th of the rent, necessitating a recalculation of the market value accordingly.

Conclusion:
The court affirmed the Central Board of Revenue's valuation method but mandated a recalculation of the market value with the correct deduction for repairs. The final answer to the referred question was in the affirmative, with instructions for the department to adjust the repair deduction rate from 1/12th to 1/6th of the rent. Both judges concurred with this decision.