Guidelines for valuation of lessor's interest in lease-hold properties. - Income Tax - 1312/CBDT

INSTRUCTION NO. 1312/CBDT Dated: February 29, 1980 Attention is invited to Board's Circular No.7-D of 1957 dated the 4th May, 1957. A copy of Annexure 'B' to the said Circular which contains guidelines for valuation of immovable properties is for ready reference. 2. Item (3) of para 6 of the Annexure 'B' relates to guidelines and methods for computing the value of lessor's interest in lease-hold properties. The Board would like to reiterate the position. The valuation of lessor's interest in leased properties will have to take into account the value of:- (a) the lessor's right to receive the rent in respect of the property during the subsistence of lease; and (b) his right to get back the property at the time of determination of the lease , i.e. reversionary interest. 3. While determining the value of property at the time of determination of the lease, one of the important factors to be borne in mind is whether there is reasonable certainty of the property reverting to the lessor. This would depend on the facts of each case. The provisions of Rent Control Laws applicable in the area concerned, may protect the tenant against eviction and increase in rent. Allowance will have to be made for these factors while determining both the quantum of income available from the property and also the time upto which the tenants are likely to continue to occupy the properties. It should not, however, be taken for granted that all tenants are protected because in certain States properties fetching rents above certain limits or properties on lease exceeding certain periods or properties which are new are not subject to rent control restrictions. 4. While examining the possibility of the property reverting to the lessor, the provisions of the lease-deed relating to the renewal of lease will also have to be taken into account. 5. The broad guidelines spelt out above may be kept in view by the assessing officers while determining the interest of lessors in these properties.