9911796707
TMI Blog1988 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,39,920 by the assessee by capitalising the annual rental income of Rs. 13,992 at ten times thereof. The value of the quarter returned was adopted by the WTO. But the assessee impugned the valuation and sought the application of Wealth-tax Rule 1-BB in evaluating quarter which was to bring the valuation to Rs. 1,01,885. The value of the factory was returned at Rs. 2,87,109. Following the valuation made by the Valuation Officer the WTO determined the value at Rs. 9,78,000. The assessee felt aggrieved and impugned this valuation also before the CWT(A). It was submitted on behalf of the appellant that the valuation made by the Valuation Officer on land building method was not to be preferred when the factory was given on rent to M/s. Jain Glass Works Pvt. Ltd. w.e.f. 3-5-1960 under a lease agreement on an annual rent of Rs. 21,000 subject to a charge of Rs. 10,000 in favour of Shri Chhadami Lal Jain Degree College, Firozabad. The maintainable rent of Rs. 11,000 was to be multiplied by 100/9 to determine the value of the factory premises. Taking into account the rental of Rs. 21,000 p. a. and the charge of Rs. 10,000 in favour of Shri Chhadami Lal Jain Degree College, Firozabad, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s. Jain Glass Works Pvt. Ltd. also. Clause (c) of the lease agreement provided that the lessee agreed to pay the lessor 1 per cent of the total turnover of the company for each of the financial years calculated every three months or by mutual adjustment. According to the WTO as well as the CWT (A) this commission payment was also a constituent of the rental income. He, therefore, worked out the average of the payments received by the assessee in three assessment years 1974-75 to 1976-77, Rs. 57,802 for assessment years 1974 75, Rs. 74,242, for assessment year 1975-76, Rs. 57,029 for assessment year 1976-77. He totalled these sums and arrived at the average of these sums at Rs. 60,500. He caused this sum of Rs. 60,500 to be added as a constituent of the rent to Rs. 21,000 annual rental determined under the lease agreement, he arrived at the rental of Rs. 81,500. Proceeding on the basis of this rental income he arrived at the value of Rs. 9,78,000 for assessment year 1975-76. For assessment year 1976-77 he arrived at the same rental valuation. His valuation of the factory building for the two years was, therefore, made at Rs. 9,78,000 for each of the two years. The assessee fel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a payment that depends upon the turnover of a year and is a varying product, does not fall in with the concept of rent as is commonly understood. Rent as we know is a fixed sum payable during a period for the use and occupation of a premises. It does not vary during that time. Therefore, a proper appreciation of the lease agreement would not lead us to find that the payment of 1 per cent of commission could be linked to the rent payable under the lease agreement. 1 per cent commission could be also a considered for the lessor to agree to give on lease the factory premises to the lessee. Besides, as provided in Article (1) furnaces and other facilities for manufacturing glass as were available to former tenant Jain Glass Works were continued to be enjoyed by the lessee. The commission payment could be treated as a consideration for either or both but we may consider in whatever way we like this amount of commission could not be considered as a part of the rental income for purpose of arriving at the value of the property. If we hold that the commission payment was to be treated as a part of rent for purposes of arriving at the value of the property it would lead to very preposterou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The Revenue authorities have not considered the valuation of the property on the basis of net annual rental income. We are of the view that having regard to the interest on fixed deposit it would be fair to determine the annual value of the property at 15 times of the net annual rental income in the asst. years 1962-63 to 1967-68 and at 12 times for the remaining years ..." Following the same we would hold, bearing in mind the fact of appreciation, that factory building be valued at 15 times the annual rental income exclusive of commission payment. 5. So far as this plea of the assessee for deduction of the sum of Rs. 10,000 payable under the lease agreement toShriChhadamiLalJaiTrustDegreeCollege,Firozabadis concerned, we are unable to find any support for the contention of the assessee. In our consideration Rs. 10,000 payable toShriChhadamiLalJainDegreeCollege,Firozabadwas not a case of diversion of income but of application of income only. It will have the effect of reducing the rental value of the factory. If an employee who receives a fixed amount of salary agreed upon with the employer that the latter should pay away 50 per cent of his salary directly to his spouse or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee cannot be accepted as not maintainable on facts and in law. The appellate Tribunal in the aforesaid wealth-tax appeals has considered all these facts which had been urged by the assessee and had then arrived at the finding that the value of the actionable claim should be determined at Rs. 1 lakh in the years under consideration. Therefore, unless the complexion of facts changes we are not left any freedom in the matter but to follow the finding of the Appellate Tribunal made in the earlier assessment year 1973-74. Consequently we uphold the finding of the CWT (A) and dismiss the appeal of assessee on this issue. 9. Another issue raised in this appeal relates to the valuation of Jainnagar property at Rs. 76,000. His plea was that the property had been transferred to a trust as per trust-deed dated14-11-1947. This plea had not been accepted by the WTO and he included the value of the Jainnagar property in the assessment of the appellant. CWT (A) in disposing of the appeal filed by the assessee against this finding relied on the order passed by the Appellate Tribunal 'A' Bench, Delhi made for the earlier year where it directed that the value of the said property be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation made by the Valuation Officer valued it at Rs. 26,00,000. The CWT (A). however, following the reasoning which he had adopted for the preceding year, valued the property at Rs. 9,78,000. 14. We have already dealt with the issue of valuation of this property in the appeal for the preceding year. Following that we hold that the valuation of the factory building be made on the basis of rental income of Rs. 21,000 p. a. We have upheld that the valuation will be on the basis of 15 times the annual rental value in the preceding year. We repeat the same order for this year also. In the result, assessee's appeal on this issue is partly allowed. No reduction is to be allowed on account of the amount settled upon the aforesaid degree college as held for the preceding year. 15. As far as ground No. 10, regarding the value of actionable claim is concerned, following our orders on the similar issue for the preceding year we uphold the finding of the CWT (A) and dismiss the appeal of the assessee on this issue. 16. Regarding the valuation of Jainnagar property, we give the same order as we have given on this issue in the preceding year. Rejecting the plea of the assessee we uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land and fixing the valuation at different rates for the four portions in which the Valuation Officer had divided the land. 3. The CIT (Appeals) considered the contention of the Valuation Officer as well as the assessee and proceeded to decide whether for the purpose of valuing the property land and building method was to be taken into consideration or the value was to be determined by adopting the rental method. The attention of the learned CIT (Appeals) was drawn to the order of the Income-tax Appellate Tribunal, Delhi Bench "A" in WTA Nos. 1207 to 1223/Del./1975-76, for the assessment years 1957-58 to 1973-74. The Tribunal had held that the value of the factory building should be determined by capitalising the net rental income at 12 times in respect of the assessment years 1968-69 to 1973-74. The Department has also submitted before the CIT (Appeals) that the property had been given to M/s. General Glass Works Pvt. Ltd. not for a consideration of Rs. 21,000 per annum but the total consideration in this year would work out to Rs. 95,242 on the basis of the agreement between the parties. In this connection, it was pointed out that besides the annual rent the lessee had to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egreeCollege. In any case there is a overriding title of Rs. 10,000 per year in favour of theC.L.JainDegreeCollegewhich is a charge on the immovable property of the joint family. If the joint family is taken to be entitled to Rs. 10,000 per year then a charge of Rs. 10,000 per year is deductible under the head of Property, from the property Income of the Joint family. Firm Jain Glass Works took theBuildingofJain Glass Workswith furnaces etc. on a rent of Rs. 62,000 per year. The agreement is already on the records and accepted as such. The rent even now is Rs. 11,000 plus Rs. 10,000 plus 1 per cent of sales. The income from rent has not decreased but there are chances of its increases in case the turnover of the Jain Glass Works (P.) Ltd., goes up. The decreases is only temporary." The CIT (Appeals) took the above facts into consideration and also noted the fact that up to the assessment year 1961-62 the rental value of the property was Rs. 62,000 per annum, and it had been so adopted by the Tribunal. The CIT (Appeals) held that the basis of valuation of the property had been fixed by the Appellate Tribunal and it has to be assessed on yield method and not on land and building me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable rent of the factory should be taken at Rs. 11,000, the submission made before the Tribunal was that at the most it could be taken at Rs. 21,000 per annum as that was the rent fixed between the parties in 1960, and there has been no revision in those terms. According to the learned counsel for the assessee, the amount of commission on the turnover could not be taken as a part of maintainable rent as that was according to him, not the consideration for letting out the property. It was also contended that the rent of Rs. 21,000 was reasonable and no enhancement was required to be made in relation thereto by taking into consideration the amount of commission otherwise separately received by the HUF. It was further contended before us that the commission was a variable factor depending on the sales in a particular year and that could not be taken as the basis of determining the maintainable rent which should be a steady figure. It was points doubt that by adopting commission as a part of rental the value differed from year to year depending on the net rental plus commission received. It was submitted that this could not be a correct or proper basis for determining the yield on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the property in question at 15 times of the net annual rental income in the assessment years 1962-63 to 1967-68 and at 12 times for the remaining years under consideration on the basis of net annual rental income as determined in the Income-tax assessments. We, therefore, direct the WTO to modify the assessments accordingly." Thus, while determining the basis of valuation as the yield basis the Tribunal had not gone into the question of the quantum of yield though they determined the multiple to be applied to the net rental income. As this issue has risen before us it has to be decided having regard to the facts of the case. 7. It is an admitted position that the factory building was let out at an annul rental of Rs. 62,000 to the firm which was the predecessor of the company, which is now the lessee. On the formation of a company a fresh agreement was written and it was decided that in place of a rental of Rs. 62,000 the consideration should be enumerated in the agreement under various heads. The consideration was the amount of Rs. 21,000 plus the incurring of various expenses by the lessee plus payment of 1 per cent of the turnover to be paid in each quarter. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reasonable having regard to the circumstances of the case. The property was originally let out at Rs. 62,000 and it is no doubt true that the HUF wanted to increase its income from this property. The yield in the beginning was slightly on the lower side but gradually it picked up. This was as accepted by the assessee in 1963 when he said that the chances were that the yield will increase. In my view, in determining the net yield for the purpose of valuation, one should look to the average return in the last few years immediately before the assessment in question. The expected return has reasonably to be fixed at the beginning of the year. The assessee has placed before us the details of receipt from 1968-69 onwards. The average of the commission received from 1968-69 to 1974-75 comes to Rs. 42,000 per year. In the years under consideration there has been some rising trend. We do not know whether this trend has continued in future years. In order to have a fair determination of the yield from the property, I am of the view that the return of Rs. 21,000 plus Rs. 42,000 on average basis can be taken. This would give a return of Rs. 63,000. Incidentally the rental fixed under the ol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the Departmental Valuation Officer vide his report dated8-3-1978valued this property at Rs. 26 lacs. The Wealth-tax Officer adopted this value for the purpose of assessment. Aggrieved by this wide difference in the valuation of this property, the assessee brought the matter by way of appeal before the Commissioner (Appeals) and urged besides others, that the valuation adopted by the Valuation Officer was very fanciful, arbitrary and opposed to the principles of valuation. The Hirangaon factory quarters were valued at Rs. 1,39,920 by capitalizing the rental income of Rs. 13,992 at 10 times thereof and the factory building was valued at Rs. 2,87,109 as shown in the assessment year 1974-75 as against which the valuation taken was Rs. 26 lacs, which was out of all proportions and could never be said to represent the fair market value. It was pointed out that the Valuation Officer adopted the land and building method to value this property as against the well recognized and settled method of yield. By placing reliance upon the decision of the Tribunal in the case of Biju Patnaik v. WTO [1982] 1 SOT 623 (Delhi) (SB), it was submitted that the property should have been valued as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een adopted for the valuation of the property. He also held that the yield from the factory was not Rs. 21,000 but it should be the fixed rent of Rs. 21,000 plus commission. Since the commission was a variable figure as it depended upon the sales, he adopted the average of the past three years' commission as standard, thereby arrived at the total consideration of Rs. 81,500 as against Rs. 95,242 mentioned by the Wealth-tax Officer. He adopted a multiple of 12 times as reasonable following the order of the Tribunal for the assessment year 1975-76. On this basis, he arrived at the value of the factory at Rs. 9,78,000. For the quarters occupied by the staff, he accepted the rent as a reasonable and applying Rule 1BB of the Wealth-tax Rules, arrived at the value of that property at Rs. 1,45,750. In this way he valued the Hirangaon property at Rs. 11,22,750 as against the value of Rs. 26 lacs adopted by the Wealth-tax Officer. 4. Aggrieved by this valuation, the assessee preferred a further appeal before the Tribunal. The main point taken up before the Tribunal was whether on the facts and in the circumstances of the case, the commission payment, which varied from year to year, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net rental income. In other words, according to him, the order of the Tribunal for the earlier years had not determined the quantum of yield and it was left open. He then addressed himself to the question as to what should be the commission. By going to the figures supplied to the Bench, he found that the average commission worked out to Rs. 42,000 in the years 1968-69 to 1974-75 and that amount could be taken as representing the normal yield. To that Rs. 42,000, he added the rent of Rs. 21,000 and arrived at the figure of Rs. 63,000, which was also incidentally the rental fixed under the old agreement before it was scaled down or as the department claims split into rent and commission. He therefore fixed that it would be easy to take rental income at Rs. 62,000 and on that basis redetermined the value of the factory premises at Rs. 7,44,000 thereby affording a further relief of Rs. 2,34,000. Thus a difference arose between the Members as to what should be the annual rental from Hirangaon factory, whether it should be Rs. 21,000 or Rs. 62,000. 6. The facts that now emerge in this case are that the factory building was the only building in dispute for purpose of valuation, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay the annual rent of Rs. 62,000 to the assessee-HUF had come to a close (a) by the termination of that agreement, (b) by the transformation in the constitution of Jain Glass Works from a firm to a company, and (c) by the execution of the new lease agreement. The old arrangement is only a guide to aid to find out as to what could be the income that the factory premises could fetch. That the factory premises has a potential of yielding an income of Rs. 62,000 by way of rent could not be disputed in the face of the earlier payment of rent by the firm to the assessee-HUF. But the subsequent arrangement provided for an annual rent of only Rs. 21,000 and it also provided for the payment of commission. The dispute is whether this commission partakes the character of rent or the earlier agreement was so split up as to reduce the quantum of rent with a view to reduce the market value for the purposes of wealth-tax. The dispute in this case arose to fix the quantum of rent or the basic amount only for the purpose of fixing the market rent to arrive at eventually the market value. If a property is capable of yielding a particular amount of income and when that income formed the basis to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises. I therefore see the payment of commission as a part of an arrangement to derive part of the profits of Jain Glass Works (P.) Ltd. by calling it commission rather than considering it as the aggregate of lease rent. In this view of the matter, I consider that the lease rent should be taken only at the figure of Rs. 21,000 as mentioned in the agreement unless collusion was established, which in this case as it appeared to me be only doubted but not proved. An arrangement under which the lessor agrees to receive fluctuating amount of commission cannot be said to have leased out the premises for a fixed lease rent and as I have already mentioned earlier for a property whose market value has already been fixed up in the earlier assessment years in a particular way, the determination of income in subsequent years would become relevant only for the purpose of either enhancing that market value or diminishing that market value depending upon the prosperity of the business or adversity. 7. I am therefore inclined to agree with the view expressed by the learned Judicial Member that the lease rent of this premises should be taken only at Rs. 21,000 and not at Rs. 21,000 plus the varyin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
