9911796707
TMI Blog1994 (7) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... low price and that its fair market value must be far higher than disclosed. Acting under section 15(6) of the Gift-tax Act, the Gift-tax Officer referred the valuation of this property to the Valuation Officer. The Valuation Officer valued the fair market value of this property on the date of gift at Rs. 60.93 lakhs. The assessee was then given an opportunity to show cause why the value adopted by the Valuation Officer be not regarded as the fair market value of the property for the purpose of assessment. The assessee objected to the adoption of this value. The first objection was that this property purchased in 1976 for Rs. 1,85,000 was rented to those persons long prior to the date of gift and the rent received was assessed to income-tax accepting it as fair rent and such being the case, the rent capitalisation method provided for in Schedule II to the Gift-tax Act of 1958 read with Rule 3 of Schedule III of the Wealth-tax Act, 1957 should be adopted. So done the value returned by the assessee would be the correct value in accordance with law and that should not be jettisoned. Secondly, certain technical defects were pointed out in the valuation report. The Gift-tax Officer refus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the flat should be valued on the rent capitalisation method as per Rule 3 of Schedule III of the Wealth-tax Act, 1957. The assessee was given an opportunity to explain the case. The assessee submitted that the property was let out since the assessment year 1983-84 and the income was being taxed in the income-tax assessment as fair rent and that the present suggestion terms and went against the assessment records of the department, that the receipt alleged to have been issued by Shri Kapoor charging a rent of Rs. 14,000 per month for flat No. 32 was never enclosed even though it was said to have been enclosed. The Manager of the Maker Towers Society was never allowed to be examined by the assessee to explain his statements. Lastly the valuation cell had valued the market rate without any basis, particularly the past record of the letting out of this property but took into account the alleged market rates available on the date of gift ignoring the earlier position. 4. The Commissioner (A) dismissed these submissions as of no consequence pointing out that if the assessee was not given the receipt issued by Shri Kapoor, it was his duty to come to the Income-tax Office and col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the year 1983 and not on the valuation date for the purpose of gift. Here again there is no material brought on record to show that the annual letting value of this property in the year 1983 and before was not the same as was let out. From the letting out value of the property as on the date of gift, it was presumed that the property must be fetching either the same amount of rent or a little less in the year of let out, i.e., in the year 1983. Even for this there is no concrete evidence except supposition. In other words, without there being any evidence to show that on the date when the property was first let out in the year 1983 or thereabout the annual letting value of this property was Rs. 14,000 per month as was mentioned by the Commissioner (A) on the basis of the report of the Investigating Wing or Rs. 40,000 to Rs. 50,000 in the year of gift or near about. Another fallacy in the argument adopted by the Commissioner (A) was that even though he mentioned in the show-cause notice that he was enclosing the receipt issued by Mr. Kapoor showing the annual letting value of the property of flat No. 32 at Rs. 14,000 per month, such a receipt was not enclosed and when the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for a monthly rent of Rs. 1,500 per month. A property which was purchased for Rs. 1,84,400 in 1976 could not have been let out for a rent higher than Rs. 1,500 in 1983. 7. Secondly, when the rateable value fixed by the Municipal Corporation for this property was Rs. 11,320 per annum, how can there be a case of collusion and how can the rent fixed be described as a colourable transaction. This is therefore a clear case of conjectures and suspicion and not proved. On the facts of this case, we are unable to see any collusion unless it is said that even the valuation of the Municipal Corporation was a collusion, which it is too much even to whisper much less to allege. Therefore, collusion in fixing the rent has to be ruled out. 8. Let us now examine whether the provisions of Rules 3 to 7, 8 and 20 of the Wealth-tax Rules of Schedule III of the Wealth-tax Act, 1957 are applicable. For the purpose of gift-tax assessment, it is very essential that the valuation of the property on the date of the gift has to be arrived at. Section 6 of the Gift-tax Act provides the manner and the method as to how the value of the gift is to be determined. It says the value of any property other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any improvement to the house, does not exceed, ------- (a) if the house is situate atBombay,Calcutta,DelhiorMadras, fifty lakh rupees; (b) if the house is situate at any other place twenty-five lakh rupees. " Rule 4 provided how the net maintainable rent has to be computed and Rule 5 provided how the gross maintainable rent has to be computed and Rule 6 provided for the adjustments to be made to the value arrived at under Rule 3 for unbuilt area of the plot of land. Rule 7 has made provisions for adjustments to be made for unearned increase in the value of the land. Then comes Rule 8, which precludes the application of Rule 3, which has now been invoked by the Revenue in this case. Let us see what does this Rule provide : "8. Nothing contained in rule 3 shall apply,----- (a) where, having regard to the facts and circumstances of the case, the Assessing Officer with the previous approval of the Deputy Commissioner, is of opinion that it is not practicable to apply the provisions of the said rule to such a case; or (b) where the difference between the unbuilt area and the specified area exceeds twenty per cent of the aggregate area: or (c) where the property is constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther sum equal to 15 per cent of the gross maintainable rent. Gross maintainable rent has been dealt with in Rule 5 as to its computation. It says that the gross maintainable rent in relation to any immovable property referred to in clause 3 means : "(i) where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, whichever is higher; (ii) where the property is not let, the amount of annual rent assessed by the local authority in whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, or, if there is no such assessment or the property is situated outside the area of any local authority the amount which the owner can reasonably be expected to receive as annual rent had such property been let." Now this is a property let out. Therefore the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority, whichever is higher, shall be the gross maintainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was enacted, there was a lot of litigation proliferating on the valuation of immovable properties. With a view to put an end to this litigation and secure to the assessees a fair amount of certainty, Rule 3 was enacted with a view to peg the valuation of the properties for the purposes of wealth-tax assessment thereby avoiding litigation because the Parliament was aware in its wisdom that the wealth-tax that it gets as a consequence of litigation is far less than the cost of litigation and the non-compliance of the assessees with the provisions of the valuation. This is thus a provision enacted by the Parliament intended for the benefit of the assessees. When the intention is to peg the valuation of the property at a particular figure and when the same valuation was deliberately adopted for gift-tax purposes also, how can that salutary provision be totally disregarded or jettisoned on more conjectures and suspicions. Thus the provisions of Rule 3 have not been properly appreciated and Rule 8 has been improperly invoked. Unless Rule 8 is invoked Rule 20 does not come into operation. Even under Rule 20 the value of any asset not covered by Rules 3 to 19 only shall be estimated to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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