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TMI Blog1986 (9) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ive years. There are two lease agreements, one between Shri Naraindas Mulchand and FCI and another between Mrs. Neelu Naraindas and Shri Ramchand Mulchand of the one part and FCI of the other part. The terms of the lease agreements are identical and the lease is for a period of five years at a rent of 47 paise per sq. ft. per month. Clause 3 of the agreement provided that the lessee will have the option to extend the lease for a further period of one year on same terms and conditions. The open space adjoining the godowns did not carry rent and clause 4 of the agreement provided that the lessor shall, during the term of the tenancy, keep the godowns fit in all respects for storage of foodgrains and there are various other conditions in the lease agreement for providing facilities such as access to godown, tidy maintenance of the godowns, provision of electricity fittings for the godowns and near about the place and for providing necessary facilities to the watch and ward staff employed by the lessee. Further, municipal or local taxes relating to the lands of the godowns will have to be paid by the lesser, etc. The construction of the godowns was started in 1977 and completed in Nove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fixed at 10.65, is unreal especially when the prospective investor has got more profitable avenues of investment which are equally safe such as in the case of deposits with nationalised banks and Unit Trust of India, etc. He further submitted that the godowns were of recent construction and the first valuation date being very close to the date of completion of construction, the value as declared by the assessees on the basis of land and building method should be adopted. It was his plea that when the lease agreement itself is for a limited period of five years with an option to extend it by another year, the District Valuation Officer should not have computed the maintainable rent for a period of 48 years. It was his submission that when the land and building method is also an approved method for purposes of ascertaining the market value, in view of the fact that the completion of construction was very near to the valuation date, the cost of construction itself should be accepted as revealing the market value of the property as on the valuation date. In this context, he invited our attention to the decision of the Tribunal, Hyderabad Bench 'B', in WT Appeal No. 531 (Hyd.) of 1983 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air market value. For highly developed commercial properties which are let out, rent capitalisation method is the only reasonable method that has to be adopted. As the value of land and buildings would appreciate in future, and as investment in land and buildings is always looked upon as a safer investment, the rate of return should be the same as is available on gilt-edged securities which are the safer mode of investment. Therefore, the capitalisation rate adopted by the District Valuation Officer was quite proper. He relied on the following decisions : CWT v. V. C. Ramchandran [1966] 60 ITR 103 (Mys.) and CED v. Radha Devi Jalan [1968] 67 ITR 761 (Cal.). He also submitted that as the co-owners are members of the joint family, no discount need be given for the undivided interest. As the godowns were constructed solely propelled by profit motive for getting high rents, these properties are commercial assets and, therefore, the land and building method of valuation would not be a barometer for the market value of such properties. 6. We have heard rival submissions and perused the materials on record. The market value of the four godowns for the purposes of wealth-tax as on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five years with an option to extend the same by another year. Godowns fetch high rents. Therefore, valuation by land and building method may not be revealing the market value of the properties concerned. 9. This takes us to the rental value method. In fact, this method was adopted by the District Valuation Officer. But, he has taken the return on investment at 9 per cent. This is considered by the assessees to be too low. The Supreme Court in P. Veerabhadrappa's case observed that it would be unrealistic to adhere to the traditional view of capitalised value being linked to gilt-edged securities when investment in fixed deposits with nationalised banks, National Savings Certificates, Unit Trusts and other forms of Government securities and even in the share market in the shape of blue chips command a much greater return. Though these observations of the Supreme Court are in relation to land acquisition proceedings, they are equally valid for purposes of valuation. The District Valuation Officer had taken the rate of interest obtaining on gilt-edged securities. But, with the nationalisation of banks and with the launching of Unit Trust of India, prospective investors have better a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of 12 per cent per annum is recognised and incorporated as the relevant principle in a statute enacted for purposes of acquiring excess land and compensating them by the Union Government. Therefore, their Lordships concluded : ". . . In our opinion, therefore, the just, reasonable and appropriate rate of capitalisation would be eight and one-third times the net average annual income which would give the yield of 12 per cent per annum on the investment of capital in property . . . . ." 10. Roshan Nanavati, author of Theory and Practice of Valuation, 1968 edn., p. 83, suggested rate of interest for guidance from 7 1/2 per cent to 8 per cent. But that was in the year 1968 when the Government securities themselves fetched 4 1/2 per cent to 5 1/2 per cent. We are concerned with a much later assessment year, and there are more attractive and equally safe securities in addition to and apart from gilt-edged securities that complete with each other to hypnotise the prospective investor. Therefore, we are inclined to take the view that the rate of return assumed by the District Valuation Officer on the basis of gilt-edged securities at 9 per cent is certainly a less attractive proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rish that there should be an appropriate discount for fractional interest in reality. As, however, the co-owners are members of the joint family, such discount need not be on the high side. In our view, a 5 per cent discount on the capitalised value of the properties would take care of fractional interest in reality. 14. Having held that there are at least two known methods of valuation for properties of this kind, it should be our endeavour to ascertain the market value as on the valuation date. Shri Harish submits that if two interpretations are possible, the one which is favourable to the taxpayer should be adopted and on a parity or reasoning, he argues, that if two different methods of valuation are possible, the revenue should accept the valuation that is more favourable to the assessee. He is supported in this view of the matter by the decision of the Punjab and Haryana High Court in Jaswant Rai v. CWT [1977] 107 ITR 477. With great respect to the Punjab and Haryana High Court, we are inclined to follow the view of the Karnataka High Court in V. C. Ramachandran v. CWT [1980] 126 ITR 157, in that this principle of interpretation of statutes cannot be imported and applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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