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TMI Blog1991 (7) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... al while disposing of the appeals of the Department in ITA Nos. 1582 to 1584 (Mad)/1984 for the asst. yrs. 1964-65 to 1966-67. Copy of the order dt. (sic)Sept., 1985 was filed before us. In that it was noted that the Departmental Valuation Officer estimated the cost of the building exclusive of all electrical fittings at Rs. 7,36,190, whereas the assessee's valuer filed a valuation report showing the cost of construction at Rs. 6,60,000. In the Estate Duty order dt. 30th Oct., 1976 for the asst. yr. 1966-67, which was taken up and completed after the death of the father of the assessee on 9th Aug., 1969 it was stated that the late father of the assessee transferred Hotel Alankar, valued at Rs. 6,30,432 in the name of his son. This cost of construction was also advertised in the Newspaper Nawa India. Taking all these into consideration the C Bench of the Tribunal fixed the value of the building in question at Rs. 6 lakhs. For the first time the assessee became a wealth-tax assessee from the asst. yr. 1970-71 onwards since his father died on 13th Aug., 1969 and his entire assets devolved on him. From the asst. yr. 1970-71 to 1975-76 the assessments became final and the figures at whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h order dt. 28th Dec., 1990, a copy of which is furnished at pages 11 to 25 of the third paper book filed on behalf of the assessee. When the appeals for the asst. yr. 1976-77 to 1980-81 were argued before the Commissioner(A) it was the case of the assessee that since the business of the hotel is being run in a commercial manner and it has not been closed down, the yield method of valuation taking into account the maintainable profit, as well as the potentials for the increase in profits in future years, should be the only appropriate method for valuation. He relied on the decision of the Hyderabad Bench of the Tribunal in the case of Smt. Devakidevi vs. WTO, reported in (1990) 34 ITD 112 (Hyd) to which one of us is party. The order of the Hyderabad Bench of the Tribunal is furnished at pages 13 to 27 of the second paper book filed on behalf of the assessee. In that decision the Tribunal while arriving at the value of the theatre building discarded the land and building method adopted by the Valuation Officer and determined the value of the same on the income capitalisation method. In the appeal proceedings before the Commissioner(A) the assessee had furnished details of the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is furnished at pages 5 to 9 of the third paper book filed by the assessee. 2. Now let us take up the facts with regard to the asst. yrs. 1983-84 and 1984-85, with which we are concerned in these appeals. The valuation dates relevant are 31st March, 1983 and 31st March, 1984 respectively. For the asst. yr. 1983-84 the assessee filed his wealth-tax return on 27th Feb., 1988 returning a net wealth of Rs. 3,06,437. The assessee inter alia possessed Hotel Alankar, whose value is in dispute. The valuation of this property was referred to the valuation cell to determine the market value of this asset as on 31st March, 1983 and as on 31st March, 1986. The District Valuation Officer, IT Department, Madras, by his report dt. 21st March, 1988 (final) under s. 16A(5) of the WT Act determined the value of the asset at Rs. 53,16,347 as on 31st March, 1983 and at Rs. 66,12,181 as on 31st March, 1986. A copy of the valuation report was furnished at pages 31 to 54 of the second paper book. The WTO adopted this value for each of the asst. yrs. 1983-84 and 1984-85 and he passed the assessment order dt. 17th Feb., 1989 determining the net wealth of the assessee at Rs. 53,97,600 as against Rs. 3,06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vacant land cannot be further developed so long as the present purpose of using it as a hotel is not given up. The vacant land is necessarily to be kept vacant to provide for parking space for vehicles, passages between different blocks or for gardens. The land value was adopted at Rs. 25,000 per cent by the District Valuation Officer for the asst. yr. 1983-84 and at Rs. 32,500 per cent for the asst. yr. 1984-85. For arriving at the value of the land the belting system should be adopted as approved by the Hon'ble Supreme Court in Mathura Prosad Rajgharia Ors. vs. State of West Bengal, AIR 1971 SC 465. The Supreme Court in that case held as under: "where a large area of land in an urban locality is sought to be acquired in determining the market value, the 'method of belting' is appropriate. It is common knowledge that lands having frontage on the main roads in urban areas are always more attractive than the lands which have no such frontage. No objection was raised before us against the adoption of the method of belting. It was also accepted that of the land under acquisition the front belt would be 100 feet deep the second belt 150 ft. deep and the rest may be included in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be noted that no willing buyer would pay the present market value of the depreciated structure as ascertained by the valuation cell. He further found that the rates adopted by the valuer were based on CPWD rates, which were excessive. The difference between the CPWD and the State PWD rates would be 15 to 20 per cent. He further found that the value adopted for other items like marbles, glazed tiles, etc., is also quite excessive. The method of valuing the building at the estimated cost of construction on the valuation date and allowing depreciation worked out backwards with regard to the age of the building was already held by this Tribunal in its order dt. 30th April, 1987 involves speculation and, hence, unrealistic to adopt in the case of this asset. Therefore, the method of arriving at the market value of the superstructure is held to be as follows by the learned Commissioner(A) in para 7 of his impugned order: "Considering all these circumstances, the difference in PWD rates and CPWD rates to the extent of 20 per cent, the restricted marketability to the extent of at least 10 per cent and the depreciation at 2.5 per cent for the age of the building at 45 per cent (age of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited at Rs. 78,558. Only Rs. 40,000 per year was estimated to be the reasonable expenditure on generator and the excess of Rs. 38,558, according to the learned Commissioner(A) should be taken into account in ascertaining the maintainable profit. Further there are certain donations and miscellaneous expenses, which if adjusted, would raise the profit of Rs. 2,06,328. On the same basis for the asst. yr. 1983-84 the profit could be estimated at Rs. 1,83,174 as against the loss of Rs. 1,54,753. For the asst. yr. 1984-85, on the same basis, the profit will be Rs. 1,66,042. Repairs to the building as well as electrical installations are found to be very substantial exceeding 40 per cent of the gross receipts. However, considering the age of the building and the fixtures the learned Commissioner(A) found that the high cost of maintenance cannot be avoided and so he did not interfere with the claims under the head 'repairs'. According to him the average profit for the three years worked out to Rs. 1,85,181 or roundly Rs. 1,85,000. If the interest rate is taken at 12 per cent during the asst. yrs. 1983-84 and 1984-85 the multiplying factor would be 8.33 and the capitalised value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner(A) has not explained the basis of calculating the presumptive profit. 12 per cent capitalisation allowed is very high whereas the normal percentage allowable is only 9.5 per cent. There was a calculation error while arriving at the average. As per land and building method the figure arrived at was Rs. 26,74,971 and as per the yield basis Rs. 15,41,050. The average is Rs. 21,08,010, whereas the average adopted by the Commissioner(A) is Rs. 19,77,900. 7. We have heard Shri M.P. Rajappan, the learned counsel for the assessee and Shri G. Natarajan, the learned Deptl. Representative. It is contended for the assessee that since the asset is a commercial asset the proper method of valuation is ascertaining one year's profit and multiplying the same with appropriate fraction years' purchase. Our attention is drawn to the Commentary of C.A. Gulanikar on Law and Practice of Gift-tax and Wealth-tax, 1989 p. 2. 76. In that it is found: "Commercial properties such as hotels, theatres, godowns, etc., are valued on the basis of income derived therefrom State of Kerala vs. P.P. Hussan Koya AIR 1968 SC 1201". In fact the following is what is stated by the learned author: "I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proper that the benefit of the method which is most favourable to the assessee should be allowed to him. In CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), it was held by the Supreme Court that if the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee. This principle applies with full vigour to a case in which different values of the same property are arrived at by adopting different methods. In that view of the matter, the choice of the method to be adopted for determining the value of property should be left to the assessee". It is ultimately contended that the Tribunal is not bound either to follow one method or the other. The purpose of every method is to find out the proper market value of the asset. Being a fact finding authority the Tribunal can adopt any one or two or more methods or even a combination of methods provided they are reliable, objective and relevant and it is for the Tribunal as the final fact finding authority to determine on the facts of each case which is the method to be adopted to arrive at the proper market value. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed as a deduction. The assessee claims that Rs. 1 lakh would be required towards working capital and the claim of 15 per cent of Rs. 1 lakh should be allowed as deduction while computing the net average profit. The assessee is carrying on only exhibition of films in the cinema house. In our opinion it would not require as heavy as Rs. 1 lakh towards working capital. In our estimation the working capital may not exceed Rs. 70,000. 15 per cent interest is very reasonable and it is a rate of interest which prevails very much in the market and, therefore, we hold that 15 per cent interest on Rs. 70,000 will be deducted when arriving at the average net profit per year". Having regard to the whole material on record and also having regard to the fact that while disposing of the appeals for the asst. yrs. 1976-77 to 1980-81 and also while disposing of the appeal for the asst. yr. 1985-86 inasmuch as the Commissioner(A) himself adopted the sole method of ascertaining the value of this very asset by adopting the income yielding method, we hold that the said method is the only correct method. However, we are of the view that the assessee is entitled to interest on working capital and also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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