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TMI Blog1989 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... t of appeals in each case as indicated therein represents departmental appeals. The appeals have been filed against the appellate orders dt. 24-6-87-- (i) in W.T.A. Nos. 28 35,44,24 49/83-84 in the case of J.K.K. Natarajah (ii) in W.T.A. Nos. 39, 36, 45, 46 54/84-85 in the case of J.K.S. Manickam (iii) in W.T.A. Nos. 30, 37,47,48 51/84-85 in the case of J.K.K. Sundararajah (iv) in W.T.A. Nos., 29, 33, 40, 41 52/84-85 in the case of J.K.K. Angappa Chettiar of Commissioner (A)-II, Madras. 4. The common issue involved in all these appeals relates to the valuation of the interest of the different assessees in the different firms for various years. The assessees had shown their interest in each firm on the basis of the balance sheet figures of the respective firms on the various valuation dates. But the assessing officer referred the valuation of the interest of the different assessees in various firms to the Departmental Valuation Officer under section 16A of the Act. While valuing the interests of the different assessees in various firms, in which they were partners, the Departmental Valuation Officers worked out the fair market value of (i) land and building and (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Kandaswamy Spinning Mills, Bhavani : From the value arrived at, 10% was first deducted towards limited marketability and from the resultant figure 10% was deducted towards joint ownership to arrive at the fair market value. (iii) Sundaram Spinning Mills : From the value arrived at, 15% for joint ownership and 15% for limited marketability or in other words 30% was straightaway deducted from the value to arrive at the fair market value. (iv) Kandaswamy Weaving Factory. 10% for joint ownership and 15% for limited marketability i.e. 25% was straightaway deducted from the value to arrive at the fair market value. (v) J.K.K. Textile Processing Mills : From the value arrived at, 5% was first deducted towards, limited marketability and from the resultant figure 5% was deducted towards joint ownership to arrive at the fair market value. (vi) Bell Textiles : From the value arrived at, 10% for joint ownership and 10% for limited marketability or in other words 20% was straightaway deducted from the value to arrive at the fair market value. 7. In the appeals before the Commissioner (A), regarding the valuation of land and buildings, the following objections were raised vide pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery in the textile industry with the object of obtaining superior quality and maximum output. In this background, old items of plant and machinery do not enjoy any favourable market. (d) A purchaser is least encouraged to buy old equipments for the reason that he is deprived of the tax benefits such as investment allowance available to him if he purchased new items of plant and machinery. (e) A reduction in the value has not been given for joint ownership." The Commissioner (A) found that the Departmental Valuation Officers had taken great pains to identify each and every item and to arrive at the value on the basis of certain norms. He found that in the case of valuation of land and building, the method was to value the buildings and land separately and opined that the same was in order. While the value adopted for land was on the basis of prevailing market prices, Commissioner (A) found that there was no apparent error in adopting the life span of the buildings as ranging from 45 to 60 years on the assumption of reasonable maintenance from year to year. In the case of plant and machinery also, he was of the opinion that the Valuation Officer had taken pains to ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accepted. Such a view has not been favoured by the Courts in decision on matters relating to valuation of assets. But, at the same time, the age of an asset like a building or plant or machinery is a very important determinant of its sale price. Its utility is retarded in proportion to the numbers of years of use. Over a period of years it becomes thoroughly old fashioned and its efficiency may have dwindled considerably in comparison with the later designs and models. It may not at all be economical to employ such an asset. There are also rules and regulations against the continued use of old items of machinery. These are formidable factors having a negative impact on what the asset can fetch if sold in the open market. Added to these factors is the fact that a buyer would prefer to buy a new item of machinery for reasons of certain in built tax benefits. It is against these several factors that the market value of an asset is to be finally evaluated. I have examined the values adopted for various items of land and buildings and plant and machinery by the Valuation Officers of the department and I notice that they have not fully appreciated the several factors that contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving regard to the decision of Supreme Court in the case of Juggi Lal Kamlapat Bankers v. WTO [1984] 145 ITR 485/16 Taxman 1, it should have been appreciated that the value of a business as a whole could not be equal to the aggregate of the market value of all the individual assets valued as per Rule 2B(2) of Wealth-tax Rules. In this connection, he submitted that the words, " having regard to the balance sheet of such business " occurring in section 7(2) gave a wide scope in the matter of valuation and indicated that if due note of the same was taken, there was something over-riding or implicit in section 7(2) to tone down the aggregate of the individual values of all the assets to arrive at the value of the business as a whole ; thus several other considerations for arriving at the value of the business as a whole were not shut out and in fact should be taken into account. Proceeding further, regarding the valuation of plant and machinery, he pointed out that the Valuation Officer had taken the value of each item of machinery as if it was a new one on the date of valuation and had given discount towards depreciation. His case was that such a method would lead to absurd results a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed a uniform discount of 15% on account of joint ownership instead of allowing 10% if there were two co-owners and 15% if there were more than two co-owners. To sum up, Shri Ramamani was fair enough to concede that Commissioner (A) was eminently fair subject to the reduction allowed by him being low as pointed out by him earlier with reasons. 10. Shri Ramgopal, the learned advocate, who appeared on behalf of J.K.K Sundararajah J.K.S. Manickam, even while adopting the arguments advanced by Shri Ramamani, raised some more arguments. He contended that the department should not disturb the balance sheet figures unless there was some evidence to show that market value of an asset exceeded the book value by 20%. In this connection, he cited the decision of CWT v. Moti Chand Daga [1988] 174 ITR 379/40 Taxman 350 (Raj.). In other words, his contention was that Rule 2B(2) could be invoked only if the market value exceeded the book value by more than 20%. In this connection, he cited the Tribunal order (Bombay Bench ' D ') in the case of WTO v. Smt. V.B. Garware [1987] 61 CTR (Trib.) 51. He next contended that in a textile mill, the requirement was on modernisation to meet competiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fetch a price equal to the price of a new asset. Therefore the valuation fixed by Commissioner (A) would require some further reduction. 12. On his part, the learned Departmental Representative Shri Ravichandran argued that the allowance of deduction of 30% for limited marketability and allowance of a further deduction of 10% or 15%, as the case may be, for joint ownership were excessive. In this connection, he vehemently argued that the valuation of the interest of the assessees in various firms had been done under section 7(2) read with rule 2B(2) and the departmental Valuation Officers had taken great pains to arrive at a proper valuation of each and every item of machinery taking into account various aspects and therefore there was no case for reduction of as high a percentage as 30 for limited marketability. In this connection, he pointed out that the approach of Commissioner (A) in allowing deduction for limited marketability and joint ownership had resulted in the value in some cases being less that the value admitted by the assessees. At this stage itself, this contention can be met. The Commissioner (A) had given clear direction that if the value arrived at as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it would not be a depressing factor and therefore there was no need for giving any reduction on account of limited marketability or joint ownership and in spite of the above, when the departmental Valuation Officers had themselves given some reduction, Commissioner (A) was not justified in increasing the deductions. He further argued that at any rate the deduction allowed on account of joint ownership should be limited to 10% only. In this connection, he placed reliance on the decision of Karnataka High Court in the case of CWT v. K. N. Nagabhushana Setty (HUF) [1985] 156 ITR 484/20 Taxman 428. 13. The departmental Valuation Officers, who were also present at the hearing, pointed out that in the valuation of land and buildings, land had been valued as if it was an agricultural land and therefore there was no justification for giving further deduction in land value. As regards the valuation of plant and machinery, the departmental Valuation Officer brought to our notice the method and rates adopted, which was as follows vide para 4 of the Valuation Report in the case of Sundaram Spinning Mills, Komarapalayam -- Page 5 of paper-book given by Shri K.R. Ramamani--- " Straight lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Before the arguments were closed, the learned representative Shri Ramamani pointed out that the decision in the case of K. N. Nagabhushana Setty (HUF) could not be considered as an authority for the extent of reduction that should be allowed on account of joint ownership. He submitted that only the principle that some reduction should be allowed on account of joint ownership was accepted in that case and so far as the extent of reduction to be allowed was concerned, it would depend upon the facts and circumstances of each case. As regards the contention of the Departmental Representative that the claim for deduction on account of obsolescence was canvassed for the first time before the Tribunal, Shri Ramamani stated that it had already been raised before the departmental valuer in a general way under several heads while giving the assessee's objections to the proposed valuation and thus it was not a new case put forth before the Tribunal. In this connection, he referred to item 3 -- " Triple Shift Allowance " and 4 --' Economic Life Rates ' in paragraph 6 : ' Objections Reply ' in the Valuation Report of the departmental valuer in the case of M/s Sundaram Spinning Mills, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed can be made by using the expression " making such adjustments therein as may be prescribed " at the end of that section. Therefore, even while making a global valuation under section 7(2)(a) of the Act, value of particular assets can be disturbed. But then, higher values as compared to the values shown in the balance-sheet in the case of any asset can ultimately be adopted if and only if the condition laid down in Rule 2B(2) of the W.T. Rules, 1957 is satisfied or in other words, the market value of an asset exceeds its written down value or its book value by more than 20%. In this connection, the market value to be compared with the book value for the purpose of finding out the 20% excess referred to in Rule 2B(2) would be the value before allowing any reduction from the same on account of other factors like limited marketability, joint ownership etc., which can be said to be outside the provisions of sec.7 read with W.T. Rules. Support for this view could be derived from certain observations made by their Lordships of the Karnataka High Court in the case of K.N. Nagabhushana Setty (HUF). In that case, the valuation of immovable property was involved. After arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2B(2) of Wealth-tax Rules, 1957 would be the value before allowing deduction on account of limited marketability and joint ownership. Viewed from this angle, having regard to the facts and circumstances of the case, Rule 2B(2) can be said to have been fully satisfied in the valuation of land and buildings and plant and machinery of the various firms as made out by the Valuation Officers and adopted by the WTO. In making the valuation of land and buildings and plant and machinery, as rightly pointed out by Commissioner (A), the Officers had taken great pains to identify each and every item and to arrive at a value on certain reasonable norms. In the case of land, the valuation had been done as if they were agricultural lands. Therefore there is no case for interference in the valuation of either land or buildings in the valuation of land and buildings. in the valuation of plant and machinery, a contention was raised that the estimated life of plant and machinery had been assumed by Valuation Officers at a higher figure than would be the can in reality. As pointed out by Commissioner (A), the Valuation Officers had considered all aspects before estimating the life of a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that this was not sufficient, the Departmental Representative had argued that the same was excessive. Having regard to the various contentions urged before us in this behalf, we consider that the deduction of 30% by Commissioner (A) on account of limited marketability was eminently fair and reasonable and does not call for any interference. As regards the deduction to be allowed on account of obsolescence as canvassed by Shri Ramamani directly and as canvassed by the other representatives in a general way, having regard to the facts and circumstances of the case, we find that this issue had not been raised for the first time before the Tribunal as was contended by the departmental representative. In the objections to the proposed valuation of the Departmental Valuation Officers, this issue had been raised in a general way under several heads as mentioned earlier in this order. Hence, the contention that obsolescence factor had not been specifically considered or taken into account, while allowing deduction on account of limited marketability has to be conceded. In textile industry, rapid technological advances are taking place every day. Financial institutions come forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be allowed in case the number of co-owners was more than two was quite fair and reasonable and does not call for any interference. As regards the contention on behalf of the assessees that a uniform deduction of 15% should be allowed irrespective of the number of co-owners, we consider that the same cannot be accepted. After all, if the number of co-owners is only two, the would-be purchaser had to deal with only two persons for purchasing the entire property, whereas if the number of co-owners is more than two, he has to deal with several persons. The difficulties involved in the former case are obviously less than the difficulties involved in the latter case. Therefore, we hold that Commissioner (A) was eminently fair and reasonable in allowing a deduction of 10% on account of joint ownership in case, the number of co-owners was two and 15% in case the number of co-owners was more than two. 18. To sum up, we hold that from the values arrived at by the Departmental Valuation Officers before allowing deduction on account of limited marketability and joint ownership, in addition to 30% on account of limited marketability as allowed by Commissioner (A), a further deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p the issue alive. Following the High Court order for the earlier years, we uphold the orders of the Commissioner (A) and dismiss this ground of the department. 22 One more ground is there in the departmental appeals relating to J.K.S. Manickam. It has been contended on behalf of the department that the learned CWT (Appeals) erred in holding that assessee's share of value of assets belonging to Shri J.K.K Sundararajah by over-riding title will be modified in accordance with the appellate decision in the case of Shri J.K.K. Sundararajah and that the decision has not become final. In the assessment order for the assessment year 1975-76, it had been stated as follows :-- " 50% share of assets of firms belonging to assessee's father Shri J.K.K. Sundararajah admitted by the assessee as belonging to him by over-riding title. Without prejudice to the stand of the Department that this belongs only to the assessee's father, Shri J.K.K. Sundararajah, the value of the assets will be included and assessed as assessee's wealth as a protective measure." In appeal, Commissioner (A) held that any modifications in the values of land and buildings and plant and machinery of the various firms, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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