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TMI Blog1989 (6) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) in WTA Nos. 28, 35, 44, 24 49/83-84 in the case of J.K.K. Natarajah (ii) in WTA Nos. 39, 36, 45, 46 54/84-85 in the case of J.K.S. Manickam (iii) in WTA Nos. 30, 37, 47, 48 51/84-85 in the case of J.K.K. Sundararajah (iv) in WTA Nos. 29, 33, 40, 41 52/84-85 in the case of J.K.K. Angappa Chettiar of CIT(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 AO eferred the valuation of the interest of the different assessees in various firms to the Departmental Valuation Officer under s. 16A of the Act. While valuing the interest 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) plant and machinery. Wherever the reports of the Departmental Valuation Officers were received prior to the date of the assessment orders, the valuation given by the tem were adopted and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ownership to arrive at the fair market value. (iii) Sundaram Spinning Mills: From the value arrived at, 15 per cent for joint ownership and 15 per cent for limited marketability or in other words 30 per cent was straightaway deducted from the value to arrive at the fair market value. (iv) Kandaswamy Weaving Factory: 10 per cent for joint ownership and 15 per cent for limited marketability i.e. 25 pre cent was straightaway deduction from the value to arrive at the fair market value. (v) J.K.K. Textile Processing Mills: From the value arrived at, 5 per cent was first, deducted towards limited marketability and from the resultant figure 5 per cent was deducted towards joint ownership to arrive at the fair market value. (vi) Bell Textiles: From the value arrived at, 10 per cent for joint ownership and 10 per cent for limited marketability or in other words 20 per cent was straightaway deducted from the value to arrive at the fair market value. 7. In the appeals before the CIT(A), regarding the valuation of land and buildings, the following objections were raised vide para 5.2 of CIT(A) s order dt. 24th June, 1987 in the case of J.K.K. Natarajah: "At the time of hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 reasons 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 ha not been given for joint ownership." The CIT(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, CIT(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 ascertain the price prevailing on the date of valuation for the various types of machinery used in the estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the age of an asset like a building or plant or machinery is a very important determinate of its sales 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. It 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 contribute to a limited marketability of the assets concerned. The limited marketability question is not much relevant for land. I notice that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR (SC) 47 : (1984) 145 ITR 485 (SC), 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 r. 2B(2) of WT Rules. In this connection, he submitted that the words having regard to the balance-sheet of such business occurring in s. 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 overriding or implicit in s. 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 as, for example, if a car was valued in the form of tyres, bumper, seats, engine, etc., and then the value of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-owners and 15 per cent if there were more than two co-owners. To sum up, Shri Ramamani was fair enough to concede that CIT(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 leaned advocate, who appeared on behalf of J.K.K. Sundararajh 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 the market value of an asset exceeded the book value by 20 per cent. In this connection, he cited the decision of CWT vs. Motichand Daga reportd in (1988) 71 CTR (Raj) 102 : (1988) 174 ITR 379 (Raj). In other words, his contention was that r. 2B(2) could be invoked only if the market value exceeded the book value by more than 20 per cent. In this connection, he cited the Tribunal order (Bombay Bench D ) in the case of WTO vs. Smt. V.B. Garware reported in (1987) 61 CTR (Trib) 51 (Bom). (1987) 28 TTJ 378 (Bom). He next contended that in a textile mill, the requirement was on modernisation to meet competition and so while for land ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qual to the price of a new asset. Therefore the valuation fixed by CIT(A) would require some further reduction. 12. On his part, the learned Departmental Representative Shri Ravichandran, argued that the allowance of deduction of 30 per cent for limited marketability and allowance of a further deduction of 10 per cent or 15 per cent, 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 s. 7(2) r/w r. 2B(2) and the Departmental Valuation Officers had taken grant 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 CIT(A) in allowing deduction for limited marketability and joint ownership had resulted in the value in some cases being less than the value admitted by the assessee. At this stage itself, this contention can be met. The CIT(A) had given clear direction that if the value arrived at as per the formula given by him fell below the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n asset 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, CIT(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 per cent only. In this connection, he placed reliance on the decision of Karnataka High Court in the case of CWT vs. K.N. Nagabushana Setty (HUF) (1985) 47 CTR (Kar) 150 : (1985) 156 ITR 484 (Kar). 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on account of limited marketability over and above what had been allowed by Departmental value. 14. Before the arguments were closed, the learned representative Shri Ramamani pointed out that the decision reported in the case of CWT vs. 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 of joint ownership. He submitted that only the principle that same 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 Shifts Allowance" and 4 Economic Life Rates in paragraph 6 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to the balance-sheet as may be prescribed 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 s. 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 any only if the condition laid down in r. 2B(2) of the WT 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 per cent. In this connection, the market value to be compared with the book value for the purpose of finding out the 20 per cent excess referred to in r. 2B(2) would be the value before allowing any reduction from the same on account of other factors like limited marketability, joint ownership, etc. with can be said to be outside the provisions of s. 7 r/w WT Rules. Support for this view could be derived from certain observations made by their Lordships of the Karnataka High Court in the case of CWT vs. K.N. Nagabushana Setty (HUF). In that case, the valuation of immovable propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d plant and machinery for the purpose of invoking r. 2B(2) of WT 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, r. 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 CIT(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 have 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 case in reality. As pointed out by CIT(A), the Valuation Officers had considered all aspects before estimating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental Representative had argued that the same was excessive. Having regard to the various contentions urged before us in this behalf, we consider deduction of 30 per cent CIT(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 readily for providing funds for purchase of new machineries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of co-owners was more than two was quite fair and reasonable and does not call for any interference. As regard the contention on behalf of the assessees that a uniform deduction of 15 per cent 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 CIT(A) was eminently fair and reasonable in allowing a deduction of 10 per cent on amount of joint ownership in case then under co-owners was two and 15 per cent 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 Officer before allowing deduction on account of limited marketability and joint ownership, in addition to 30 per cent on account of limited marketability as allowed by CIT(A), a further deduction of 10 per cent should be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der for the earlier years, we uphold the orders of the CIT(A) and dismiss this ground of the Department. 22. On 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(A) 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 asst. yr. 1975-76, it had been stated as follows: "50 per cent 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, CIT(A) held that any modifications in the values of land and buildings and plant and machinery of the various firms, in which Shri J.K.K. Sundararajah, father of Shri J.K.S. Manickam, was a p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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