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TMI Blog1992 (9) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... e Duty be restored. 2. The relevant facts are as follows : Shri D. G. Cooper passed away on 5-8-1980. The accountable person filed estate duty account in which, inter alia, he returned the value of property at 3 Queen's Garden, Pune, at Rs. 1,84,000. The valuation shown was not accepted by the Assistant Controller. He referred the matter to the Departmental Valuation Officer who determined the value of the property as per the land and building method at Rs. 9.15 lakhs. After calling for objections of the accountable person, if any, to the proposal for adoption of the said valuation and after getting the objections of the accountable person, the Asstt. Controller did not accept the objections, but adopted the valuation made by the Departmental Valuation Officer. 3. At the time of hearing before the Asstt. Controller, the counsel for the accountable person submitted that the value of the property should be taken as per rule 1BB read with section 7(4) of the Wealth-tax Act, 1957. However, the Asstt. Controller did not apply rule 1BB of the Wealth-tax Rules on the ground that the death in the instant case occurred prior to 1-3-1981 and for the same reasons, the amended provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Officer. On this basis, the Appellate Controller arrived at the net annual income of the bungalow at Rs. 43,000 roughly. He further held that the net annual income at 8 1/2 per cent rate of interest in perpetuity, the multiplier would be 12 and the valuation of the building would be Rs. 5,16,000 instead of Rs. 7,31,000 determined by Mr. Mathur. Thus, he allowed relief of Rs. 2.15 lakhs on account of valuation of the main bungalow. 6. As regards the vacant land, the surplus land available for development was taken as per valuer's report at 1,15,238 sq.ft. after deducting the land wedded to the structures from the total land of 2,96,905 sq. ft. secured on " Old Grant " from the Government. According to the accountable person, the land value is to be taken at Nil in view of the terms and conditions which enabled the Government to resume the land at a short notice with no permission to sell and transfer or to build new structures or use it in any other way except that allowed by the Cantonment authorities. It is in the " Red Zone " where no construction was permitted. The deceased held the right of ownership only of the superstructure. 7. The Appellate Controller also noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that the house property was not mainly used for residential purposes because the built-up area used for residential purposes was less than 66 2 /3 rd of the total built-up floor area of the property. Thus, the learned departmental representative strongly supported the reasons given by the Asstt. Controller for adopting the valuation of the property on land and building method. 9. Shri K. C. Bhambhani, Valuation Officer, who appeared for the department has also been duly heard. According to him, only the let out portion of the property was required to be valued in terms of rule 1BB, while self-occupied portion of the property was required to be valued on the basis of land and building method. In this connection, he maintained that since the valuation was made on prime cost method, the value of the building built in the year 1936 will be depreciated as on the material date of valuation and that depreciated value may normally be considered by any purchaser. On this basis, the depreciation at 10 per cent allowed by the Asstt. Valuation Officer Shri E. P. Dhane and also the Asstt. Valuation Officer Shri R. G. Mathur in his report dated 4-10-1981 was justified by him. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31-3-1976 at Nil by treating the land as agricultural land and stating that the ownership of the land vested in the Defence Department. In view of this report, the rate of Re. 1.00 per sq.ft. adopted by the Appellate Controller of Estate Duty was justifiable. 13. In reply, the learned departmental representative, relied on para 5.2 of the report of Shri Dhane wherein rate of Rs. 2.50 per sq.ft. was adopted. 14. We have duly considered the submissions of the parties, valuation reports and paper compilation and also heard the Valuation Officer, Shri K. C. Bhambhani. At the outset, it is to be stated that the Estate Duty (Amendment) Act, 1982 inserted sub-section (3) of section 36 of Estate Duty Act only to provide a concessional valuation of residential property belonging to the deceased. In order to effectuate this concession in the matter of valuation of such category of property, the amendment provides that the valuation should be done as per the Wealth-tax Act and the rules made thereunder which are applicable to valuation of residential house. In this connection, the relevant portion of para 6 of Circular No. 349 dated 30-8-1982 is reproduced below : " The new sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is to be made as per the Wealth-tax Act and the rules made thereunder. 15A. Sub-section (3) of section 36 reads as under : " (3) Notwithstanding anything contained in sub-section (1) or sub-section (2), the principal value of one residential house or part thereof belonging to the deceased (which the accountable person may at his option specify in writing in this behalf) shall be,--- (a) where the value of such house or part is included in computing the net wealth of the deceased for the purposes of making an assessment under the Wealth-tax Act, 1957 (27 of 1957) (hereafter in this sub-section referred to as the Wealth-tax Act) in respect of his net wealth on the valuation date immediately preceding the date of his death, the value as taken by the Wealth-tax Officer for the purposes of such assessment ; and (b) in any other case, the value of such house or part--- (i) on the said valuation date ; or (ii) where such house or part was constructed, acquired or otherwise became the property of the deceased after the said valuation date, on the date of his death, as determined by the Controller in accordance with the provisions of the Wealth-tax Act and the rules made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady, it is seen that the deceased Shri D. G. Cooper was assessed to wealth-tax for the assessment year 1979-80 as seen from the assessment order under section 16(1) dated 30-3-1984 wherein net wealth of Rs. 90,400 returned by the assessee was accepted by the WTO. Similarly, it is seen that for the valuation date 31-3-1980 relevant for the assessment year 1980-81, the assessee filed return of wealth on 30-6-1980 admitting net wealth of Rs. 93,030 and this was accepted by an order under section 16(1) by the WTO on 29-1-1985. Although the assessment orders are filed on record, break-up details of the net wealth were not furnished, especially the valuation of the property in dispute. If the wealth-tax assessment order dated 29-1-1985 is to be taken as the wealth-tax assessment immediately preceding to the date of death, the valuation of the property is not to exceed Rs. 93,030. In case the wealth-tax assessment order for the year 1980-81 does not reflect valuation on valuation date as contemplated by clause (a) of sub-section (3), then recourse is to be taken to clause (b) for arriving at the valuation of the property. Clause (b) contemplates valuation in other circumstances not covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended law. In our considered opinion, this is a contention which is to be merely stated to be rejected. The judgment of the jurisdictional High Court is binding on all the authorities functioning within the territorial jurisdiction and thus judicial propriety requires it to be followed, unless it is stayed or reversed by the Supreme Court. The amended law has linked the question of valuation for the purpose of Estate Duty with the valuation for wealth-tax purposes so far as residential property or part thereof is concerned. The relevant provision of Wealth-tax Act is contained in section 7(4) of the Wealth-tax Act, 1957. Section 7(4) prescribes the value to be taken as a market price on the valuation date next following the date on which he became owner of the house or on the valuation date relevant for the assessment year commencing on 1st of April, 1971 whichever valuation date is latter. Thus, this sub-section provides for substitution of the valuation of the property on the valuation date immediately after becoming owner of the property or as on 31-3-1971 whichever valuation date is later and this valuation once adopted, such valuation is frozen or pegged down for all the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that in relation to a house which is built on leasehold land, this sub-rule shall have effect as if for the fraction 100/8 in clause (a) or, as the case may be, the fraction 100/9 in clause (b), the fraction 100/9 and 100/10 respectively had been substituted. In this connection, Explanation to rule 1BB states that for purposes of this sub-rule, a house shall be deemed to be mainly used for residential purposes, if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-third per cent of its total built-up floor area. 19. From the aforesaid rule, it can be seen that if a house is wholly or mainly used for residential purposes, then both the portion of the residential house and the portion not used for residential purposes were required to be valued in terms of rule 1BB only, but subject to different quotients of multiplication of the net maintainable rent relating to that portion. The Appellate Controller had applied rule 1BB in respect of both self-occupied portion of the house as well as tenanted portion of the house and this is in accordance with section 7(1) read with rule 1BB of the Wealth-tax Rules which came into force from 1-4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtra-ordinary concessional valuation conferred on the deceased in respect of one residential house or part thereof by ignoring the exclusive user of the residential house by the deceased as contemplated by section 7(4) of the Wealth-tax Act, which is more stricter than " wholly or mainly " user contemplated by rule 1BB as laid down by Explanation thereunder, the Explanation does not really bar granting of concessional valuation of residential house or part of the house used by the deceased. However, in the absence of specific valuation of such property in terms of section 7(4) of the Wealth-tax Act, 1957 not having been brought on record by the Assessing or Appellate Authority and as the proceedings were pending on 1-4-1979 when rule 1BB came into force, valuation of such property by resort to rule 1BB is warranted. Whether the house or part of the house satisfies the tests of wholly or mainly used for residential purposes as contemplated by the Explanation, valuation is to be done in terms of rule 1BB by applying an appropriate factor and there is no question of ignoring the valuation as per rule 1BB which has come into force as on 1-4-1979. 21. It is also relevant to consider w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method. In this connection, it is relevant to point out that even when the valuation has been referred to the departmental valuation officer, he is equally bound to value the property in terms of rule 1BB read with section 7(4) of the Wealth-tax Act. In this connection, it is to be pointed out that the Asstt. Valuation Officer, Pune, Shri R. G. Mathur in his report dated 4-10-1981 at para 7 of his report has mentioned that as the property its partly tenanted and partly self-occupied, rent capitalisation method has been adopted by him. It is now to be seen whether the deduction for repairs is to be allowed at 17 per cent as determined by the Appellate Controller or at 10 per cent as determined by both the Valuation Officers Shri Dhane and Shri Mathur. Shri Bhambhani, Valuation Officer, has stated that normally only 10 per cent is allowed for repairs. But we do not consider it to be reasonable or adequate, because even rule 1BB under which net maintainable rent is to be determined a sum equal to 1/6th of the amount of the gross maintainable rent less the municipal taxes is allowed as a deduction which means that nearly 16 per cent is to be allowed as a deduction. Therefore, the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 988] 31 TTJ (Ahd.) 610, it has been held by Ahmedabad Bench that in case of valuation of properties governed by the restrictive provisions of laws like Urban Land (Ceiling Regulation) Act, 1976, the just reasonable and appropriate rate of capitalisation would be 8 1/3 time the net average annual value which would give the yield of 12 per cent per annum on the investment of capital in the property. It is also necessary to highlight the fact that Shri Y. D. Dole, Valuation Officer, Agricultural Lands, Income-tax department, Pune, in his report dated 6-12-1978 stated that the deceased had merely a permission to occupy the land and it did not create any title or interest and when an owner of the land has given permission or licence to construct building on such land, such permission is revocable at any time and it cannot be said that any right or title is given in the land to the person building the property thereon. He has also stated that the deceased was a mere licensee in respect of land in Cantonment area and therefore, it cannot be said that he had any right of occupying the land and what he had was only a temporary permission to occupy such land. In fact, he has pointed out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uated for the purpose of levy of property tax or where 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. Thus taking into account the latter provisions of the Rules also capitalisation of net maintainable rent is the basis for valuation of property which is similar to rule 1BB of Wealth-tax Rules. Rule 4 of the Schedule III to Wealth-tax Act provides for deduction of a sum equal to 15 per cent of the gross maintainable rent besides the amount of taxes levied by any local authority in respect of the property in order to determine the net maintainable rent and computation of income from property provides for deduction of repairs by 1/6th from the gross maintainable rent less municipal tax. Therefore, deduction of 17 per cent allowed by the Appellate Controller of Estate Duty is in order. Inasmuch as a regular assessment has already been made on the deceased for the assessment year 1980-81 accepting the net wealth at Rs. 93,030 inclusive of the self-occupied property under consideration, the valuation need not exceed Rs. 93,030. Therefore, even the valuation made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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