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TMI Blog1991 (1) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... t is entitled to impose conditions as it thinks fit and it is entitled to recover a portion of the unearned increase in the value, the amount to be recovered being 50% of the unearned increase. The assessee filed his original return declaring the value of the plot at Rs. 32,641. But a revised return was filed declaring the value at Rs. 2,08,000. The Wealth-tax Officer took the value of the plot at Rs. 250 per sq. yd. on the basis of the value adopted in the earlier year. He allowed deduction of 50 % which will be appropriated by the Delhi Development Authority if the plot is sold. Thus, he determined the value of the plot at Rs. 1,46,320. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that, as per the lease agreement, there is a restriction on the sale of the property. The property was originally allotted in June, 1970, and, even after completion of 10 years, the assessee has not constructed any building. He referred to letter dated 8th September, 1978, produced by the assessee from the society rejecting the application for transfer or sale of the plot as the building has not been completed. Hence, such an application will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold in the market in view of the restrictions. The definition of "assets" under the Act was extremely comprehensive read with the definition of net wealth. The Act imposes the charges of wealth-tax upon the net wealth. For this purpose, the assets are to be valued. Section 7 cannot be read so as to nullify the charging section. Therefore, for the purpose of valuation, it should be assumed that there is an open market and that the property can be sold in such a market and, on that basis, the value should be found out. In other words, a hypothetical sale will have to be contemplated to arrive at the value. Even if the value is insignificant, the said value will have to be included in the net wealth ; the interest of the assessee will have to be valued as part of his net wealth. (At page 190) : "In our opinion, the Tribunal should have first of all considered whether the interest of the assessee amounted to his 'net wealth' within the meaning of section 3 read along with the definition and that would entail a finding from the Tribunal whether or not the interest was an asset. If it was an asset it would be his net wealth. Once it is held that the interest of the assessee was his as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scription. On a proper construction of the relevant clauses in the wakf deed, we are not satisfied that the aliquot share of the income provided for the beneficiaries was meant merely for their maintenance and support. But, even on the assumption that it was so intended or to preserve the validity of the deeds, it should be so construed, the right to the share of the income would certainly be an asset within the meaning of section 2(e) and would be liable to be included in the net wealth of the assessee." The Supreme Court also approved the decision of the Bombay High Court regarding the effect to be given to the words "if sold in the open market". The Supreme Court held that this does not contemplate an actual sale or the actual state of the market but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and, on that basis, the value has to be found out. It is hypothetical case which is contemplated and the tax officer must assume that there is an open market in which the asset can be sold. The very decision of the Bombay High Court directly came up for consideration before the Supreme Court in Purshottam N. Amersey v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises in regard to valuation of the leasehold interest in the land. The leasehold interest is held by the assessee under a lease deed executed by the President of India and, apart from clause (13), which we have reproduced above, it is an ordinary lease deed of the usual kind. Clause (13) of the lease deed provides that the assessee shall not be entitled to assign that leasehold interest in the land without obtaining the prior approval in writing of the lessor and 50 per cent. of the unearned increase in the value of the land at the time of the assignment shall be claimable by the lessor, and moreover, if the lessor so desires, he shall have pre-emptive right to purchase the property after deducting 50 per cent. of the unearned increase in the value of the land. Does this covenant merely impose a personal obligation on the lessee which arises on assignment of the leasehold interest or is it a covenant running with the land ? That is a question which has direct bearing on the valuation of the leasehold interest." Thereafter, the Supreme Court found the covenant referred to therein as a covenant running with land and it would bind whosoever is the holder of the leasehold interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have to be reduced by 50 per cent. of the unearned increase in the value of the land on the basis of the hypothetical sale on the valuation date." From the aforesaid decisions, it is clear that the restriction against alienation will have to be ignored for the purpose of the hypothetical sale contemplated by section 7 of the Act. Once the imaginary market is reached, the market value will have to be estimated with reference to the interest of the assessee in the asset because it is that interest which constitutes his asset. In the instant case, the entire market value of the site in question cannot be included as the value of the assessee's interest because that interest is not absolute nor is it confined to the original value. There are certain restrictions imposed on it at the time of allotment of the site on lease. The restriction against alienation as such is to be ignored but, while computing the value, the possibility of a reduced price because of those restrictions will have to be considered. One important consideration is that 50 per cent. of the unearned increase in the value will have to be deducted from the hypothetical market value. Therefore, the answer to the q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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