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TMI Blog1978 (1) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... rs old. (c) The entire premises were let out to tenants. (d) The fair market value of the undivided half part of the said property was approximately Rs. 35,000. By his communication in writing dated the 13th June, 1974, the IAC, Acquisition Range-I, Calcutta, a competent authority within the meaning of s. 269B of the I.T. Act, 1961, made a reference to the Assistant Valuation Officer, Unit No. III, under s. 269L(1) requiring the latter to determine the fair market value of the said property and make a report. Pursuant thereto, the said Valuation Officer inspected the said property on the 26th June, 1974, and on the 9th July, 1974, submitted his valuation report, inter alia, stating as follows: (a) The said property was situated in a middle class residential area with all civic amenities. (b) The buildings in the said properties were not properly maintained. (c) The buildings were electrified and had corporation tap connection as also sewerage connection which, however, had outlived their utility. (d) The building was about 60 years old and past its useful life and its future life was estimated to be only 20 years more. (e) The premises were fully tenanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia, contended on behalf of the transferees that-- (a) The valuation by the said Valuation Officer, was not correct and was based on guess without evidence. (b) The estimation of the value of the land at Rs. 20,000 per cottah was erroneous and without any evidence. (c) The said property was not situated in a middle class residential area. There was a bustee covering 10 bighas on its south and on its east. A valuation report of H. Sarkar, chartered engineer and valuer, was enclosed in support of the objection. The objections of the transferor, inter alia, were as follows: (a) The said property was incorrectly described as being located inl a middle class residential area. Even the tenants in the property were of lower income group. (b) The only method of valuation of the said property, a fully tenanted premises, was the rental method. (c) The reversionary method of valuation was incorrectly applied by the said Valuation Officer. (d) The property being fully developed and tenanted and rent restriction legislation being in force, valuation of the said property by the land and building method would be inappropriate. At the hearing of the objections u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in and, therefore, he concluded that the transaction was designed to facilitate concealment of further liability to capital gains tax. Being aggrieved by the above order of the competent authority the transferor preferred an appeal to the Income-tax Appellate Tribunal. In the said appeal, the following further facts were elicited on behalf of the transferor: (a) The transferor had purchased the said property on the 4th March, 1952, in a court auction for only Rs. 45,100. (b) Earlier, the property had been leased out on a total rent of Rs. 104.16 per month. After the expiry of the said earlier lease in June, 1971, new tenants were inducted at an enhanced total rental of Rs. 820 per month. (c) The husband of the transferor was murdered on the 31st January, 1971, in the disturbances prevailing at that time resulting in nervous breakdown of the transferor. (d) Being a lady and residing away from the said property, the transferor could not manage the said property and had no other alternative but to sell the same at the best price available. (e) At the time of the sale, rents aggregating Rs. 8,251 were in arrears which were assigned by the transferor in favour of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of a multiple to the net yield of the property which the Tribunal determined to be 12 1/2. The Tribunal also held that the said property having been sold in two undivided half shares, a further deduction of 10% would have to be made. On the above basis, the fair market value of the property on the date of the transfer was found to be less than Rs. 80,000 which was the value mentioned in the instrument of transfer. Accordingly, the Tribunal allowed the appeal and set aside the order of acquisition passed by the competent authority. The present appeal before this court has been preferred by the CIT, West Bengal II, under s. 269H of the Act against the said order of the Appellate Tribunal. Mr. B. L. Pal, learned counsel for the appellant, has urged before us the following grounds from the memorandum of appeal: (a) The Tribunal erred in holding that the only proper method of determining the fair market value of the property was by applying a multiple to the net yield from the property. (b) The Tribunal erred in rejecting the method of the Valuation Officer being the reversionary method of valuation inasmuch as the said property had an additional economic life of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following: (a) Parks "Principle and Practice of Valuation", 4th Edn., pp. 37, 38: "When land is fully developed by buildings erected thereon, when the property is let at a rent from which the fair rent can be ascertained, and when the rent has been proved and is likely to be maintained for years to come, then the rental method of valuation should be applied to determine the market value of the premises ... When a property is valued on the rental basis, the result is the value of the land and buildings taken together and cannot afterwards be apportioned ... This does not mean the land and building method cannot be employed to check a valuation done by the rental method. It simply states that after capitalisation of the rent you cannot deduct the depreciated value of the buildings on the land, and say that the result is the definite value of the land." (b) Rustom Cavasjee Cooper v. Union of India [ 1970] 40 Comp Cas 325 (SC). In this decision, the Supreme Court considered the vires of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. One of the main questions involved was whether "compensation" in such an acquisitive statute would in consonance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the unit. These are, however, not the only methods. The method of determining the value of property by the application of an appropriate multiplier to the net annual income or profit is a satisfactory method of valuation of lands with buildings, only if the land is fully developed, i.e., it has been put to full use legally permissible and economically justifiable, and the income out of the property is the normal commercial and not a controlled return, or a return depreciated on account of special circumstances. If the property is not fully developed, or the return is not commercial, the method may yield a misleading result." Mr. R. N. Dutt, learned counsel for the respondent, drew our attention to the undisputed facts of the instant case noted earlier and cited the following decisions in support of the order of the Tribunal: (a) CED v. Radha Devi Jalan [ 1968] 67 ITR 761 (Cal). Here certain premises were being valued for assessment of estate duty. The said premises were in the occupation of an old tenant who was paying a monthly rent of Rs. 1,600. The Appellate Tribunal estimated the valuation of the property on rental basis. On a reference it was contended befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain the market value of the property concerned. The Assam High Court held that the Tribunal did not commit any error of law by computing the valuation on the rental method in preference to the other methods. We do not accept the contention of Mr. Pal that the said property was not fully developed. Out of a total area of 4,547 sq. ft only 1,264 sq. ft. had been left open. No evidence was led to show if this 1,264 sq. ft. was in the form of one regular plot or consisted of accretions of open spaces unconnected with each other. The property has been sold to two persons in undivided equal shares. The vacant land in each share will not exceed 632 sq. ft., i.e., an area less than one cottah. The requirement of the Corporation of Calcutta is that one-third total of an area should be left vacant; therefore, the available area for development in the instant case would be only about 200 sq. ft. in each undivided share. In our view, the scope for future development of the said property is negligible. In R. C. Cooper [1970] 40 Comp Cas 325 (SC), the Supreme Court was considering what would be a fair compensation where property was being acquired compulsorily and not what would be the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andlord. Therefore, when the Government acquires property, the fact that there are tenants in the property is irrelevant for the purpose of computing compensation as the Government is not restricted from removing such tenants. Therefore, in determining compensation payable for property acquired by the Government valuation of the property on the basis of actual yield would be unfair to the owner. The discussion in Parks' Principle and Practice of Valuation cited by Mr. Pal does not advance the case of the revenue any further. According to Parks a fully developed and tenanted property fetching a steady rent has to be valued by the "yield or rental" method. No doubt "land and building" method might be applied even in such a case to check the value arrived at by the former method but it is not the opinion of Parks that in such cases the result arrived at by "land and building" method must be accepted in preference to that obtained by the "yield and rental" method. The said property, therefore, is a property fully developed and let out to tenants in its entirety. The quantum of rent realised has been duly ascertained and such rent is likely to be maintained for years to come. The me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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