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TMI Blog1974 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment year 1962-63. We are not quite aware as to the reasons for the variation of rents for the different years mentioned above. Counsel for the assessee suggested that perhaps it was due to the agreement or contract between the tenants and the landlord in question. The question arose about the valuation of these properties on the relevant valuation dates for different years with which we are concerned in this reference varying some time in the end of March, 1957, or beginning of April of the subsequent years. The assessee valued this property for all these six assessment years at Rs. 2,07,180 at the rate of 20 times of annual rental income. The Wealth-tax Officer did not accept the valuation shown by the assessee. He valued the land separately at the rate of Rs. 15,000 per cottah and, accordingly, valued the land at Rs. 6,30,000. He valued the structures and godowns on the said land at Rs. 90,000 taking the gross value at Rs. 1,50,000 and allowed depreciation on this value for Rs. 60,000 and computed the net value of the buildings at Rs. 90,000. Thus, the total value of the property was computed by the Wealth-tax Officer at Rs. 7,20,000 for all these years. It would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the commercial centres of the city. There is great demand for land and building in that area among the business community. It is at the same time to be considered that the godowns were in the possession of tenants as a result of which no willing buyer for it would be readily available." The assessee thereafter preferred appeals to the Tribunal. The revenue also preferred appeals to the Tribunal against the said orders of the Appellate Assistant Commissioner. On behalf of the revenue it was contended that the Appellate Assistant Commissioner was in error in reducing the valuation from Rs. 7,20,000 as adopted by the Wealth-tax Officer, while on behalf of the assessee it was contended that the valuation fixed by the Appellate Assistant Commissioner was excessive. The assessee submitted that when the property was purchased in 1946, the assessee had expected to build a multi-storeyed house by demolishing the godown. With this end in view the assessee filed suits against all the three tenants mentioned above but they could not be evicted up to the date of hearing before the Tribunal which was some time in the middle of 1970. It was submitted that the suits were still then pending befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fetch if sold in the open market on the valuation date. Section 7(1) enjoins the Wealth-fax Officer to do so. It is, therefore, necessary to find out on the valuation date what the willing purchaser would pay in respect of the said property sold by a willing seller in a hypothetical market. It appears that in order to work out this system a circular was issued on the 28th September, 1957, by the Central Board of Revenue dealing with the question of valuation. Regarding the valuation of the immovable properties, land and buildings, the circular provided as follows : " The value of lands and buildings should be estimated with due regard to the nature, size and locality of the property, the amenities available and the price prevailing for similar assets in the same locality or in the neighbourhood of that locality. Where the value is not easily ascertainable in this manner, the Wealth-tax Officer may adopt the capital value of the property determined by the appropriate authority in the latest assessment for purposes of property taxation, under the laws and regulations relating to municipalities and municipal corporations. Where the municipal valuation is prima facie too low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land and the building separately and adding the value of the one to the other did not furnish a reliable estimate of the property. In the case of State of Kerala v. P. P. Hassan Koya reported in AIR 1968 SC 1201, the Supreme Court was also considering section 23 of the Land Aquisition Act and the Supreme Court observed that in determining compensation payable in respect of land with buildings, compensation could not be determined by assessing the value of the land and the " break-up value " of the buildings separately. The land and the building constituted one unit and the value of the entire unit must be determined with all its advantages and its potentialities. The Supreme Court further observed that when the property sold was land with building, it was often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to the date of the notification under section 4. Therefore, the method which was generally resorted to in determining the value of the land with buildings, especially those used for business purposes, was the method of capitalization of return actually received or which might reasonably be received from the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the annual letting value should be adopted was not correct and was based on a mis-conception of the circular of the Central Board of Revenue. The Madras High Court further observed that as the Wealth-tax Act was a charging statute and what the statute empowered was only to levy a tax on the net wealth of an assessee, to be determined according to the provisions of the statute, the burden was on the taxing department to find out the true net value assessable and even if the assessee had overvalued, the department must make an effort to determine the true market value. The question was again considered in the case of Commissioner of Wealth-tax v. V. C. Ramachandran [1966] 60 ITR 103 (Mys). The Mysore High Court held that in the case of buildings with compounds in a city, which were in the possession of tenants, and the tenants could not be either evicted or the rent payable by them enhanced except in accordance with the provisions of the Rent Control Act, the only appropriate method of valuation was to capitalise the annual rent by certain number of years' purchase. The method of valuing the site and the building separately and adding up the values would be improper in such cases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on law in operation, the Controller could make a fair and an objective estimate of the rent which the property might have fetched if a willing lessor wanted to let out the property to a willing lessee ; but, if the property was subject to Rent Restriction Acts, in estimating the rent at which the property was capable of being let out, the Controller was bound to take into account the restrictions imposed by the Rent Restriction Act and to arrive at the figure of fair rent accordingly. As mentioned hereinbefore, the court was concerned with the question under the Estate Duty Act under which the question of valuation cropped up, which is in pari materia with the section with which we are concerned in this case. In the case of C. Krishna Prasad v. Commissioner of Wealth-tax [1970] 76 ITR 115 (Mys) the Mysore High Court has again dealt with this question. There a site was leased out at certain rent for a term of 30 years with an option to the lessee to renew the lease for a further term of 10 years. The tenant was to build a theatre building on the site at his own cost which he should surrender to the lessor at the end of the lease without any compensation. The tenant constructed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the future rent was not justified in law. Before we deal with a decision of this court on which reliance has been placed, we may also refer to another decision of the Madras High Court in the case of Gouthamchand Galada and Gyanchand Galada v. Commissioner of Wealth-tax [1972] 86 ITR 292 (Mad). There the assessee who owned a building constructed on a land of 18 grounds had let it out to the Government of Madras on a monthly rent. In his wealth-tax return, the assessee had valued the property at twenty times the annual rental value of the premises. The Wealth-tax Officer held that the capital value returned by the assessee was only for the building and 5 grounds which was necessary for the convenient occupation and enjoyment thereof and valued the balance of 13 grounds at the market price. On appeal, the Appellate Assistant Commissioner deleted the addition holding that in a property let out along with vacant land appurtenant to it, it must be assumed that the rent included the ground rent also unless it was shown that the rent was confined to the use of the building alone. The departmental appeal was allowed by the Tribunal in the view that, as the assessee had not produced e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents was erroneous inasmuch as the wealth-tax assessments had been made on the basis of global valuation and on the basis of the book cost of the properties, and accepted the valuer's report and directed the Income-tax Officer to re-value the capital profit or loss by adopting the valuer's figures. On second appeal, the Tribunal accepted the Appellate Assistant Commissioner's finding about the Arif Road property and held that the valuation of the Russa Road property by the valuer was not justified, that the valuation of that pro- perty on May 1, 1954, would not be more than 75 per cent. of the sale price in 1961, and the capital gains of that property would be Rs. 75,000 only as against the Appellate Assistant Commissioner's determination that there was a loss of Rs. 6,000 as claimed by the assessee. On a reference at the instance of the assessee in respect of the Russa Road property only it was held by the High Court that there was a valid and legal basis for the Tribunal's conclusion that capital gains arising out of the sale of the Russa Road property would be Rs. 75,000 instead of a loss of Rs. 6,000. Before we deal with this decision relied on on behalf of the revenue we must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was placed on behalf of the revenue in the case before us. It was urged that one of the reasons that induced the court to reject the valuer's report was the fact that by the valuer's report a valuation was put upon the property subsequently to the date of purchase which was less than the purchase price paid by the assessee. The second aspect upon which reliance was placed was the fact that the court recognised that judicial notice could be taken of the fact that there had been a steady rise of land price in Calcutta between 1954 and 1962. Relying on the aforesaid decision counsel for the revenue submitted before us that in this case the valuation put by the assessee was less than the price at which the assessee had purchased the property in question in 1946 and, therefore, the valuation suffered from an intrinsic improbability and so could not be relied upon. It was, secondly, urged that as the Tribunal had noted that there was a general increase in the valuation of the property, therefore, it was natural to presume that the land value, specially in respect of lands which were situated as the assessee's were situated in the heart of the commercial centre, must have increased and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question on the relevant valuation date. (3) Such a determination, therefore, involves adopting certain methods in determining the valuation and there are different kinds of methods, as mentioned in the circulars of the Board and the principles enunciated in the several decisions of the court as noticed before. (4) Which one of the various methods would be suitable for a particular case must depend upon the nature of the property, the location of the property, the purpose for which the property is used and several other objective factors, viz., the time when the valuation is made, the prospect of buying and selling in respect of the property at the relevant time and also special features in respect of the property, if there be any. Taking all these factors into consideration it is, therefore, necessary to determine which one of the various methods will be most suitable to reach as accurate as possible guess as to the valuation on the valuation date. (5) Another factor that has to be borne in mind is that such a method should be preferred which has more objective reliable data to rely upon than mere subjective opinions. For instance, if there are more objective data to work ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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