9911796707
TMI Blog1982 (3) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ties Nos. 1A and 1D, Gurusaday Road, vide his letter dated 29-7-1978 in terms of section 16A of the Act. The WTO requested the Valuation Officer in this letter that the valuation of the aforesaid two houses may be made for wealth-tax assessment purposes for the assessment years 1973-74 to 1978-79. He indicated in the said letter that both the aforesaid properties have been valued by the assessee at Rs. 3,59,100 up to the assessment year 1972-73. He wanted the opinion of the valuer because, according to the WTO, the value of the said properties, as declared by the assessee, was, according to him, grossly undervalued. Further details of the properties in question were given by the WTO in the above letter wherein it was, inter alia, pointed out that the property at 1A, Gurusaday Road had an area of 30 cottahs and 9 chataks, that it had an old building on it which was otherwise well maintained, that with effect from 28-9-1976 the said building stood leased out to Aarkay Investment Centre Ltd. for a period of 5 years commencing from 1-7-1976 with option on the part of the lessee to renew the lease agreement for a further period of 5 years and that the lease rent had been fixed at Rs. 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1973-74 and 1974-75 were erroneous and prejudicial to the interests of the revenue. He, therefore, issued on 28-11-1980 to the assessee a show-cause notice requiring the assessee-family to explain as to why the orders passed by the WTO be not set aside and the figure of valuation as worked out by the Valuation Officer be not adopted. 6. The assessee opposed the proposed action under section 25(2) and submitted through its letter dated 28-11-1980, inter alia, the following for the consideration of the Commissioner : (i) that it was not correct to say that the value of the house properties in posh locality of the metropolitan city like Calcutta has appreciated to a great extent or otherwise or at all during the years under consideration, (ii) that even if this was true, generally speaking, it could not be said that the values of all properties wherever situated and subject to whatever limitations or disadvantages must also be deemed to have increased, (iii) that the property at 1A, Gurusaday Road, Calcutta, was a tenanted property fetching gross monthly rent of Rs. 4,000 per month for several years and that for determining the market value of a tenanted property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... road and for a length of 130' a lot of area would have to be left vacant as it would not be suitable for development due to its narrowness. Permissible land area coverage in the locality was 50 per cent and the actual plinth area that could be covered worked out to 12,442 sq. ft. The actual covered area was 3,064 sq. ft. only and the total area for all the floors worked out to 7,882 sq. ft. In the opinion of the Valuation Officer, there was no doubt that the land was not fully developed but it may not be possible to cover 50 per cent of the area due to irregular shape of the plot. The buildings in question were described as having been well maintained but they were quite old and of obsolete design. The estimated future economic life of the property was determined at 7/8 years only and in the opinion of the Valuation Officer, ' a prudent purchaser will not be satisfied with the return from the building. As such be will redevelop the land after pulling down the existing structures at the earliest opportunity '. The land on which the property was situated was on perpetual lease at Rs. 8 per year and in the opinion of the Valuation Officer, it could be treated as freehold for all purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was capitalising the rent for future life of the building and adding to it the deferred value of land and salvage value of building. No prudent purchaser will keep the land and building in the present state with limited return. The principle adopted is an accepted principle in the matter of valuation of real estate properties. There is nothing wrong and no further reference was needed as the property has not been considered as a leased out property." The Valuation Officer further observed : " In this case the land is not fully developed. It has not been put to full use as legally permissible and economically justifiable. Thus, only rent capitalisation method will give misleading results." 10. The Commissioner after taking into account the various submissions of the assessee, the orders of the WTO and the valuation report in question came to the conclusion that the submissions of the assessee that the valuation report of the Valuation Officer dated 14-2-1979 could not be looked at by him on the basis of the ratio of the Ganga Properties' case was not correct as the facts in the present case were clearly distinguishable from those of Ganga Properties' case. In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner should be satisfied that the order of the WTO was erroneous in law and that it was also prejudicial to the interests of the revenue. In the present case, the Commissioner of Wealth-tax does not say that the method of valuation adopted by the WTO was wrong and without it, it is not understood as to how it could be said that the order of the WTO was erroneous, (iii) that the order of the WTO could not be regarded as erroneous and prejudicial to the interests of the revenue for he had followed rent capitalisation method for finding out the value of the said property which was the only proper method for finding out the value of a wholly tenanted property. The order of the WTO, if at all, was prejudicial to the interests of the assessee inasmuch as he has taken 14 years' purchase for capitalising the annual letting value of the said property which was highly excessive and the assessee had already filed appeals against the determination of the valuation by the WTO. The Commissioner could not say that the said order was erroneous because the method of valuation adopted by the WTO was in accordance with law. The WTO has been following the above mode of computation of the valuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two valuations---one by the WTO and another by the DVO---which one was correct and he could set aside the order of the WTO only if he was satisfied that the order of the WTO was erroneous and prejudicial to the interests of the revenue. In the present case the learned Commissioner has not done so and, therefore, his order was unsustainable in law. 13. The aforesaid submissions of the assessee were resisted by the learned departmental representative who asserted that the assumption of jurisdiction by the learned Commissioner was entirely in order as the order of the WTO was not only erroneous but prima facie prejudicial to the interests of the revenue. According to him, the WTO was under a legal obligation to wait for the valuation report of the DVO and complete the assessment on the basis of the DVO's report. Once he had made reference to the DVO, he could not decide the question of valuation except in accordance with the report of the DVO. He drew our attention in this connection to the provision of sub-section (3) of section 7 of the Act and sub-section (6) of section 16A. After making the reference to the Valuation Officer the WTO had clearly erred in not waiting for his r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the proper method of valuation in the present case as it was not necessary for him to have given the said finding. Once he noticed that the WTO has erred in not waiting for the DVO's report and not following it, when the DVO's report was binding on him, he was duty bound to cancel the assessments in question without making any further enquiry. He relied on the following decisions in support of the above submissions---Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC), Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) and Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi). The Commissioner's order could not, in the circumstances, be taken exception of by the assessee with regard to his assumption of jurisdiction. 17. On merits, the learned departmental representative submitted that the decision of the Hon'ble Calcutta High Court in Smt. Ashima Sinha's case was confined to the facts of the said case and was delivered on the footing that the land had been fully developed in that case. It is not so in the present case as is clear from the finding of the DVO which on facts has not been disputed by the assessee. The yield method alone would not, therefore, give correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtheless wait for the valuer's report and let the case become time barred in the process. To submit, therefore, that the order of the WTO was erroneous in law due to the above reason was, in his opinion, not correct. He again stressed the point that in his reference to the Valuation Officer, the WTO had not stated as to why in his opinion the valuation by him was necessary and as to why and how he had come to the conclusion that the valuation as given by the assessee was an undervaluation. The reference by him to the Valuation Officer in the circumstances was erroneous. 20. We have carefully examined the facts of the case and the rival submissions. Sub-section (3) of the section 7 read as follows : " Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in sub-section (4), the valuation date referred to in that sub-section." From a bare re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces was not only against the law but also wilful and arbitrary and totally unjustified on the facts of the present case. The submission of the learned counsel for the assessee that there was no provision in the Act barring the WTO from making an assessment without waiting for the valuer's report is not tenable. A combined reading of the two sections referred to above makes the statutory position clear and we are of the opinion that the WTO had but to wait for the report of the Valuation Officer once he made the reference to him under section 16A. The extreme example which the learned counsel for the assessee gave to illustrate his point does not sound convincing to us for no argument can be based on the presumption that a public servant would not do his duty in accordance with law and the DVO being a public servant is bound to do his duty in accordance with law and, if the time limit for completion of the assessment was one of the requirements of law, it is to be presumed that the DVO would bear that time limit in mind and would adhere to it. In any case, on the facts of the present case, the extreme example given by the assessee does not advance his case any further because it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of the valuation proceedings in the present case and he had issued a notice under sub-section (4) of section 16A on 14-12-1978 and was awaiting the assessee's reply thereto and the final report was submitted by him on 14-2-1979, i.e., almost a month and a half before the assessment would have become time barred. It cannot, therefore, be stated on the facts of the present case that the order of WTO was beneficial to the interest of the revenue. It is further to be noted that under the 1961 Act, though provisions of sub-section (6) of section 16A of the 1957 Act have been incorporated in section 55A of the 1961 Act, there is no provision in the said Act analogous to sub-section (3) of section 7. We have already noted the aforesaid provision and the mandatory nature thereof. The ratio of the Ganga Properties' case cannot, therefore, be applied to the facts of the present case which is under the Act. We are as such not prepared to accept the arguments of the learned counsel for the assessee that the Commissioner's order is bad due to its being in conflict with the ratio of Ganga Properties' case. 22. The submission of the learned counsel for the assessee that the reference by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of every property can be made by mere arithmetical process of multiplication, addition, etc. There are various factors, which have to be taken into consideration for working out the valuation of a property on rental method, as a look at the Principles and Practice of Valuations by Parks would show. From the gross rent various deductions have to be made for repairs and maintenance, collection charges and management, vacancies and bad debts, etc. What should be the deduction for repairs and maintenance would depend on several factors, including the present state of the building. There is no standard formula which can be applied in every case for making deduction under this head. Only an expert can determine as to what amount should be deducted for repairs for a certain property taking into account its present state. If the building is old, there may be necessity for providing sinking fund and what would be the appropriate amount for this is again something which an expert alone can determine. After the net annual letting value has been determined, the important question of determination of years purchase or security would arise. Its determination is not an easy thing as can be see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome invalid and the valuer's report did not cease to be valid in law. The Commissioner could, therefore, look at this order and made up his mind whether he should interfere with the WTO's orders. 26. The contention of the learned counsel for the assessee based on the decisions of the Hon'ble Calcutta High Court in Smt. Ashima Sinha's case, Panchanan Das's case and Anup Kumar Kapoor's case to the effect that the method of valuation followed by the Valuation Officer was against law as laid down by their Lordships of the Calcutta High Court was not examined by the learned Commissioner as he had left the matter on merits to be determined by the proper forum for it. He merely looked at the orders of the WTO and noticing that they were prima facie against law and were erroneous and prejudicial to the interests of the revenue set aside his orders and directed the WTO to frame fresh assessments in accordance with law. The plea of the assessee is that the Commissioner erred in passing such an order as he had to show that the order passed by the WTO was prejudicial to the interests of the revenue and before he could come to such a conclusion he should have given a finding that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luer's report on merits and having left the matter entirely to be decided by the proper forum. There can hardly be any grievance to the assessee on account of this. The submission that the Commissioner should have himself examined the question of correctness or otherwise of the valuer's report before coming to the conclusion that the order of the WTO was erroneous and prejudicial to the interests of the revenue appears to us to be rooted in the assumption as if the Commissioner has to act as an appellate authority, which he is not, in terms of sub-section (2) of section 25. We have pointed out above that it is not the correct presumption. Under this sub-section the Commissioner, in our opinion, had merely to see whether the WTO was obliged to follow the valuation report of the valuer and if so, whether the valuation adopted by him was more or less than that indicated in the order of valuation by the Valuation Officer. The moment be found that the order of the Valuation Officer indicated a higher valuation figure and that the WTO was obliged to wait for it and to pass an order in accordance with it, the Commissioner was justified in passing the impugned orders. 28. We also do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples or the logic of the reversionary' method of valuation as applied by the Valuation Officer of the department in the instant case. After following the ' yield or rental ' method and having arrived at a figure the Valuation Officer has added to it the value of an imaginary reversion in future. We invited Mr. Pal to cite any authority which has approved or even indicated this method but he was unable to do so. It is stated in Parks' Valuation (at page 38) that when a property is valued on rental basis the result is the value of the land and building taken together which cannot afterwards be apportioned. In the method adopted by Valuation Officer the value of the land is taken twice, being included in the amount arrived at by the ' yield or rental ' method and again under the ' reversionary ' method. This is an entirely novel approach but in our view erroneous." [Emphasis supplied] The observations in the other two cases Panchanan Das's case and Anup Kumar Kapoor's case are similar. 30. It will be apparent from the above observations specially those underlined by us above. (i) that their Lordships have approved the views expressed in Parks' book and have regarded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curity for his capital. If a property produces a net return of Rs. 1,000 per annum and a purchaser desires 6 per cent return on his capital, he will pay Rs. 1,000 x 100 -------- = Rs. 1,000 x 16.6=Rs. 16,666 maximum for the property. 6 If he pays more, he will not have a 6 per cent return on his capital. If he pays less, he will obtain a greater return than 6 per cent. The multiplier of the net rent to obtain capital value is known as the years' purchase. The security of rent which a property produces is reflected in the years' purchase. For valuation purposes, therefore, security and the years' purchase are the same." From the above observations it can be readily seen that the purchaser is presuming yield of 6 per cent from the property in question in perpetuity. From Parks' table given at page 296 (4th edition) this position becomes immediately clear (see foot of column 2 read with column 1). 33. In the case of Smt. Ashima Shina's case the net annual return of the property was Rs, 6,493. The Tribunal multiplied this annual income with the multiple of 121/2 and then deducted from the product 10 per cent of such product on account of undivided 1/2 share of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to above 4th edition. The relevant observations may be extracted here for ready reference as follows : " It may be argued that as the building is producing a rent which when capitalised gives a value greater than the value of bare land, therefore, more than old material value should be taken for the structure. It may also be argued that as the building is producing a rent, that rent should be capitalised for the period it is expected and then revert to land plus old material value of the buildings deferred the period taken as the life of the building. The life of an old building is of a speculative nature, and towards the latter part of its effective life the rent is liable to be considerably reduced. Assume that the rent of Rs. 250 per month will be maintained for the next 15 years. Then a rent of Rs. 200 for the next 5 years and for the last 10 years the rent will be reduced to Rs. 150, the value of this would be : Rs. Rs. 1st 15 years' gross rent 3,000 Allow 34 per cent outgoings 1,020 --------------- Net rent 1,980 Year's purchase 15 years at the rate of 61 per cent. 9,403 18,618 --------------- Next 5 years' gross rent 2,400 Allow 34 per cent out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eversion is not contemplated till perpetuity. But, when a building would last only a few more years and would thereafter yield no income by way of rent whatsoever, the land would become available for such use thereof as may be made by the owner and as it is a valuable asset, it has to be valued and as such value would be available to the owner after a given number of years only its present value has to be computed. That is the rationale of the reversionary value of land and of the old material value of structure. Its relevance, may it be emphasized, is only to the rental method of valuation and, as noted above, it can have no relevance whatsoever to the land and building method. 36. The observations of their Lordships of the Calcutta High Court in the three cases, referred to above, have to be appreciated in the context in which and with the qualifications with which they have been made. Inasmuch as the position, as stated above, has not been considered and commented upon by their Lordships and inasmuch as their Lordships have more or less shown their agreement with the views of Parks, it would not be proper to construe the said judgments as negativing the Parks views contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other lower authority. Once the Tribunal gave the above finding it became the fact of the case. The observation of the departmental valuer merged into (or get obliterated by) the above finding of the Tribunal. In the face of the said finding, the addition of reversionary value of land and old material of the building became inappropriate and redundant. The Hon'ble High Court, therefore, rightly dismissed the half-baked submission of the standing counsel (the meaning of which be could not himself grasp and articulated with regard to the multiplier of 121/2 having been adopted by the Tribunal instead of 9.654 adopted by the departmental valuer. This is what their Lordships said on this point : " The only other point to be considered is whether the Tribunal applied a proper multiplier, i.e., 121/2 times. In our opinion, this point is academic. The Valuation Officer applied the rental method and computed the capitalised value of the said property at Rs. 62,513 by applying a multiplier of only 9.654. The assessee's valuer has applied a multiple of 121/2 which was accepted by the Tribunal. The appellant has no reasons to be aggrieved that a multiplier higher than that suggested b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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