COMMISSIONER OF WEALTH TAX VS R.S. TANDON AND OTHERS, 1992 PTD-DELHI-HIGH-COURT-INDIA 1494 (1991)

Wealth tax---

----Valuation---Building---Property owned by assessee occupied in part by assessee--Other portions occupied by tenants---Property covered by rent 1992 control, law---Method of valuation ---Reversionary value of land---No scope for inclusion in value.

Where the property of an assessee is occupied by tenants, and only a part thereof is in the occupation of the assessee and the property is subject to rent control legislation, in valuing the property, it is incorrect to add the reversionary value of the land. The reversionary value is an imaginary value, which is related to the potential of the land as if it is an open and vacant piece of land. When there is a property standing on the piece of land which has tenants occupying it and which is subject to rent control legislation, there is no scope for including an imaginary reversionary value.

By the Court: The existence of tenants in a property and other restrictions or limitations imposed by the local authorities regarding the nature of construction that can be raised in the event of the existing property being pulled down, are all relevant factors to be taken into consideration for purposes of valuation of a property. In such circumstances; it is not possible to add the reversionary value of the land as a factor in determining the fair market value of the property. It is impossible to pull down a building, which is partly occupied by tenants. The applicability of rent control legislation makes it difficult, virtually impossible, to get rid of the tenants in commercial premises.

CIT v. Ashima Sinha (1979) 116-I T R 26 (Cal.) C.I.T. v. Anup Kumar Kapoor (1980) 125 I T R 684 (Cal.), CWT v. Ram Saran Kajriwal (1987) 168 ITR 485 (All.) and CWT v. Ram Narain Garg (1988) 68 C T R 75 (All.) fol.

H.H. Maharaja Martand Singlr Ju Deo v. CWT.(1987) 1651 T R 745 (MP) distinguished.

CIT v. New India Construction Co. (1980)123 I T.R 68 (Delhi) ref.

Rajendra B. Gupta, D.N. Malhotra, R.C. Pandey, D.C. Taneja, R.N.

Verma and R.K. Chaufla for the Commissioner.

G.R. Agnihotri for the Assessee.

JUDGMENT

ARUN KUMAR, J.---The Tribunal has referred' the following question for the opinion of this Court under section 27 of the Wealth Tax Act, 1957 (hereinafter referred to as `the Act'):

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the order of the Commissioner of Wealth Tax (Appeals) deleting the addition of Rs.10,51,151 on account of reversionary value of land made to the value of the property known as 'Wenger's Building?"

The facts giving rise to the above reference being made to this Court are that Wenger's Building was purchased by the firm, Wenger and Company, from Dayal Singh Trust Society and Shri Mool Chand Kharaiti Ram Trust, vide sale-deeds dated March 9, 1962, and September 28, 1963, for 85.3,90,000 and Rs.1,50,000, respectively. The total consideration thus comes to Rs.5.40,000. The building was constructed some time during the year 1930 on a plot of land measuring 1,051 sq. yds. having two storeys. Before the purchase, Messrs Wenger and Co. was occupying a part of the said building as a tenant and in fact had been running its business therein since long. The firm was paying a rent of Rs.1,195 per months to the landlord. Besides the said firm, there were six other tenants in the property. Thus, the property before purchase was occupied by the firm and the other six tenants. After the purchase, the firm became the owner in possession of the portion earlier occupied by it while the remaining portion of the property remained with the tenants.

The assessee, are partners in the firm Messrs Wenger & Co. On the relevant valuation dates, i.e. March 31, 1976, and March 31, 1977, the firm owned the aforesaid property known as 'Wenger's Building' at Connaught Place, New Delhi. In the returns of net wealth filed by the assessees, they disclosed the value of the entire property at Rs.7,20,570 for each of the years. The Wealth Tax Officer, however, referred the matter to-the Departmental Valuation Officer who valued the property at Rs.44,44,000 for the assessment year 1976-77. This amount included a sum of Rs.10,51,151 on account of reversionary value of the land. For the assessment year 1977-78, the Departmental Valuation Officer, acting on a reference from the Wealth Tax officer, valued the property at Rs.47,80,000, which include a sum of Rs.13,22,253. The Wealth Tax Officer adopted the valuation of the Departmental Valuation Officer for both the years for purposes of completing the assessments.

The Commissioner (Appeals), relying on an earlier order in the case of another partner of the same firm, directed the Wealth Tax Officer to recompute the market value of the property in question. He also directed deletion of the amount added on account of reversionary value of the property. The revenue appealed to the Tribunal saying that the inclusion of the reversionary value of the land was fully justified. The Tribunal held against the Revenue which has led to the present reference being made.

It is not disputed that the property in question is covered by the' provisions of the Delhi Rent Control Act. It is also not disputed that there are tenants in the property, though a part thereof is in the occupation of the assessees. These factors have an important beating on the value of the property. This Court has recognised the effect of such impediments on the valuation of a property in CIT v. New India Construction Co. (1980) 123 ITR 68. It was observed (at page 75):

"However, the fair market value of the property on the basis of cost of (Arun Kumar, J) land and building method would have been relevant if it was self -occupied by the transferor and he was in a position to hand over vacant possession thereof to the transferee. Instead, there were three old tenants residing in the property, and it was also subject to the rent control restrictions against ejectment. In this respect, we are in agreement with the Tribunal that the value of such properties cannot be measured by the values of those properties which are self- occupied."

The existence of tenants in a property and other restrictions or limitations imposed by the local authorities regarding the nature of construction that can be raised it the event of existing property being pulled down are all relevant factors to be taken into consideration for purposes of valuation of a property. In such circumstances, it is not possible to add the reversionary value of the land as a factor in determining the fair market value of, the property. It is impossible to pull down a building which is partly occupied by 'tenants. The applicability of rent control legislation makes it difficult, virtually impossible, to get rid of the tenants in a commercial premises.

Counsel for the assessees has brought to our notice various judgments of different High Courts wherein the question of addition of the reversionary value of land for purposes of valuation of a property has been considered. First he cites a judgment of the Calcutta High Court in CIT v. Ashima Sinha (1979) 1161 T R 26. It has been held in the said judgment that if a statutory control is A imposed on a commodity restricting the price or transfer or distribution of the same, then the commodity ceases to be a commercial commodity as understood in common parlance and becomes a controlled commodity and its effective value is its controlled value and not an imaginary commercial value. If the State chooses to impose statutory control in respect of terms and conditions of tenancies in properties and such control is statutorily enforced, then during the subsistence of such control, such properties would necessarily have a value, which is controlled. The State cannot then turn around and say that for other purposes the properties would have a notional commercial value. When land is fully developed by building erected thereon, when the property is let for rent and the rent has been proved and is likely to be maintained for years to come, then the yield or rental, method of valuation should be applied to determine the market value of the premises. When a property valued on the rental basis, the result is the value of the land and buildings taken together. The value of land cannot be added again by adding the 'reversionary' value of the land because the building is very old.

Again, the Calcutta High Court has in C.I.T. v. Anup Kumar Kapoor (1980) 125 1 T R 684, while dealing with the question of valuation of property, observed (headnote),-

"Whether the transferees have purchased the property with an idea of construction of a multi-storyed building therein in future or for some other purpose is wholly immaterial in determining the market value of the property on the date of its purchase by the transferees. It would be proper to value such land by the yield or rental method.

The value of the land cannot be taken twice, once in arriving at the figure by the yield or rental method and again in applying the value of an imaginary future reversionary value of the land."

The same view has been expressed by the Allahabad High Court in CWT v. Ram Saran Kajriwal (1987) 168 1 T R 485 and CWT v. Ram Narain Garg (1988) 68 C T R 75. Since the later decision merely follows the earlier one, we would prefer to make a reference to the earlier decision only. The assessee in this case owned a share in some immovable properties. The properties were fully developed and tenanted and the tenancies were regulated by the Rent Control Act The Valuation Officer determined the value of the properties by adopting the `rent capitilisation method' and added certain amounts to it on account of the reversionary value of the land. The Tribunal held that the reversionary value of land should not be included while computing the value based on the `rent capitalisation method'. It was held that the valuation of assets had to be made in each case with due regard to the conditions of the time and factors which affected transactions between a willing seller and an intending buyer. The valuation of the properties in the instant case by adopting the `rent capitalisation method' could be regarded as the determination of the approximate market value of the properties on the valuation date. In adding the reversionary value of land, it is assumed that the rental income will come to an end after the economic life of the structure is over. There was nothing on record to show that the properties in question were very old or obsolete. In the methods of valuation adopted by the Valuation Officer, the value of the land was taken twice, having been included in the amount arrived at by the `yield or rental' method and once again under the 'reversionary' method. This approach was erroneous.

We are fully in agreement with the view expressed in the aforesaid judgments. As noticed earlier, the property in question has tenants. It is subject to rent control legislation. Therefore, it is incorrect to add the reversionary value of the land while valuing the said property. The reversionary value is an imaginary value which is related to the potential of the land as if it is an open and vacant piece of land. When there is a property standing on the piece of land which has tenants occupying it and which is subject to rent control legislation, there is no scope for including an imaginary reversionary value.

Counsel for the Revenue has referred to H.H. Maharaja Martand Singh Ju Deo v. CWT (1987) 165 I T R 745. In this case, the Madhya Pradesh High Court has held that the development potentialities of the building could not be. ignored in determining its market value. This judgment cannot be an authority to support the contention advanced on behalf of the Revenue that the reversionary value if the lend ought to be included in computing purposes of wealth-tax. Unlike the case before us, in this case, the property was i being developed into a multi-storeyed building. There was no question of its being in existence and occupied by tenants; nor was there any question of applicability of rent control legislation. The Court did not consider the effect of such factors. The facts in this case were totally different and it does not serve as any guide for the problem in hand before us.

We are of the view that the Tribunal was correct in upholding the order of the Commissioner of Wealth Tax (Appeals) deleting the addition of the amount on account of the reversionary value of land. We answer the reference accordingly.

There will be no orders as to costs.

M.B.A./1640/T Order accordingly.