Wealth tax-----

----Valuation of assets---House property in Calcutta in occupation of a tenant---Multiplier method on the basis of contract rent to be adopted-- Reversionary value of land cannot be taken into account---Indian Wealth Tax Act, 1957.

Neither the Wealth Tax Act, nor the rules framed thereunder lay down any guidelines for determining the market value of land or house property. The principles adopted for the purpose of valuation under the Land Acquisition Act, 1894, can also be adopted for a similar purpose under the Wealth Tax Act, 1957. In the case of tenanted building property, certain additional considerations have to be borne in mind. In areas governed by the Rent Act or the Rent Control Act, it may not be possible for the landlord to enhance the rent or evict the tenant; even otherwise, the process of enhancement of rent or fixation of standard or fair rent, or eviction may be beset with unreasonable delay, expense and other complications. In such cases, the appropriate method of valuation is to capitalise the annual rent by a certain number of years' purchase. When the property is valued on rental basis, the value represents the full value of the land and building taken together. There is no justification to increase this value by adding to it what may be regarded as an imaginary future reversionary value. Where the likelihood of enhancing the rent or evicting the tenant is minimal, the valuation on the basis of contract rental value represents the full market value, what a willing buyer may be willing to pay for it. There is no residuum of right or interest left which needs to be valued separately.

Held, that the building in the instant case was within the limits of the Calcutta Corporation. It was in the occupation of a tenant. The parties are governed by the provisions of the West Bengal Premises Tenancy Act, 1956, which offers a considerable degree of protection to the tenants from eviction. The landlord may not be in a position to evict the tenant. It was not shown that the standard rent which may be fixed would be in excess of the contract rent. In such circumstances, the method of valuing the land and building separately would be unrealistic and unjust. The only appropriate method to be adopted in such a case would be the multiplier method on the basis of the contract rent and the net income derived therefrom. That was the method which had been followed by the appellate authorities. The reversionary value of the land could not be taken into account.

CIT v. Anup Kumar Kapoor (1980) 125 ITR 684 (Cal.) fol.

CIT v. Ashima Sinha (1979) 116 ITR 26 (Cal.); CWT v. Ramachandran (V.C.) (1966) 60 ITR 103 (Mys.); CED v. Bijoy Kumar Khandelwal (1977) 108 ITR 864 (Gauhati); CED v. Radha Devi Jalan (1968) 67 ITR 761 (Cal.); Corporation of Calcutta v. Padma Debi AIR 1962 SC 151; Debi Prosad Poddar v. CWT (1977) 109 ITR 760 (Cal.); Krishna Prasad (C.) v. CWT (1970) 76 ITR 115 (Mys.); Rustom Cavasjee Cooper v. Union of India (1970) 40 Comp. Cas. 325 (SC); Special Land Acquisition Officer v. T. Adinarayan Setty AIR 1959 SC 429; State of Kerala v. P.P. Hassan Koya AIR 1968 SC 1201; Sudesh Chandra Talwar v. CWT (1982] 137 ITR 483 (Cal.) and Tribeni Devi v. Collector, Ranchi AIR 1972 SC 1417 ref.

D.K. Talukdar for the Commissioner.

J.P. Bhattacharjee, Dr. M.K. Sharma and K.P. Pathak for the Assessee.

JUDGMENT

U.L. BRAT, CJ. ---The following question has been referred by the Income-tax Appellate Tribunal, Guwahati Bench, at the instance of the Revenue under section 27(1) of the Wealth Tax Act, 1957 (for short, "the Act"):

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reversionary value of the land in question of the tenanted property should not be taken into account?"

The reference arises in regard to wealth tax assessments in relation to three brothers who own undivided 1/3rd share in certain common assets. The assets include a building in property No. 250-B, Lake Town, within the limits of the Calcutta Corporation. The assessee valued it at Rs. 1,79,224 as suggested by an approved valuer. This valuation was made by the multiplier method on the basis of the contract rent. The Wealth Tax Officer referred the matter to the Departmental Valuation Officer who fixed the value at Rs. 5,05,838 by adding the value of the "reversionary right of the landlord" to the value arrived at on the basis of the rent. The Wealth Tax Officer accepted the same and passed the assessment order on that basis. The appellate authority held that there was no justification to include the value of the reversionary right in the, market value of the building and this has been affirmed by the Tribunal in further appeal at the instance of the Revenue. The Revenue sought a reference, being dissatisfied with the findings of the two appellate authorities.

Under the provisions of the Act, wealth tax is payable on the net wealth as assessed by the statutory authority subject, of course, to various admissible deductions. Wealth includes all assets. Necessarily, building would be part of the wealth for the purposes of the Act.

Learned counsel for the Revenue, Shri D.K. Talukdar, submitted that the rent adopted for the purpose of calculation is very low and, therefore, cannot be the basis for determining the market value of the building. We do not find that any such question had been canvassed before the statutory authorities and no such question has been referred by the Appellate Tribunal. Therefore, it is not open to the Revenue to raise this contention.

Neitherthe Act nor the Rules framed thereunder lay down any guidelines for determining the market value 'of land or house property. The question of valuation has arisen under the Land Acquisition Act, 1894. There is not in general any market for land in the sense in which one speaks of a market for shares or commodities. The value at any particular time of shares or commodities can easily be ascertained by the prices ruling in the market. Therefore, valuation is based on the price paid within a reasonable time in bona fide transactions of purchase of comparable land in the vicinity or on a number of years' purchase of actually or immediately prospective profits of the land acquired or on the opinion of experts. These methods do not preclude the Court from taking any other special circumstances into consideration, the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonably correct market value, it may be necessary to take even two or all of those methods into account inasmuch as the exact valuation is not always possible. See Special Laud Acquisition Officer v. T. Adinarayan Setty, AIR 1959 SC 429, Tribeni Devi v. Collector, Ranchi, AIR 1972 SC 1417, CED v. Bijoy Kumar Khandelwal (1977) 108 ITR 864 (Gauhati).

In the case of house property or land with building, it is often difficult to secure reliable evidence of instances of sale of similar property proximate in time to the relevant date. Therefore, the method generally adopted in determining the value of land with buildings, particularly those used for commercial purposes, is the capitilization method, i.e.; a number of years' purchase on the basis of return actually received or which might reasonably be received from the property. Ordinarily, though not invariably, a multiplier approximately equal to the return from gilt-edged securities prevailing at the relevant time is adopted for capitalization. See State of Kerala v. P.P. Hassan Koya, AIR 1968 SC 1201, CED v. Bijoy Kumar Khandelwal (1977) 108 ITR '864 (Gauhati). Where the property is a house, the expenditure likely to be incurred for constructing a similar house and reduced by the depreciation for the number of years since it was constructed is an approved method of valuation. The principle of reinstalment can be adopted if it is satisfactorily established that reinstalment in some other place is bona fide intended. If the building has lost its utility, it may be valued as land plus the break-up value of the building. See Rustom Cavasjee Cooper v. Union of India (1970) 40 Comp. Cas. 325 (SC).

The principles adopted for the purpose of valuation under the Land Acquisition Act, 1894, can also be adopted for a similar purpose under the Wealth Tax Act, 1957.

In the case of tenanted building property, certain additional considerations have to be borne in mind. In areas governed by the Rent Act or the Rent Control Act, it may not be possible for the landlord to enhance the rent or evict the tenant; even otherwise, the process of enhancement of rent or fixation of standard or fair rent, or eviction may be beset with unreasonable delay, expense and other complications. In such cases the appropriate method of valuation is to capitalize the annual rent by certain number of years' purchase. See CWT v. V.C. Ramachandran (1966) 60 ITR 103 (Mys.), Corporation of Calcutta v. Padma Debi, AIR 1962 SC 151, CED v. Radha Devi Jalan (1968) 67 ITR 761 (Cal.), C. Krishna Prasad v. CWT (1970) 76 ITR 115 (Mys.), Debi Prosad Poddar v. CWT (1977) 109 ITR 760 (Cal.) (per Sabyasachi Mukharji, J., as he then was), CIT v. Ashima Sinha (1979) 116 ITR 26 (Cal.) and Sudesh Chandra Talwar v. CWT (1982) 137 ITR 483 (Cal.) (per Sabyasachi Mukharji, J., as he then was). When the property is valued on rental basis, the value represents the full value of the land and building taken together. There is no justification to increase this value by adding to it what may be regarded as an imaginary future reversionary value. Where the likelihood of enhancing the rent or evicting the tenant is minimal, the valuation on the basis of contract rental value represents the full market value, i.e., what a willing buyer may be willing to pay for it. There is no residuum of right or interest left which needs to be valued separately. We agree with the view expressed in this behalf in CIT v. Anup Kumar Kapoor (1980) 125 ITR 684 (Cal.).

The building in the instant case is situated within the limits of the Calcutta Corporation. It is in the occupation of a tenant. The parties arc governed by the provisions of the West Bengal Premises Tenancy Act, 1956, which offers a considerable. degree of protection to the tenants from eviction The landlord may not be in a position to evict the tenant. It is not shown that standard rent which may be fixed would be in excess of the contract rent. In such circumstances, the method of valuing the land and building separately would be unrealistic and unjust. The only appropriate method to be adopted in such a case would be the multiplier method on the basis of the contract rent and the net income derived therefrom. That is the method which has been followed by the appellate authorities in this case.

We, therefore, answer the question in the affirmative, that is, in favour of the assessee and against the Revenue.

A copy of this judgment with the signature of the Registrar and the seal of the High Court will be transmitted to the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati.

M.BA./2443/TReference answered.