COMMISSIONER OF WEALTH TAX VS SETH GOKULDAS PRADEEP KUMAR (NO.1)
1995 P T D 1207
[210 I T R 64]
[Rajasthan High Court (India)]
Before K .C. Agrawal, CJ and V.K Singhal, J
COMMISSIONER OF WEALTH TAX
Versus
Seth GOKULDAS PRADEEP KUMAR (No.1)
D. B. Wealth Tax Reference No. 54 of 1983, decided on 14/10/1993.
Wealth tax---
---- Valuation of asset---Property, which was partly let out---Adoption of rent capitalisation method for portion of property that was let out and land-cum- building method for the rest of the property---Justified---Indian Wealth Tax Act, 1957.
In accordance with the provisions of section 7(1) of the Wealth Tax Act, 195'7, the value of any asset other than cash, for the purpose of the Act has to be estimated by the Wealth Tax Officer, on the basis of what it would fetch, if sold in the open market on the valuation date. Besides the principles which have been laid down under the Rules, the power of valuation has to be exercised in a judicious manner and must be based on some material. In respect of a property rented out, the proper course would be to determine the valuation of the property, which is in the occupation of the tenant on rental basis. Regarding the multiplier to be applied, no general principles could be laid down or considered in a fixed or air-tight jacket. The basis of the proper multiplier for valuing house property is the multiplier, which has, to be approximately equal to the return from the gilt-edged, securities prevailing at the relevant time.
Held that the Tribunal was justified in holding that the Appellate Assistant Commissioner had rightly adopted the rent capitalisation method for determining the value of the property rented out by taking into consideration the rent realised by the assessee and that of the self-occupied property, by the land-cum-building method. The Tribunal was justified in applying the multiplier of 12.50 for the rent-capitalisation while computing the value of the let out portion.
Sabita Mohan Nagpal v. C.W.T. (1986) 160 ITR 751(Raj.) and Special Land Acquisition Officer v. Veerabhadarappa (P.) (1985) 154 ITR 190 (SC) ref.
G.S. Bapna for the Commissioner.
N.M. Ranka and J.K. Singhi for the Assessee...
JUDGMENT
V.K. SINGHAL, J.---The Income Tax Appellate Tribunal has referred the following questions of law arising out of its order, dated April 29, 1991, in respect of the assessment years 1970-71 to 1973-74 under section 27(1) of the Wealth Tax Act, 1957:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Commissioner has rightly calculated the value of the let out portion of Haveli situated in Shahpura Mohalla, Beawar, on rent capitalisation method?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the multiplier of 12.50 applied by the Appellate Assistant Commissioner while computing the value of the let out portion of Rathi House, Jaipur?"
The brief facts of the case are that Seth Gokuldas Pradeep Kumar Rathi has a half share in the house property, namely, Haveli, situated in Shahpura Mohallah. The value of the share in the property shown by the (V.K. Singhal, J) assessee in the various assessment years 1970-71 to 1973-74 was increased as under:
| Assessment years | Value shown by the Assesse | Value adopted by the Wealth Tax Officer |
| | Rs. | Rs. |
| 1970-71 | 1,44,469 | 2,25,000 |
| 1971-72 | 1,84,842 | 2,25,000 |
| 1972-73 | 1,84,304 | 2,60,000 |
| 1973-74 | 1,88,859 | 2,70,000 |
The Wealth Tax Officer adopted the value on the basis of the valuation fixed by the Valuation Officer to whom reference-was made by the Wealth Tax Officer under section 16-A of the Wealth Tax Act. The Valuation Officer adopted .the value of the property on. the land-cum-building method. A part of the property was let out and even that portion has been valued by the Valuation Officer on the land-cum-building method. The other portion, which was self-occupied was also valued by the Valuation Officer on the land-cum- building method. The value of the half share of the portion has been valued by the Valuation Officer at Rs.91,834 of the assessment year 1970-71 and the other portion was valued at a figure of Rs.1,33,166. It was on this basis that the valuation for the assessment year 1970-71 was taken at a figure of Rs.2,25,000 and for the subsequent assessment years, it was increased to Rs.2,50,000,. Rs.2,60,000 and Rs.2,70,000.
In appeal before the Appellate Assistant Commissioner, the value of the rented portion was taken at a figure of Rs.44,175 and that of the self -occupied portion at a figure of Rs.1,80,825 in respect of the assessment year 1970-71: The total value thus taken out was Rs.1,75,000. The Appellate Assistant Commissioner adopted the rent capitalisation method for determining the valuation of the property which was rented out taking into consideration the rent realised by the assessee and in respect of the self-occupied property, the land-cum-building method was followed which was adopted by the Valuation Officer as well as the Wealth Tax Officer. The valuation for the assessment years 1971-72, 1972-73 and 1973-74 was taken at a figure of Rs.2,00,0, Rs.1,89,000 and Rs.1,93,000 respectively.
The Department filed an appeal on the ground that the value of the rented portion had wrongly been taken on the rent capitilisation method and should have been taken on the land-cum-building method as the rent realised was not the true rent. The Tribunal observed that the figured rent, which have been taken by the Appellate Assistant Commissioner is the same, which was taken by the Income Tax Officer while completing the individual assessment under the income Tax Act. It, therefore, cannot be said that the rents realised are not the true rents and that where the properties are let out, the most appropriate method for valuing such properties would not be the rent capitalisation method. The appeal of the, Department was rejected. The assessee has also a half share in the Rathi house. This is partly let out and partly occupied. In respect of the let out portion the valuation adopted by the Valuation Officer and the Appellate Assistant Commissioner was the rent capitalisation method and the dispute was with regard to the multiplier to be adopted as, according to the Valuation Officer, the rate of interest in perpetuity was 5.5 per cent and thus the multiplier was to be taken at 18.10. The Appellate Assistant Commissioner adopted the rate of interest, in perpetuity, at eight per cent. and the rate of multiplier at 12.5. per cent. The Tribunal observed that while fixing a value on the basis of the rent capitalisation method the rate of interest on gilt-edged securities in the year preceding the valuation date has to be taken into consideration and since it was not controverted by the Departmental Representative that the rate of interest on fixed deposits was less than eight per cent during the accounting period relevant to the valuation date for the assessment year 1970-71, the Tribunal upheld the multiplier of 12.50 which was applied by the Appellate Assistant Commissioner.
We have considered the matter. In accordance with the provisions of section 7(1) of the Wealth Tax Act, the value of any asset other than cash, for the purpose of the Act has to be estimated by the Wealth Tax Officer, as the price it would fetch, if sold in the open market on the valuation date. Besides the principles which have been laid down under the Rules, the power of valuation has to be exercised in a judicious manner and must be based on some material. In respect of a property rented out, the proper course would be to determine the valuation of the property, which is in the occupation of a tenant on the rental basis. This view has also been taken by this Court in the c& z of Sabita Mohan Nagpal v. CWT (1986) 160 ITR 751. In view of this decision, we are of the view that the Income Tax Appellate Tribunal was justified in upholding the decision of the Appellate Assistant Commissioner who has calculated the valuation of the let out portion of Haveli, Shahpura, on the rent j capitalisation method.
Regarding the multiplier to be applied, no general principles could be laid down or considered in a fixed or air-tight jacket. The basis of the proper multiplier, for valuing the house property is the multiplier, which has to be approximately equal to the return from the gilt-edged securities prevailing at the relevant time. It could be considered that the yield on the investment is the safest basis. The apex Court in the decision in the case of Special Land Acquisition Officer v. P. Veerabhadarappa (1985) 154 ITR 190 has observed as under (at page 198):
"It would be unrealistic to adhere to the traditional view of capitalised value being linked to gilt-edged securities when investments in fixed deposits with nationalised banks. National Savings Certificates, Unit Trust and other forms of Government Securities and even in the share market in the shape of blue chips command a much greater return. The more secure the capital and regular the return, the lesser the rate of interest. The more secured kind of investment is Government Securities or deposits with scheduled banks or Unit Trust or National Savings Certificates. The rate of interest on Government of India bonds for a period 30 years in 1972 yielded 5.75 per annum. As per the Government of Karnataka publication called `Finance Accounts of 1972-73', the rate of interest on the Mysore State Development Loans, issued in the years 1967, 1968, 1969, 1970, 1971 and 1972 was uniformly 5-3/4. The rate of interest on fixed deposits with the State Bank of India for a period ranging from 3 years up to five years yielded 7 per cent. while the rate on fixed deposits above 5 years was 7.25 per cent. The rate of dividend payable on units of the Unit Trust in 1972 was 8.25 per cent. per annum, the National Savings Certificates 7 years, second issue yielded tax-free interest at 6 per cent. on maturity, 7 years, third issue 6 per cent., tax-free payable annually and 7 years, 4th issue 7.5 per cent payable annually but subject to income tax."
In this case, the apex Court while determining the compensation for the property based on rent, applied the multiplier of 12.5 per cent in respect of the assessment year 1971-72. The multiplier of 14 was applied in the case of Smt. Sabita Mohan Nagpal v.: CWT (1986) 160 ITR 751 (Raj.), referred to above, but in view of the decision of the apex Court in the case of P. Veerabhadarappa (1985) 154 ITR 190, we are of the view that the Income Tax Appellate Tribunal was justified in applying the multiplier of 12.50 on the rent-capitalisation method while computing the value of the let out portion of Rathi House, Jaipur. Accordingly, the reference is answered in favour of the assessee and against the Revenue. No order as to costs.
M.BA./807/TFReference answered.