COMMISSIONER OF INCOME TAX VS RASIKLAL KANTILAL SHAH
1996 P T D 467
[206 I T R 425]
[Gujarat High Court (India)]
Before G. T. Nanavati and Y. B. Bhatt, JJ
COMMISSIONER OF INCOME TAX
versus
RASIKLAL KANTILAL SHAH
Wealth Tax References Nos.3, 3-A to 3-C of 1980, decided on 09/06/1993.
Wealth tax--
---- Valuation of assets---Property occupied by tenants compulsorily acquired under Land Acquisition Act---Notification under S.4 of Land Acquisition Act issued on 27-7-1967 in respect of back portion of property---No material to show exact compensation received and whether in acquisition proceedings the fact that property was in the occupation of tenants was taken into account-- Tribunal justified in valuing property on rental method for assessment years 1964-65 to 1967-68---Indian Income-tax Act, 1957.
The assessee was the owner of a property which came to be acquired by the Government under the Land Acquisition Act. As the property continued to vest in the assessee till September 30, 1988, the assessee showed that property as his property in the wealth tax return filed for the assessment years 1964-65 to 1967-68. As the property was in the possession of tenants the assessee, after getting the valuation done by an approved valuer, valued it at Rs.1,28,836. In respect of the front portion of the said property, notification under section 4 of the Land Acquisition Act was issued on March 22, 1963, and in respect of the rear portion the notification was issued on July 27, 1967. The Wealth Tax Officer did not accept the valuation put upon the property by the assessee and on the basis of the amount received by the assessee by way of compensation fixed the market value of the property. The Appellate Assistant Commissioner determined the market value of the property at 65 percent. of the total compensation received. On further appeal; the Tribunal took note of the fact that separate awards were passed and that the assessee was paid compensation amount on different dates. It also took note of the fact that the assessee was paid interest for the ,period March 12, ' 967 to November 17, 1969. It was held that the property of the assessee should be valued on the rental method as the property was fully let out for the assessment years in which the valuation date was earlier than March, 12, 1967, and neither did the property vest in the Government nor was interest payable till then. The Wealth Tax Officer was directed to value the properties under appeal for these assessment years at Rs.1,28,836 if the report of the approved valuer of the valuation of the property was in order. If on adoption of the rental method, it was possible to value the property of the assessee at the higher figure, the Wealth Tax Officer was at liberty to do so. On a reference:
Held, (i) that there was no material to show the exact amount that was received by the assessee and how the apportionment was made by the Land Acquisition Officer between the interest .of the landlord and the tenants. It was not made clear whether if in the land acquisition proceedings the fact that the property was a rented property was taken note of. Even the judgments of the Courts whereby compensation was enhanced were not taken into consideration as they were not brought before the authorities. Obviously, therefore, the market value could not have been fixed on the basis of the amount received by the assessee by way of compensation. It was an admitted position that there were tenants on the entire property. Thus, it being a tenanted property, an attempt should have been made to find out what a willing purchaser would have paid for purchasing such a tenanted property. The Tribunal was right in holding that the property should have been valued on the basis of the rental method;
(ii) that the value of the property in question should be taken at Rs.1,23,336 subject to what the Tribunal had observed, namely, that if on adoption of rental method it was possible to value the property of the assessee at a higher figure, the Wealth Tax Officer was at liberty to do so.
Pandit Lakshmi Kant Jha v. C.W.T. (1973) 90 ITR 97 (SC).and C.W.T. v. V.C. Ramachandran (1966) 60 ITR 103 (Mys.) ref.
B.J. Shelat instructed by M.R. Bhatt of R.P. Bhatt & Co. for the Commissioner.
JUDGMENT
G.T. NANAVATI, J.---This reference pertains to four assessment years, namely, 1964-65, 1965-66, 1966-67 and 1967-68. Four different appeals were filed by the assessee and four cross-appeals were filed by the Revenue against four separate orders passed by the Appellate Assistant Commissioner. Even before the Tribunal, four separate applications were filed for making reference to this Court. Even then the Tribunal has thought it fit to make only one reference. Really the Tribunal ought to have made four separate references Since the Tribunal has failed to do so, we direct the office to treat References No.3 of 1980 as reference in respect of the assessment year 1964-65 and give separate numbers as Income-tax References Nos.3-A of 1980, 3-B of 1980 and 3-C of 1980 to references in respect of the assessment years 1965-66, 1966-67 and 1967-68, respectively.
As the questions which arise for consideration in these four references are the same, they are heard together and disposed of by this common judgment.
The questions which have been referred by the Tribunal under section 256(1) of the Income tax Act are as under:--
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in directing that the value of the properties should betaken on the basis of the rental method of the property which was fully let out for the assessment year in valuation date was earlier than March 12, 1967?
(2) Whether, on the facts and in the circumstances of the case, the value of the property in question should be taken at Rs.1,23,336 as suggested by the Appellate Tribunal or Rs.4,70,940 as suggested by the Appellate Assistant Commissioner, or Rs.6,50,000 as taken by the Wealth Tax Officer?"
The assessee was the owner of a property which came to be acquired subsequently by the Government under the Land Acquisition Act. As the property continued to vest in the assessee till September 30, 1988, the assessee showed that property as his property in the wealth tax return filed for the said assessment years. As the property was in the possession of tenants, the assessee after getting the valuation done by an approved valuer, valued it at Rs. 1,28,836. It appears that, in respect of the front portion of the said property, notification under section 4 of the Land Acquisition Act was issued on March, 22, 1963, and in respect of the rear portion, the notification was issued on July 27, 1967.
The Wealth Tax Officer did not accept the valuation put upon the property by the assessee and, on the basis of the amount received by the assessee by way of compensation, fixed the market value of the property at Rs. 6,50,000. He took into consideration the fact that, in respect of the front portion, the assessee was paid Rs.1,06,304 and for the rear portion had had got Rs.4,25,000. He also took into consideration the fact that even the assessee had contended that the said compensation was not adequate and actually he had challenged the awards for obtaining higher compensation. He therefore, fixed the market value of the entire property at Rs.6,50,000.
Aggrieved by the four separate assessment orders, the assessee preferred four appeals before the Appellate Assistant Commissioner. It 'was contended before the Appellate Assistant Commissioner that the Wealth Tax Officer was not justified in fixing the market value of the property on the basis of the compensation received by the appellant, and that the market value of the property should have been found out on the basis of the rental method only. From the order passed by the Appellate Assistant Commissioner, it appears that the property in question was acquired in parts on different dates and awards were also declared on different dates. The. Appellate Assistant Commissioner was of the view that, as the property was acquired by the Government, what remained with the assessee was the right to receive compensation and applying the ratio laid down by the Supreme Court in Pandit Lakshmi Kant Jha v. C.W.T. (1973) 90. ITR 97, he determined the market value of the property at 65 % of the total compensation, that is, Rs.7,24,523 received by the assessee. Thus, he fixed the market value of the property at Rs.4,70,940.
Neither the assessee, nor the Department was satisfied with the said order passed by the Appellate Assistant Commissioner and, therefore, both of them preferred appeals to the Tribunal. Before the Tribunal, the assessee raised .the same contentions. The Tribunal took note of the fact that separate awards were passed, and that the assessee was paid compensation amount on different dates. It also took note of the fact that the assessee was paid interest for the period March 12, 1967, to November 17, 1969. It also took note of the fact that possession was taken between January 20, 1971, and March 17, 1973, on four different dates. It then accepted the contention of the assessee that the compensation determined by the Land Acquisition Officer would not be relevant for determining the valuation of the property of the assessee on the valuation date. It, however, on the basis of the following reasoning, allowed, the appeal filed by the assessee and dismissed the appeal filed by the Department.
"... The right to receive compensation as observed by the Supreme Court in Pandit Lakshmi Kant Jha's case (1973) 90 ITR 97, became vested in the assessee the moment he-was divested of the estate. Under section 16 of the Land Acquisition Act, 1894, on the Collector making an award under section 11 and taking possession under section 16, the Land absolutely vests in the Government free from any encumbrances. The earliest date when possession was taken under section 16 of the Land Acquisition Act is January 28, 1971. No interest is received by the assessee for the period up to March 12, 1967. In these circumstances, in our view, the assessee was right in his submission that the property of the assessee should be valued on the rental method as the property was fully let out for the assessment years in which the valuation date was earlier than March 12, 1967, and the property neither vested in the Government nor was interest payable till then. The valuation date for the assessment year 1967-68 is November 12, 1966. In the result, the appeals of the assessee for the assessment years 1964-65 to 1967-68 being W.T.As. Nos.364 to 367 are allowed and the appeals of the Department for the same years being W.T.As. Nos.321 to 324 of 1975-77 are dismissed: The Wealth Tax Officer is directed to value the properties under appeal for these assessment years at Rs.1,28,836 if the report of the approved valuer of the valuation of the property is in order. If on adoption of the rental method, it is possible to value the property of the assessee at a higher figure, the Wealth Tax Officer is at liberty to do so."
Aggrieved by the order passed by the Tribunal, the Department moved the Tribunal for making a reference to this Court on the question as to whether it was correct to value the property on the basis of the rental method.
What is contended by learned counsel for the Revenue is that though the property was rented, it subsequently came to be acquired and in fact the notification under section 4 in respect of the front portion was issued as far back as March 22, 1963, and in respect of the rear portion, the notification under section 4 of the Land Acquisition Act was issued on July 27, 1967. By the time the assessment proceedings were completed by the Wealth Tax Officer, the awards in respect of this property were declared by the Land Acquisition Officer and, therefore, the amounts which the assessee got by way of compensation really represented the market value of the property and, therefore, the Wealth Tax Officer was justified in determining the market value of the property on that basis. He also submitted that the Tribunal has. not given any reason why the property should have been valued on the basis of the rental method. It is true that the Tribunal's reasoning is not clear on the point. Even though the facts that the property was acquired, and that the awards were passed are noted by all the authorities, it appears that no award was produced by either party to show how the property came to be valued by the Land Acquisition Officer. There was no material to show the exact amount received by the assessee and how the apportionment was made by the land Acquisition Officer between the interest of the landlord and the tenants. It was not made clear whether, if at all, in the land acquisition proceedings, it has taken note of the fact that the property was a rented property. Even the judgments of the Courts whereby compensation was enhanced were not taken into consideration as they were not brought before the authorities. Obviously, therefore, the market value could not have been fixed on the basis of the amount received by the assessee by way of compensation. It is an admitted position that there were tenants on the entire property. Thus, it being a tenanted property, an attempt should have been made to find out what a willing purchaser would have paid for purchasing such a tenanted property. That would correctly reflect the market value of the property. Obviously, in such circumstances, in the absence of better material, the rental method has to be followed as a safe guide for determining the market value of the said property. In C:W.T. v. V.C. Ramachandran (1966) 60 ITR 103, the Mysore High Court has held that, in the case of buildings with compounds in a city, which are in the possession of tenants and the tenants cannot 'tie 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 is to capitalise the annual rent by a 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. We entirely agree with the said decision and we are of the opinion that in the absence of definite and better material, the rental method should have been adopted as the appropriate method for determining the market value of the tenanted property where eviction and increase in rent are controlled and determined by the relevant provisions of the Rent Control Act. We are of the opinion that the Tribunal was right in holding that the property should have been valued on the basis of the rental method.
We, therefore, answer question No. 1 in the affirmative.
Question No.2, is also answered in the affirmative subject to what the Tribunal has observed, namely, that it would be open to the Wealth Tax Officer to value the property at a higher figure even after adopting the rental method. These references are disposed of accordingly with no order as to costs.
M.B.A./426/T.F. Reference answered.