Wealth Tax Rules, 1963---

----R.8(3)-- Valuation of rented property---Determination---Principles.

The properties held by the assessee had been admittedly rented out and the tenancy agreement had been duly executed. A perusal of the tenancy agreement showed that the landlord and tenants had bifurcated the total amount received by the landlord in three categories. First category was of the rent, second category was of building maintenance and the third category was of the charges for lift and other amenities. The assessee had stated that so far the amount of rent shown in the tenancy agreement was concerned there was no dispute over it. The bone of contention between the assessee and department was of the charges received for building maintenance and lift and other amenities were to be included in the rent. According to assessee the entire amount charged for building maintenance and lift and other amenities should be excluded from the rent of property. While according to department the entire amount was to be included in the rental of the property.

According to the provision contained in Rule 8(3) of the Wealth Tax Rules, 1963 the value of building is to be estimated with due regard to the. nature and size of property and the amenities available. The lift and central air-conditioning system falls within the purview of amenities available with the building. However, at the same time the amount charged for the consumption of electricity, salary to the Chowkidar, sweeper, security guard and other expenses incurred for cleaning and maintenance of building cannot be included in the rental of the building. While re-determining the value of properties for the purpose of wealth tax the amount being charged under the head rent should be included in the G.A.R.V. while bifurcation should be sought for from the assessee in respect of charges for building maintenance; lift, central air-conditioning system and other amenities. The charges on account of parking place which is a part of building and charges on account of lift and central air-conditioning system which have also become part and parcel of the building and fall within the purview of amenities are also to be included in the rental being charged from the tenants. The amount of salaries paid to Chowkidar, sweeper, security guard etc. and the amount of electricity charges paid to the electric supply company on account of consumption in the central air-conditioning system, lift parking places, corridors and other open spaces as well as the expenses for the purpose of cleaning and maintenance of building should be excluded from the rental of the building. The burden of proving as to how much amount out of the building maintenance, lift, central air-conditioning system, parking place is allocable to the rent and how much of the amount is allocable to the expenses other than the building itself and the amenities attached to it, shall be on the assessee. The Assessing Officer shall exclude only that amount from the rental which is shown by the 'assessee to have been incurred for the purposes which cannot be treated to be charges for the building and amenities attached to it.

W.T.A. No. 102/KB of 1984-85 ref.

Muhammad Majid, D.R. for Appellant. Akbar G. Merchant, C.A. and Miss Yasmin, C.A. for Respondent.

Date of hearing: 12th February, 1998.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN): -The above appeals at the instance of department are directed against the order dated 28-9-1997 by the learned CIT(A), Zone-VI, Karachi in Wealth Tax Appeals Nos. 374, 375 and 376/A-VI relating to the assessment years 1992-93, 1993-94 and 1994-95. A common grievance of the department is to the setting aside of the issue relating properties held by respondent with certain direction contained in the following findings:

"I have given due regard to the aforesaid contentions and I find them to be forceful. Perusal of records indicates that the building was acquired by purchase for a sum of Rs.9 millions which purchase price is not disputed so that the market value of the property in the year of the purchase was Rs.9 million. Running finance facility of. Rs.6 millions was obtained from Habib Bank Limited against mortgage of property. Making allowance for inflation in property values valuation of the building for the respective charge years at Rs.40.7 million, Rs.48.9 million and Rs.40.7 millions appears to pitch the valuation of this building at considerably higher values that the market would seem to warrant as compared to market value disclosed by purchase price in the year of its purchase. And this is probably the result of G.A.R.V. being adopted at composite figures.

If we were to analyse the provisions of Rule 8(3), the central position is occupied by market value the upper ceiling of which is prescribed at ten times of G.A.R.V., and in 1993-94 assessment year 12 times, and if the market value turns out to be more than the maximum ceiling then with the approval of the higher designated authority that value may be adopted. The manner of determining the market value is not specified. In any case market value is the central point and with the purchase price of the building remaining undisputed, the same becomes the market value of the property or the date of its acquisition. Adjustment has, however, to be made for inflation in the property values and there being no proper monitor thereof, a general rate of 10 % on an annual basis would appear to satisfy the requirements of the case in so far the valuation of this building is concerned.

The three assessment orders are accordingly set aside for fresh decision in accordance with aforesaid observations and values. The assessing officer is directed to take the market value of this property at Rs.98,10,045 in 1990-91, Rs.1,59,22,687 in 1991-92 (including of additions made as declared), in 1992-93 at Rs.1,75,14,955 (increase of 10?/) in 1993-94 at Rs.1,92,66,450 (by 10% increase) and Rs.2,21,56,417 in 1994-95 assessment year. These values are considerably higher than the collectorate values."

2. Heard Mr. Muhammad Majid, learned representative for the department and Mr. Akbar G. Merchant, F.C.A. and Miss Yasmin, C.A. learned representatives for the respondent.

3. Briefly stated the relevant facts are that the properties held by the appellant have been let out on the terms and conditions contained in the tenancy agreement which is reflected in the following chart:

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4. The assessing officer after determining the above monthly rent capitalised the same for 10 years in the assessment years 1992-93 and 1994-95 and at 12 times in the assessment year 1993-94.

5. The learned CIT(A) did not approve the above valuation and issued directions reproduced in the earlier part of this order with which the department is aggrieved.

6. The learned D.R. has submitted that the formula adopted by the learned CIT(A) is not in consonance with the law as contained in the Wealth Tax Act and the rules framed thereunder. According to learned D.R. the valuation is to be taken on the valuation date and. when the property is admittedly rented out it is to be worked out on the basis of G.A.R.V., which was determined by the assessing officer. On the other hand Mr. Akbar G. Merchant, learned counsel for the appellants has submitted that the learned CIT(A) has rightly directed for increase of 10 % over and above the purchase price to which no exception can be taken. However, when it was pointed out to the learned counsel that the formula though may appear beneficial to the assessee in this case but it is likely to cause great hardship if increase at % over the value determined by the department in respect of the immovable properties is allowed in the case of all the assessees, the learned counsel conceded to this proposition. After considering the contentions raised before us and going through the assessment order and the first appellate order we are of the opinion that the issue relating to the valuation of property has not been considered in right perspective by either of the officer. The properties held by the respondent have been admittedly rented out and the tenancy agreement has been duly executed. A perusal of the tenancy agreements shows that the landlord and tenants have bifurcated the total amount received by the landlord in three categories. First Category is of the rent, second category is of building maintenance and the third category is of the charges for lift and other amenities. The learned counsel for the assessee has stated that so far the amount of rent shown in the tenancy agreement is concerned there is no dispute over it. The bone of contention between the assessee and department is of the charges received for building maintenance and lift and other amenities are to be included in the rent. According to assessee the entire amount charged for building maintenance and lift and other amenities should be excluded from the rent of property. While according to department the entire amount is to be included in the rental of the property.

7. We have given our anxious consideration to the material placed on record and contentions raised by the learned representatives for the parties. We are not persuaded to agree with the submission of any of the, learned representatives of the parties in toto as a Division Bench of this Tribunal has already held in Wealth Tax Appeal No. 102/KB of 1984-85 vide order dated 10-11-1988 that tie charges for lift and parking place is to be included in the rent. Thus applying the same principle the rent charged for the central air-conditioning system is also to be included in the rent for the building. The reason being that according to the provision contained in Rule 8(3) of the Wealth Tax Rules the value of building is to be estimated with due regard of the nature and size of property and the amenities available. The learned counsel for the assessee has conceded that the lift and central air-conditioning system falls within the purview of amenities available with the building. However, at the same time the amount charged for the consumption of electricity, salary to the Chowkidar, sweeper, security guard and other expenses incurred for cleaning and maintenance of building cannot be included in the rental of the building. We, therefore, maintain the setting aside of the assessment but vacate the directions by the learned CIT(A). It is directed that while re-determining the value of properties for the purpose of Wealth Tax the amount being charged under the head rent should be included in the G.A.R.V. while bifurcation should be sought for from the assessee in respect of charges for building maintenance, lift, central air-conditioning system and other amenities. The charges on account of parking place which is a part of building and charges on account of lift and central air-?conditioning system which have also become part and parcel of the building and fall within the purview of amenities are also to be included in the rental being charged from the tenants. The amount of salaries paid to the Chowkidar, sweeper, security guard etc. and the amount of electricity charges paid to the K. E. S. C. on account of consumption in-the central, air-?conditioning system, lift, parking places, corridors and other open spaces as well as the expenses for the purpose of cleaning and maintenance of building should be excluded from the rental of the building. The burden of proving as to how much amount out of the building maintenance, lift, central air-?conditioning system, parking place is allocable to the rent and how much of the amount is allocable to the expenses other than the building itself and the amenities attached to it, shall be on the assessee. The assessing officer shall exclude only that amount from the rental which is shown by the assessee to have been incurred for the purposes which cannot be treated to be charges for the building and amenities attached to it.

8. The appeals stand disposed of as above.

M.B.A./515/Trib. ??????? ??????????????????????????????????????????????????????????????????????? Order accordingly.