Wealth tax---

---- Valuation of property---Property covered by tenancy protection law-- Valuation of property on rent capitalisation basis---Reversionary value of land cannot be added---Indian Wealth Tax Act, 1957.

Where property owned by the assessee is in the occupation of tenants, who are protected by the Rent Restriction Act of the State, the landlord cannot evict theft except on limited grounds as given in the Act. He cannot enhance the rent because of the protection provided by the rent laws in force in the State. Unless the tenants are evicted, the landlord cannot put the land area to a better use. The value has to be determined by taking into account the building as it stands and the rent which it fetches .and will continue to fetch in the years to come. While determining the value by the rent capitalisation method, in such cases, the price of the land as well as structures appurtenant to the land are taken into consideration and the reversionary value of the land cannot be added thereafter.

CIT v. Anup Kumar Kapoor (1980) 125 ITR 684 (Cal.); CIT v. Ashima Sinha (Smt.) (1979) 116 ITR 26 (Cal.); CWT v. Ram Saran Kajriwal (1987) 168 ITR 485 (All.) and CWT v. Urmila L. Pittie (1995) 215 ITR 356 (Bom.) fol. .

Dina Nath v. CED (1970) 77 ITR 193 (P&H) distinguished.

N.K. Sud with S.C. Nagpal for the Assessee.

R.P. Sawhney, Senior Advocate with Sanjay Goyal for the Commissioner.

JUDGMENT

ASHOK BRAN, J. ---This judgment shall dispose of the Wealth Tax References Nos. 49 to 51 of 1982, as they arise from the same facts. The Income-tax Appellate Tribunal, Amritsar (hereinafter referred to as "the Tribunal"), had also dealt with them together and passed common order.

At the instance of the assessees, the following question of law has been referred to the High Court for its opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reversionary value of land had been correctly added to the valuation of left out property arrived at by way of rent capitalisation method?"

The three assessees owned property, i.e., Central Mills, Jullundur, in which each of them had a 1/3rd share. The assessee determined the total value of the property at Rs.5,94,296. Claiming a 1/3rd share in the property, each one of them returned the value, of the 1/3rd share at Rs.1,98,09 in their respective wealth tax returns. Since the value of the property appeared to the Wealth Tax Officer to be on the lower side, he referred the valuation of the property to the Valuation Officer. The total property comprised 788 marlas, out of which on 578 marlas buildings were constructed over a period of a number of years by the assessees and their predecessors. 171 marlas of land was found to be under roads, lanes and paths, etc. All the buildings had been let out to various tenants. One of the buildings had been let out to a firm of which the assessees were partners, at a monthly rent of Rs.100.

According to the valuation report, the total area of the property is 788 marlas, which could be divided into two sectors, 578 marlas of land over which buildings were constructed by the assessees from time to time, which is now a commercial complex. The commercial complex is scattered over 578 Marlas, which has one entrance from the railway road. The area under .the roads, lanes and paths, etc., is 171 marlas. The position regarding land under roads and covered with structures, as given in the valuation report, is as under:---

The covered area under the possession of the assessees in the commercial complex is 16.5 per cent. The remaining area is rented to 49 tenants. The tenants are old and the structures come under the perview of the Rent Control Act. The rented structures fetched a rent of Rs.5,503 per month as on March 31, 1974.

According to the valuation report, the property was to be valued at Rs.12,45,200. The share of each one of the assessees determined at Rs.4,15,017. The Wealth Tax Officer determined the 1/3rd share of the three assessees in their respective wealth tax assessment orders, accordingly. The Wealth Tax Officer, after adopting the rent capitalisation method, added the reversionary value of the land on the assumption that as and when the structures fall, the landlords shall get back the possession of the land. He added the reversionary value of the land to the valuation arrived at by the rent capitalisation method.

The assessees took the matter in appeal before the Appellate Assistant Commissioner, Jullundur, and raised objections to the valuation of the property at Rs.12,45,200. They assailed the valuation on two grounds. One of their objection was that the Valuation Officer, after determining the value of the property, other than that which was occupied by the firm, at a monthly rent of Rs.100 had made, by capitalisation of rent further addition on account of reversionary value of the land. Relying upon the decisions of the Calcutta High Court in CIT v. Smt. Ashima Sinha (1979) 116 ITR 26 and CIT v. Anup Kumar Kapoor (1980) 125 ITR 684, they claimed that no further additions could be made to the valuation arrived at under the capitalisation of rent on account of reversionary value. Their second objection was in respect of the valuation of 1/3rd property comprising 67 marlas of land and building thereon let out to the Lashkarimal Kishori Lal, Jullundur, at a rent of Rs.100 per month. The Valuation Officer considered this to be a self-occupied property because three out of the four partners of the firm were the three assessees. The Valuation Officer had valued it on the basis of the land and building method at Rs.2,15,440. According to the assessees, the Valuation Officer had proceeded in error in considering this to be a self-occupied property when it was let out to a firm at a monthly rent of Rs.100. According to them, its valuation should have been on the basis of capitalisation of rent only.

The Appellate Assistant Commissioner looked into the facts but was not persuaded on the facts and the circumstances of the case to agree with the submissions of the assessees in the matter regarding addition on account of reversionary value of the land. He, therefore, upheld the valuation made by the Wealth Tax Officer in this respect. As far as the other objection was concerned, he agreed that property could not be considered to be a self- occupied property. But, according to him, the rent of Rs.100 per month yeas not fair or a bona fide rent, which could be charged for the property. Considering the locality area and the prevailing rent, he determined the rent at Rs.1,500 per month chargeable from the said property. He directed the Wealth Tax Officer to work out the value of the property accordingly by rent capitalisation method.

The assessees went in appeal before the Appellate Tribunal and raised the two pleas which had been raised before the Appellate Assistant Commissioner. The Tribunal went into the facts, but could not be persuaded by the assessees that the Wealth Tax Officer, in making the addition on account of the reversionary value of the land, has proceeded in error. As far as the second plea regarding determination of the value of the property let out to Lashkarimal Kishori Lal, Jullundur, was concerned, the Tribunal looked into the facts but also could not persuade itself to find that the Appellate Assistant Commissioner had proceeded in error in adopting the rent of Rs.1,500 per month.

The Tribunal was of the opinion that the property had not been properly developed and had outlived its life and whenever a property is transferred, the purchaser has to pay more than the value obtained by applying a multiple to the capitalised rental value. The purchaser does not mind paying this excess because he has at the back of his mind the reversionary value of the land pertaining to such a property which will be available to him after the demolition or collapse of the property. So, when the property had outlived its life, land would be available to the assessees and, therefore, the reversionary value of the land had to be included to the value determined on "yield" or "rental method" to come to the correct valuation of the property.

The assessees filed an application for amendment of the order passed by the Tribunal with the contention that the finding recorded in respect of the property that it was not fully developed was factually incorrect. This application was rejected by the Tribunal on March 27, 1982, holding that what the Tribunal meant from the finding that the land was not developed was that it was not put to the best use.

The assessees filed an application for referring three questions of law, which according to them; arose from the order of the Tribunal for the opinion of this court. The Tribunal found that only one question arose from the order of the Tribunal which has been referred to this Court for its opinion. The other two questions claimed by the assessees were declined. The assessees did not file any further petition for issuance of a mandamus seeking reference of the questions which had been declined by the Tribunal. The only question which remains for consideration is "whether the reversionary value of the land could be added to the valuation of the let out property which had been arrived at by way of the rent capitalisation method?".

Shri N.K. Sud, counsel appearing for the assessees, relying upon the two decisions of the Calcutta High Court in Smt. Ashima Sinha's case (1970) 116 ITR 29 and Anup Kumar Kapoor's case (1980) 125 ITR 684, a decision of the Allahabad High Court in CWT v. Ram Saran Kajriwal (1987) 168 ITR 485, and a decision of the Bombay High Court in CWT v. Smt. Urmila L. Pittie (1995) 215 ITR 356, contended that the reversionary value of the land could not be added to the valuation of the let out property which had been arrived at by the rent capitalisation method. According to him, when the valuation has been arrived at by the rent capitalisation method; then the reversionary value of the land could not be added to the said valuation because while determining the value by the rent capitalisation method, the value of the land and the building both are taken into consideration and, thereafter, the

reversionary value of the land could not be added as it would amount to adding the value of the land twice to the valuation of the property.

As against this, the submission made by Shri R'.P. Sawhney, counsel appearing for the Revenue, is that the reversionary value of the land could be added to the value of the let out property arrived at by the rent capitalisation method in view of the decision of this Court in Dina Nath v. CED (1970) 77 ITR 193.

We have considered the rival contentions of counsel for the parties and find ourselves in agreement with the submissions raised by counsel for the assessee.

We have perused the valuation report, Annexure "D". As per this report, out of 788 marlas of land, on 578 marlas buildings were constructed between 1935 and 1973. 171 marlas of land was under roads, lanes and paths, etc. The Valuation Officer was of the opinion that the normal area for roads, lanes and paths, etc., should have been 10 per cent. to 20 per cent. The layout of the buildings was haphazard and, therefore, no more structures could be constructed in this area. Had it been possible to raise more constructions, the complex would have fetched higher rent.

171 marlas out of 788 marlas would be nearly 1/5th of the total area. All the buildings except one, which was with a firm of which the assessees were partners, were under tenants. The East Punjab Urban Rent Restriction Act, 1949, is in force which protects the rights of the tenants. The landlord cannot evict them from the commercial complex except on limited grounds as given in the Act. He cannot enhance the rent because of the protection provided by the rent laws in force in the State of Punjab. Unless the tenants are evicted, the landlord cannot put the land area to a b0tter use. The value has to be determined by taking into account the building as it stands and the rent which it fetches and will continue to fetch' in the years to come. Such properties do not fetch the commercial value prevalent in the market. These properties get much lesser value because of the restrictions put by the State protecting the tenants against eviction and increase of rent by the landlords. Because of the restrictions put by the State laws, such properties would have a value which is controlled.

While determining the value by the rent capitalisation method, in such cases, the price of the land as well as the structures appurtenant to the land are taken into consideration, the reversionary value of the land could not be added thereafter to the valuation determined by the rent capitalisation method as it would amount to adding the value of the land twice. The reversionary value of the land cannot be added on the ground that the building being old, the land may become available to the landlord in the indeterminate years to come. Thus, when the value of the property has been determined on rental basis, the value of both the land and building is determined and after that the value of the land cannot again be added by adding its reversionary value.

In Smt. Ashima Sinha's case (1979) 116 ITR 26 (Cal.), this point was examined in detail. We entirely agree with the view taken in this case and the reasoning adopted therein. It was held as under (headnote):

"If a statutory control is 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 as 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 buildings erected thereon, when the property is let at 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 is valued on the rental basis, the result is the value of the land and buildings taken together. The value of the land cannot be added again by adding the 'reversionary' value of the land because the building is very old."

The view taken in Smt. Ashima Sinha's case (1979) 116 ITR 26 (Cal.), was followed in Anup Kumar Kapoor's case (1980) 125 ITR 684 (Cal.), Ram Saran Kajriwal's case (1987) 168

ITR 485 (All.) and Smt. Urmila L. Pittie's case (1995) 215 ITR 356 (Bom.). Against the judgment in Ram Saran Kajriwal's case (1987) 168 ITR 485 (All.) (sic), special leave petition was dismissed by the Supreme Court of India on January 19, 1995 (refer to (1995) 212 ITR (St.) 370). The Gujarat High Court had also taken the same view in W.T.A. Nos.25-29 of 1985, against which special leave petition was dismissed by the Supreme Court of India on April 22, 1992 (refer to (1992) 1995 ITR (St.) 147).

We have examined Dina Nath's case (1970) 77 ITR 193 (P & I-J.) on which reliance was placed by counsel for the Revenue. In the aforesaid case, the point in issue was totally different and has no relevance to the point in issue in the present case. Counsel for the Revenue failed to cite any judgment taking a contrary view to the judgments relied upon by the assessees.

For the reasons stated above, we answer the question referred to us in the negative, i.e., is favour of the assessees and against the Revenue. No costs.

M. B. A./1697/FCReference answered.