1. In this reference under s. 256(1) of the I.T. Act, 1961 (for short 'the Act'), the Income-tax Appellate Tribunal referred the following question of law for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the principles of valuation adopted by the Appellate Tribunal are sound in law, particularly in view of the fact that the assessee himself valued the property for the purpose of wealth-tax as on January 31, 1957, at Rs. 2,50,000 justifying the same on the ground that the building was under rent control and the property not having been released throughout ?'
2. The assessee owned a cinema hall, which is on the first floor of the building, and some shops in the ground floor. The entire property was known as 'Sagar Talkies'. During the previous year relevant for the assessment year 1967-68, it appears, the assessee sold the entire property for Rs. 5,00,000 - the property consisting of the Sagar talkies cinema building, machinery, furniture and fittings and the shops in the ground floor. In the return filed, the assessee did not declare any profit under s. 41(2) of the Act, nor was any capital gain declared. The ITO made an apportionment of the sale consideration of Rs. 5,00,000 as under : Rs. 3,00,000 for the cinema hall, machinery, furniture and fittings and Rs. 2,00,000 for the shops. Having made the above classification, the ITO went into an exercise to determine the written down value of the building as well as the machinery, furniture and fittings and arrived at a sum of Rs. 1,49,199 as representing the profit assessable under s. 41(2) of the Act. The ITO also determined the capital gain arising on the sale of the assets at Rs. 1,00,000. He, accordingly, included the same in the assessment made for the year 1967-68. The assessee filed an appeal before the AAC, who upheld the determination of the profit under s. 41(2) of the Act. As regards the capital gain, the AAC gave a reduction of Rs. 29,000. The assessee filed a second appeal before the Income-tax Appellate Tribunal and questioned the basis followed by the authorities below for apportionment of the sale consideration as between the buildings, machinery, furniture and fittings and also the determination of the written down value for the purpose of arriving at the profit under s. 41(2) of the Act. The chartered accountant representing the assessee seems to have filed some working sheet before the Tribunal based on which there was neither profit assessable under s. 41(2) nor was there any capital gain relating to the sale transaction. After examining the working sheet given by the chartered accountant, the Income-tax Appellate Tribunal came to the conclusion that in any event, the value of the entire asset as on January 1, 1954, could not be less than Rs. 5,00,000 and, therefore, there could be no question of assessment to capital gain or profit under s. 41(2) of the Act. In arriving at the above conclusion, the Tribunal took into consideration from Rs. 2,600 to Rs. 1,450 per month by the Rent Controller during the Year 1956. The Tribunal determined the value as on January 1, 1954, based on the monthly rent of Rs. 1,450 determined by the rent control authorities. As regards, the apportionment of the sale consideration, the Tribunal followed the principle of capitalisation of the rental income. Having scrutinised the statement filed by the chartered accountant, the Tribunal upheld the assessee's contention that there was no liability for assessment of any profit under s. 41(2) of the Act nor was there any liability to assessment by way of capital gain under s. 45 of the Act. The Commissioner asked for a reference and that is how the above question is referred to this court under s. 256(1) of the Act.
3. From the question of law referred to this court, two matters seem to be under dispute. Firstly, the dispute is whether the Tribunal followed correct principles of valuation of the property and, secondly, whether the Tribunal was justified in coming to the conclusion that the value of the property in 1954 could not be less than Rs. 5,00,000, taking into consideration that for the wealth-tax assessment year 1957-58, the assessee herself declared the value of the property at Rs. 2,50,000. So far as the principle of valuation is concerned, we find that the Tribunal applied the well-recognised principle of determining the value of the property by capitalising the net rental income at 20 times, taking the yield from the property at 5 per cent. which was the yield on gilt-edged securities at the relevant time. This principle of valuation is recognised as a relevant and sound principle of valuation especially in cases where the properties are the subject-matter of rent control regulations and the tenants cannot be evicted except in accordance with the provisions of the Rent Control Act. The Tribunal followed this well-recognised principle of valuation and we are unable to state that there is any error in the principle followed by the Tribunal in determining the value with reference to the above principle.
4. Coming then to the second question, whether the Tribunal was correct in holding that the value of the whole property could be taken to be not less than Rs. 5,00,000 as on January 1, 1954, when the assessee herself declared the value of the property for the wealth-tax assessment year 1957-58 at Rs. 2,50,000, we do not find any error, prima facie, in the Tribunal's conclusions. In the first place, we are unable to get the necessary clarification whether the sum of Rs. 2,50,000 was the valuation declared by the assessee and accepted by the Department or whether the Department enhanced the valuation of Rs. 2,50,000 made by the assessee for the assessment year 1957-58. Secondly, the Tribunal referred to the fact that there was a reduction in the rental income as a result of intervention of the rent control authorities from Rs. 2,600 to Rs. 1,450 per month and, therefore, the valuation as on January 1, 1954, must be made with reference to the abovementioned rent determined by the Rent Controller. The Tribunal held that the sum of Rs. 2,50,000 declared by the assessee for the assessment year 1957-58 could not constitute estoppel, especially in view of the above circumstances, against determining the correct value of the property as on January 1, 1954. We do not find any error in the reasoning of the Tribunal. Unfortunately, the working sheet filed by the chartered accountant before the Income-tax Appellate Tribunal is not before us and we are unable to state with reference to the material available before us that in coming to the conclusion that the property was correctly valued by the chartered accountant, the Tribunal committed any error of principle. Having regard to the above, we are unable to state that the Tribunal committed any error in coming to the ultimate conclusion that no profit is assessable under s. 41(2) of the Act and also no capital gain is assessable on the sale of the property under s. 45 of the Act. It seems to us that the authorities below did not give proper attention to determine the figures of written down value, etc., with reference to the past record. We are unable to understand how profit under s. 41(2) could be considered as 'nil' if depreciation was actually allowed to the assessee on the assets unless the sale price is less than the written down value. There is not even a mention in the record regarding the extent of depreciation that was allowed in the past years and on what basis the authorities below came to the conclusion that even to the extent of depreciation allowed no profit could be assessed under s. 41(2) of the Act. As already stated, there is a handicap in appreciating the facts in the absence of complete and fuller information on record before us. We cannot but come to the conclusion that the decision of the Tribunal did not suffer from any infirmity.
5. In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. The assessee is not represented before us. There will be no order as to costs.