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P.K. Bajpaie (Huf) Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1984)7ITD913(Kol.)
AppellantP.K. Bajpaie (Huf)
RespondentWealth-tax Officer
Excerpt:
1. through these appeals the assessee has challenged the combined order of the commissioner passed in terms of sub-section (2) of section 25 of the wealth-tax act, 1957 ('the act') in respect of the assessment years 1973-74 and 1974-75 setting aside the assessment orders passed by the wto in respect of these years and directing him to frame them afresh in accordance with the facts of the case and the law after giving due opportunity to the assessee for representing his case.2. the facts bearing on the controversy may be noted. the assessee is a huf. its valuation dates for the aforesaid two years are 31-3-1973 and 31-3-1974, respectively. 'the family's wealth consists, inter alia, of several houses two of which are situated at gurusaday road bearing nos.1a and 1b, gurusaday road,.....
Judgment:
1. Through these appeals the assessee has challenged the combined order of the Commissioner passed in terms of Sub-section (2) of Section 25 of the Wealth-tax Act, 1957 ('the Act') in respect of the assessment years 1973-74 and 1974-75 setting aside the assessment orders passed by the WTO in respect of these years and directing him to frame them afresh in accordance with the facts of the case and the law after giving due opportunity to the assessee for representing his case.

2. The facts bearing on the controversy may be noted. The assessee is a HUF. Its valuation dates for the aforesaid two years are 31-3-1973 and 31-3-1974, respectively. 'The family's wealth consists, inter alia, of several houses two of which are situated at Gurusaday Road bearing Nos.

1A and 1B, Gurusaday Road, Calcutta. The WTO referred to the Valuation Officer the valuation of the properties Nos. 1A and IB, Gurusaday Road, vide his letter dated 29-7-1978 in terms of Section 16A of the Act. The WTO requested the Valuation Officer in this letter that the valuation of the aforesaid two houses may be made for wealth-tax assessment purposes for the assessment years 1973-74 to 1978-79. He indicated in the said letter that both the aforesaid properties have been valued by the assessee at Rs. 3,59,100 up to the assessment year 1972-73. He wanted the opinion of the valuer because, according to the WTO, the value of the said properties, as declared by the assessee, was, according to him, grossly undervalued. Further details of the properties in question were given by the WTO in the above letter wherein it was, inter alia, pointed out that the property at 1 A, Gurusaday Road had an area of 30 cottahs and 9 chataks, that it had an old building on it which was otherwise well maintained, that with effect from 28-9-1976 the said building stood leased out to Aarkay Investment Centre Ltd. for a period of 5 years commencing from 1-7-1976 with option on the part of the lessee to renew the lease agreement for a further period of 5 years and that the lease rent had been fixed at Rs. 4,000 per month. The WTO further indicated in the said letter that while valuing the property location of the property and reversionary interest in the property after expiry of the lease term of 10 years may also be taken into consideration. In respect of the property IB, Gurusaday Road, it was stated by the WTO that its area was approximately 18 cottahs, that there was a small old outhouse constructed on it which was used by the gardeners and darwans, etc. and that the vacant land was being used by the assessee as a garden having vegetables, fruits and flowers.

3. The Valuation Officer submitted his valuation report with regard to IB, Gurusaday Road, on 30-11-1978. The valuation report of the other property at No. 1A, Gurusaday Road, had not been submitted by him till 4-1-1979, i.e., the date on which the assessment orders in question were passed by the WTO. The said report was submitted by the Valuation Officer on 21-2-1979.

4. The WTO, while completing the assessments in the case of the assessee-family on 4-1-1979, adopted the same figure of valuation for 1B, Gurusaday Road, as was reported by the Valuation Officer. With regard to the property at No. 1A, Gurusaday Road, however, he worked out the valuation in the following manner in the assessment order for the assessment year 1973-74.

The said valuation was repeated by him in his assessment order for the assessment year 1974-75.

5. Subsequent to the aforesaid orders passed by the WTO, the Commissioner called for the assessment records of the aforesaid two years and examined them and noted that the WTO had completed the aforesaid assessments without waiting for the report of the Valuation Officer in respect of the property at No. 1A, Gurusaday Road, that the valuation of the said property, as reported by the Valuation Officer, was Rs. 5,51,000 for the assessment year 1973-74 and Rs. 5,76,000 for the assessment year 1974-75 and that the said valuation was much higher than what was adopted by the WTO. He, therefore, felt convinced that the orders of the WTO in respect of the assessment years 1973-74 and 1974-75 were erroneous and prejudicial to the interests of the revenue.

He, therefore, issued on 28-11-1980 to the assessee a show-cause notice requiring the assessee-family to explain as to why the orders passed by the WTO be not set aside and the figure of valuation as worked out by the Valuation Officer be not adopted.

6. The assessee opposed the proposed action under Section 25(2) and submitted through its letter dated 28-11-1980, inter alia, the following for the consideration of the Commissioner : (i) that it was not correct to say that the value of the house properties in posh locality of the metropolitan city like Calcutta has appreciated to a great extent or otherwise or at all during the years under consideration, (ii) that even if this was true, generally speaking, it could not be said that the values of all properties wherever situated and subject to whatever limitations or disadvantages must also be deemed to have increased, (iii) that the property at 1A, Gurusaday Road, Calcutta, was a tenanted property fetching gross monthly rent of Rs. 4,000 per month for several years and that for determining the market value of a tenanted property, the only proper procedure was to multiply the net maintainable rent with an appropriate multiplier, (iv) that the WTO had followed the said procedure and that, therefore, it was not understood as to how his order was erroneous or prejudicial to the interests of the revenue, (v) that the order of the WTO fixing the value of the property at Rs. 4,19,230 was already on the higher side and there was no basis for presuming or believing that the value of the said property would be still higher, (vi) that the Commissioner had not indicated in his notice the material or the valuation report on the basis of which he was, prima facie, satisfied that the valuation of the said property had been made at a lower figure.

7. The hearing under Section 25(2) took place on 1-12-1980 and apparently on that date the assessee made his submissions before the Commissioner and there were some discussions between him and the Commissioner. During the said hearing, the report of the Valuation Officer dated 14-2-1979 was brought to the attention of the assessee.

On 2-12-1980, the assessee submitted further written submissions wherein, inter alia, the following points were made : (a) that the said report of the Valuation Officer dated 14-2-1979 could not be considered by the Commissioner as the WTO had not considered it. For this, reliance was placed on the decision of the Ganga Properties v. ITO [1979] 118 ITR 447 (Cal.).

(b) that the reversionary method of valuation followed by the said Valuation Officer in his report was wholly incorrect method of valuation and that the said method had already been totally rejected by the Hon'ble Calcutta High Court in the case of CIT v. Smt. Ashima Sinha [1979] 116 ITR 26.

The assessee also submitted along with this letter a copy of the letter which he had written to the Valuation Officer on 27-1-1979 objecting to the valuation proposed by the Valuation Officer.

8. At this stage it would be convenient to note the method of valuation adopted by the Valuation Officer. The report of the Valuation Officer is at pages 19 to 27 of the assessee's paper book. It appears from the said report that the area of the land covered by premises No. 1A, Gurusaday Road, was little more than 34 cottahs 9 chataks. There was a passage 26' wide left for approach to the rear, the land was very irregular in shape with a very narrow frontage on the public road and for a length of 130' a lot of area would have to be left vacant as it would not be suitable for development due to its narrowness.

Permissible land area coverage in the locality was 50 per cent and the actual plinth area that could be covered worked out to 12,442 sq. ft.

The actual covered area was 3,064 sq. ft. only and the total area for all the floors worked out to 7,882 sq. ft. In the opinion of the Valuation Officer, there was no doubt that the land was not fully developed but it may not be possible to cover 50 per cent of the area due to irregular shape of the plot. The buildings in question were described as having been well maintained but they were quite old and of obsolete design. The estimated future economic life of the property was determined at 7/8 years only and in the opinion of the Valuation Officer, 'a prudent purchaser will not be satisfied with the return from the building. As such he will redevelop the land after pulling down the existing structures at the earliest opportunity'. The land on which the property was situated was on perpetual lease at Rs. 8 per year and in the opinion of the Valuation Officer, it could be treated as freehold for all purposes. The property stood leased out with effect from 1-7-1976 to Aarkay Investment Centre Ltd. at lease rent of Rs. 4,000 per month for a period of 5 years with further option for 5 years and prior to that the property was on lease with the German Democratic Republic Embassy in India and even though their lease had expired on 30-9-1971, they had not vacated the said prem ises and on their behalf Ind. Com. Ltd. were acting as caretaker for the said property from 1-4-1973 to 31-3-1975 and rent being paid was Rs. 4,000 per month. The area leased out in 1976 was only 30 cottahs and 4 cottahs were to be handed back to the lessor within 90 days of the execution of the lease deed. The lessee had, however, not vacated the said land till the date of the inspection by the Valuation Officer, that is 1-12-1978. The method of valuation as adopted by the Valuation Officer was described by him in para 7.1 in his report as follows : For determination of fair market value, rent capitalisation method has been adopted for 12 years from 31-3-1973 ... and thereafter deferred reversionary value of land and salvage value of the structures taken.

The valuer had capitalised the rental income at 7 per cent security taking redemption at 5 per cent. Deferred reversionary value of land and building was worked out on the presumption that after 12 years the building would be yielding no rent and one more year would be taken for reconstructing it. 5 per cent was deducted on account of undivided shares of the three coparceners.

9. The aforesaid method of valuation, as noted above, was objected to by the assessee vide his letter dated 27-1-1979. The assessee's objections have been dealt with by the valuer in paragraphs 10.1 to 10.5 of his valuation report. One of the objections taken was with regard to the reversionary value of land and building. The objection of the assessee was not that reversionary value could not at all be taken into account but, in his opinion, this could be taken into account only in the case of valuing ground rents or rents reserved in a lease with reversion to a rack rent. The Valuation Officer met this objection by making, inter alia, the following observations : ...the building is old and obsolete and has practically outlived its economic life. However, as it is well maintained so for some few more years it can be used. The valuation proposed was capitalising the rent for future life of the building and adding to it the deferred value of land and salvage value of building. No prudent purchaser will keep the land and building in the present state with limited return. The principle adopted is an accepted principle in the matter of valuation of real estate properties. There is nothing wrong and no further reference was needed as the property has not been considered as a leased out property.

In this case the land is not fully developed. It has not been put to full use as legally permissible and economically justifiable. Thus, only rent capitalisation method will give misleading results.

10. The Commissioner after taking into account the various submissions of the assessee, the orders of the WTO and the valuation report in question came to the conclusion that the submissions of the assessee that the valuation report of the Valuation Officer dated 14-2-1979 could not be looked at by him on the basis of the ratio of the Ganga Properties' case (supra) was not correct as the facts in the present case were clearly distinguishable from those of Ganga Properties' case (supra). In the present case the WTO had already made the reference to the Valuation Officer on 29-7-1978 and, therefore, he should have waited for the valuation report of the valuer and by not waiting for the said report, he had clearly erred and in any ease the report of the Valuation Officer was very much a part of the record of the WTO as it emanated from the order of the WTO himself. The WTO had, in his opinion, clearly erred in not waiting for the report of the valuation and taking note of it while completing the assessment. He pointed out that the valuation under Section 16A was binding on the WTO and if the had done anything other than following the report of the Valuation Officer, his orders became erroneous and prejudicial to the interests of the revenue. The assessee could of course come in appeal against the Valuation Officer's report but for that matter the WTO could not take any figure other than that reported by the Valuation Officer under Section 16A. Prima facie, a look at the report of the Valuation Officer and that of the valuation adopted by the WTO showed that the order of the Valuation Officer was erroneous and prejudicial to the interests of the revenue.

11. The Commissioner refrained from expressing any opinion about the objections of the assessee regarding the method of valuation and quantum of valuation adopted by the Valuation Officer. According to him, the assessees would have 'ample opportunity to agitate these points in due forum'. Accordingly, he set aside the orders of the WTO and directed him to remake the assessments in accordance with law.

12. It is against the aforesaid findings of the learned Commissioner that the assessee has filed the present appeals. The submissions of the learned counsel were as follows : (i) that the valuation report of the Valuation Officer on which the Commissioner has placed reliance was filed after the assessments in question had been completed and, therefore, the Commissioner of Wealth-tax could not derive support from the said valuation report to find fault with the order of the WTO. For this the learned counsel relied on the ratio of the decision of the Hon'ble Calcutta High Court in the case of Ganga Properties (supra). As such the assumption of jurisdiction by the Commissioner under Section 25(2) was ab initio erroneous, (ii) that in order to assume jurisdiction under Sub-section (2) of Section 25, the Commissioner should be satisfied that the order of the WTO was erroneous in law and that it was also prejudicial to the interests of the revenue. In the present case, the Commissioner of Wealth-tax does not say that the method of valuation adopted by the WTO was wrong and without it, it is not understood as to how it could be said that the order of the WTO was erroneous, (iii) that the order of the WTO could not be regarded as erroneous and prejudicial to the interests of the revenue for he had followed rent capitalisation method for finding out the value of the said property which was the only proper method for finding out the value of a wholly tenanted property. The order of the WTO, if at all, was prejudicial to the interests of the assessee inasmuch as he has taken 14 years' purchase for capitalising the annual letting value of the said property which was highly excessive and the assessee had already filed appeals against the determination of the valuation by the WTO. The Commissioner could not say that the said order was erroneous because the method of valuation adopted by the WTO was in accordance with law. The WTO has been following the above mode of computation of the valuation of the assessee's property year after year from 1965-66 onwards up to the assessment year 1972-73. The said system of valuation could not be changed unless it could be shown by him that there were materials on the basis of which it could be said that there had been either a change in the structure or in the market value of the said property. For this the learned counsel relied on the ratio of the decision of the Hon'ble Calcutta High Court in the case of J.N. Bose v. CWT [1976] 104 ITR 83, (iv) that method which the Valuation Officer had followed was in any case not correct inasmuch as he had added reversionary value to the value worked out on yield basis and this procedure has been disapproved by the Hon'ble Calcutta High Court in several decisions as follows : Smt. Ashmia Sinha's case (supra), CIT v. Anup Kumar Kapoor [1980] 125 ITR 684 and CIT v. Panchanan Das [1979] 116 ITR 272. (Cal.) The Commissioner, therefore, could not say that the valuation report of the Valuation Officer indicated the correct valuation and that, therefore, the order of the WTO was erroneous. The Commissioner has in fact held that the valuation of the Departmental Valuation Officer (DVO) is correct for in his order he points out that the report of the DVO is binding on the WTO. The Commissioner should not have directed the WTO to adopt the DVO's valuation as it was erroneous and against the decided cases of the Hon'ble Calcutta High Court, (v) that the WTO could not have made reference under Section 16A to the Valuation Officer as the property was tenanted and yield method was the only proper method and there was nothing for the Valuation Officer to do with regard to the valuation. The reference of valuation made by the WTO to the Valuation Officer was in the circumstances itself unjustified and the report of the DVO could not in the circumstances bind the WTO, (vi) that the report of the Valuation Officer was not binding on the Commissioner and it was open to him to examine the report of the Valuation Officer in the light of the various decisions of the Calcutta High Court and once he found that the said valuation report was not in accordance with law, he could have disagreed with the said valuation report. It could be said of the WTO that he was bound to follow the report of the DVO but the same was not true of the Commissioner. He ought to satisfy himself independently that of the two valuations- one by the WTO and another by the DVO-which one was correct and he could set aside the order of the WTO only if he was satisfied that the order of the WTO was erroneous and prejudicial to the interests of the revenue. In the present case the learned Commissioner has not done so and, therefore, his order was unsustainable in law.

13. The aforesaid submissions of the assessee were resisted by the learned departmental representative who asserted that the assumption of jurisdiction by the learned Commissioner was entirely in order as the order of the WTO was not only erroneous but prima facie prejudicial to the interests of the revenue. According to him, the WTO was under a legal obligation to wait for the valuation report of the DVO and complete the assessment on the basis of the DVO's report. Once he had made reference to the DVO, he could not decide the question of valuation except in accordance with the report of the DVO. He drew our attention in this connection to the provision of Sub-section (3) of Section 7 of the Act and Sub-section (6) of Section 16A. After making the reference to the Valuation Officer the WTO had clearly erred in not waiting for his report and in completing the assessment post haste without any reason whatsoever. The valuation done by the WTO as contrasted with the valuation of the DVO was lower and, therefore, the learned Commissioner was entirely justified in coming to the conclusion that the order of the WTO was not only erroneous but also prejudicial to the interests of the revenue. It was significant, submitted the learned departmental representative, that the learned Commissioner had refrained from making any observation with regard to the merits of the valuation and that question has been left by him open for being agitated by the assessee before the appropriate authorities in case he chose to do so and, therefore, no prejudice was caused to the assessee by the Commissioner directing the WTO to remake the assessment afresh in accordance with law. In fact this was the only course open to the learned Commissioner once he came to the conclusion that the WTO had erred in not waiting for the report of the DVO and completing the assessment on a valuation less than that reported by the DVO.14. According to him, the submission of the assessee that the learned Commissioner could not have looked at the DVO's report because it was submitted by him at a date later than the date of the assessment by the WTO was entirely erroneous and in any case the ratio of the decision of the Hon'ble Calcutta High Court in the case of Ganga Properties (supra) did not prohibit the learned Commissioner from taking cognizance of the said report because in the present case the report was not called for by the WTO after he had completed the assessment and when he had no locus standi having become functus officio after completing the assessment but during the course of the assessment proceedings and, therefore, the report of the DVO was very much a part of the record of the WTO and, as such, the learned Commissioner was entirely within his rights to take it into cognizance and to act on this basis.

15. The learned Commissioner has stated in his show-cause notice that the value of immovable properties in the city of Calcutta has been showing rising trend. This was a fact of which the learned Commissioner could take judicial notice as held by their Lordships of the Calcutta High Court in the case of Mahmudabad Properties (P.) Ltd. v. CIT [1972] 85 ITR 500.

16. The Commissioner has not given his finding with regard to the proper method of valuation in the present case as it was not necessary for him to have given the said finding. Once he noticed that the WTO has erred in not waiting for the DVO's report and not following it, when the DVO's report was binding on him, he was duty bound to cancel the assessments in question without making any further enquiry. He relied on the following decisions in support of the above submissions-Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC), Smt.

Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) and Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi).

The Commissioner's order could not, in the circumstances, be taken exception of by the assessee with regard to his assumption of jurisdiction.

17. On merits, the learned departmental representative submitted that the decision of the Hon'ble Calcutta High Court in Smt. Ashima Sinha's case (supra) was confined to the facts of the said case and was delivered on the footing that the land had been fully developed in that case. It is not so in the present case as is clear from the finding of the DVO which on facts has not been disputed by the assessee. The yield method alone would not, therefore, give correct results in the present case. The valuation adopted by the valuer in the present case was, thus, on facts entirely justified.

18. In rejoinder the assessee's learned counsel pointed out that may be the land in the present case is not fully developed but the entire land has been let out to the lessee by the assessee and the assessee cannot develop any part of the land so long as the lease lasted. The assessee was entitled only to the lease rent during the continuation of the lease and, therefore, the valuation could be done only on the basis of rental method. Besides, the learned counsel pointed out that the DVO has himself admitted in his report in paragaph 5.2 that the land was irregular in shape and that it could not be fully developed and that the vacant portion could not be fully utilised due to its irregular shape. The decision on which the learned departmental representative placed reliance were not relevant for deciding the present case because it was not that the WTO had not made proper inquiries in these cases before finalising the valuation and, therefore, his order was erroneous. He had made up his mind about the proper method of valuation and then worked out the assessee's valuation. Therefore, the decisions in Rampayri Devi Saraogi's case (supra) ; Smt Tara Devi Aggarwal's case (supra) and Gee Vee Enterprises' case (supra) had no application to the facts of the present case. The Commissioner, according to the learned counsel, was obliged to give a finding in his order that the order of the WTO was prejudicial to the interest of the revenue and for this purpose it was necessary for him to point out that the order of the WTO was not in accordance with law, in consequence whereof the lawful revenue due to the state had not been realised. The learned counsel relied for this proposition on the decision of the Calcutta High Court in the case of Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872.

19. He opposed the submission of the learned departmental representative that the WTO could not make any assessment without waiting for valuer's report, once he had made such a reference as, according to him, there was no specific bar against this in any of the sections of the Act. To illustrate his point he pointed out that if the report of the valuer had not been received within time and the case was going to become time barred, it could not be said that the WTO should nevertheless wait for the valuer's report and let the case become time barred in the process. To submit, therefore, that the order of the WTO was erroneous in law due to the above reason was, in his opinion, not correct. He again stressed the point that in his reference to the Valuation Officer, the WTO had not stated as to why in his opinion the valuation by him was necessary and as to why and how he had come to the conclusion that the valuation as given by the assessee was an undervaluation. The reference by him to the Valuation Officer in the circumstances was erroneous.

20. We have carefully examined the facts of the case and the rival submissions. Sub-section (3) of the Section 7 read as follows : Notwithstanding anything contained in Sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date or, in the case of an asset being a house referred to in Sub-section (4), the valuation date referred to in that sub-section.

From a bare reading of the aforesaid sub-section, it is clear that where the WTO refers the valuation of any asset to the Valuation Officer under Sub-section (1) of Section 16A, he has no option in the matter but to go by the valuer's report for 'the value of such an asset shall be estimated to be the price which in the opinion of the Valuation Officer it would fetch if sold in the open market on the valuation date'. The use of the word 'shall' in the above sub-section indicates that it is mandatory and as such the WTO cannot but estimate the market value of an asset at the figure which is recommended by the Valuation Officer in terms of Section 16A. Sub-section (6) of Section 16A also makes this position clear. It stipulates 'on receipt of the order under Sub-section (3) or Sub-section (5) from the Valuation Officer, the WTO shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer'. The tenor of the aforesaid language is also mandatory and a combined reading of the aforesaid two sub-sections leaves no manner of doubt in our mind that once the WTO makes a reference under Section 16A, he has no option in the matter but to go by the report of the Valuation Officer and if for this purpose he is to wait for the report of the Valuation Officer, he has no option but to wait. He cannot do what the law has determined that somebody else would for him. There is no provision in the Act to recall the reference once made to the Valuation Officer. The WTO had, therefore, clearly erred in not waiting for the Valuation Officer's report and in finalising the assessment in the present case. It is rather curious that the assessment was made by the WTO on 4-1-1979 when the limitation to pass orders in this case was up to 31-3-1979 in terms of Section 17A of the Act and the Valuation Officer had already submitted report about the property No. 1B and was actively engaged in determining the value of the other property, i.e., property No. 1A and necessary notice under Section 16A(4) had been issued by him for this purpose as early as on 14-12-1978 and he was awaiting the reply of the assessee to the said notice and the assessee replied to it on 27-1-1979 and soon thereafter the Valuation Officer passed his order under Section 16A(5) on 16-2-1979. The order of the WTO in these circumstances was not only against the, law but also wilful and arbitrary and totally unjustified on the facts of the present case. The submission of the learned counsel for the assessee that there was no provision in the Act barring the WTO from making an assessment without waiting for the valuer's report is not tenable. A combined reading of the two sections referred to above makes the statutory position clear and we are of the opinion that the WTO had but to wait for the report of the Valuation Officer once he made the reference to him under Section 16A. The extreme example which the learned counsel for the assessee gave to illustrate his point does not sound convicing to us for no argument can be based on the presumption that a public servant would not do his duty in accordance with law and the DVO being a public servant is bound to do his duty in accordance with law and, if the time limit for completion of the assessment was one of the requirements of law, it is to be presumed that the DVO would bear that time limit in mind and would adhere to it.

In any case, on the facts of the present case, the extreme example given by the assessee does not advance his case any further because it is nobody's case that the assessment order was going to be time barred on 4-1-1979 and, therefore, the WTO felt himself compelled to compelete the assessments in question on that date to sefe-guard the interest of the revenue.

21. The ratio of Ganga Properties' case (supra) does not apply to the facts of the present case as the facts of the present case are materially different from those of Ganga Properties' case (supra). In that case the valuation of a certain land was referred to by the ITO to the Valuation Officer in terms of Section 55A of the Income-tax Act, 1961 ('the 1961 Act'). The said report was not received in time nor was there any prospect of it being received before the assessment became time barred. The ITO while completing the assessment in that particular case made, inter alia, the following observation : I have come to know that there is no possibility of getting the valuation report by 31-3-1974. Since this is a time barring assessment, I cannot wait for his report for the purpose of this assessment.

I, therefore, accept the value of the consideration declared by the assessee for the present. On receipt of the report from the Valuation Officer, such action, as may be necessary, will be taken according to the provisions of the Act. (p. 450) On these facts their Lordships of the Hon'ble Calcutta High Court pointed out that the order of the ITO in view of the aforesaid circumstances, if at all, was beneficial to the interests of the revenue for it was the only order that he could pass at that time ; otherwise the assessment would have been wholly time barred. Action under Section 263 of the 1961 Act could not, therefore, be taken in respect of that order as it was not prejudicial to the interests of the revenue. They further pointed out that the ITO had the power to act either under Section 147(6) or Section 154 of the 1961 Act after receiving the copy of the order of the Valuation Officer and that resort to Section 263 was, for the reason given above, erroneous. In the present case, as has been stressed earlier, there was no such compulsion for the WTO to have completed the assessment on 4-1-1979 without awaiting the report of the valuer more particularly when the WTO had made no enquiry from the Valuation Officer about the probable date by which he might submit his report. As we have noted above, the Valuation Officer was very much seized of the valuation proceedings in the present case and he had issued a notice under Sub-section (4) of Section 16A on 14-12-1978 and was awaiting the assessee's reply thereto and the final report was submitted by him on 14-2-1979, i.e., almost a month and a half before the assessment would have become time barred.

It cannot, therefore, be stated on the facts of the present case that the order of WTO was beneficial to the interest of the revenue. It is further to be noted that under the 1961 Act, though provisions of Sub-section (6) of Section 16A of the 1957 Act have been incorporated in Section 55A of the 1961 Act, there is no provision in the said Act analogous to Sub-section (3) of Section 7. We have already noted the aforesaid provision and the mandatory nature thereof. The ratio of the Ganga Properties' case (supra) cannot, therefore, be applied to the facts of the present case which is under the Act. We are as such not prepared to accept the arguments of the learned counsel for the assessee that the Commissioner's order is bad due to its being in conflict with the ratio of Ganga Properties' case (supra).

22. The submission of the learned counsel for the assessee that the reference by the WTO to the Valuation Officer was incompetent also does not appeal to us. Under Sub-section (1) of Section 16A the WTO may refer the valuation of any asset to the Valuation Officer if he is of the opinion, inter alia, that the fair market value of the asset in question exceeds the value of the assets as returned by the assessee by more than 33-1/3 per cent of 50,000 (see Rule 3B of the Wealth-tax Rules, 1957) or having regard to the nature of the asset and other relevant circumstances it is necessary so to do. It is not the requirement of the aforesaid section that the WTO must pass a detailed order giving reasons for holding the opinion that the matter deserved to be referred to the Valuation Officer. What has to be seen is whether he held such an opinion. A reading of the letter written by the WTO to the Valuation Officer dated 29-7-1978 shows that he held such an opinion and that he wanted the valuer to estimate the valuation after taking into consideration, inter alia, 'the location of the property and the reversionary interest in the property after expiry of the lease term of 10 years. 'Besides, according to the WTO, the value of No. 1A Gurusaday Road itself was Rs. 4,19,230 (as held by him in his assessment order for the assessment year 1973-74) as against the combined value of No. 1A and 1B Gurusaday Road of Rs. 3,59,100 as returned by the assessee. The difference in the two values referred to above alone was of more than Rs. 50,000 and if the value of No. 1B Gurusaday Road is excluded from Rs. 3,59,100 as it ought to be the difference would be still more. The WTO was, therefore, in fact under an obligation to refer the valuation to the Valuation Officer under Rule 3B read with Section 16A(1)(b)(i). No grievance can in the circumstances be made of the fact that the WTO made the reference to the departmental valuer in the present case and that while doing so he did not give elaborate reasons in support of his above opinion. In fact the order of the WTO making the reference to the Valuation Officer under Section 16A(1) is not an appealable order and as such, it is not necessary for the WTO to spell out his reasons in detail while making such reference.

23. Besides, the valuation is a highly technical subject and even when one has to value the property on yield method alone, it cannot be said that there is a standard formula by which the valuation of every property can be made by mere arithmetical process of multiplication, addition, etc. There are various factors, which have to be taken into consideration for working out the valuation of a property on rental method, as a look at the Principles and Practice of Valuations by Parks would show. From the gross rent various deductions have to be made for repairs and maintenance, collection charges and management, vacancies and bad debts, etc. What should be the deduction for repairs and maintenance would depend on several factors, including the present state of the building. There is no standard formula which can be applied in every case for making deduction under this head. Only an expert can determine as to what amount should be deducted for repairs for a certain property taking into account its present state. If the building is old, there may be necessity for providing sinking fund and what would be the appropriate amount for this is again something which an expert alone can determine. After the net annual letting value has been determined, the important question of determination of years purchase or security would arise. Its determination is not an easy thing as can be seen from the detailed discussion of this in Chapter 2 of the aforementioned book by Park. There is no standard formula in respect of this which any layman may straightway apply and determine the security and years' purchase to be adopted in a given case. The Valuation Officer, being an expert for determining the valuation of the properties, etc., is the competent person to pass a judgment on these issues the WTO would, therefore, always be justified in making a reference to him in respect of the valuation of a property depending on his own discretion in the matter.

24. So far as the question of proper method of valuation of a property is concerned, it is again for an expert to determine as to which particular method would yield the best approximation to the market value. Simply because in earlier years the WTO was doing the valuation in a certain manner, he cannot be prevented in a subsequent year from consulting the Valuation Officer for ascertaining the proper valuation, including the proper method to be adopted for valuing the said property. We are, therefore, not prepared to accept the contention of the assessee that reference in this case by the WTO was incompetent as the valuation of the said property was being done year after year on a certain basis.

25. The assessment order of the WTO are, in our opinion, erroneous in law for the reasons given above in paras 20 and 21 supra and inasmuch as the valuation adopted by him was less than the valuation reported by the Valuation Officer, his order, prima facie, were also prejudicial to the interest of the revenue. The contention of the learned counsel for the assessee that the learned Commissioner could not have looked at the order of the Valuation Officer passed in terms of Sub-section (5) of Section 16A does not appear to us to be correct. The aforesaid order, as pointed out by the learned departmental representative, was passed by the Valuation Officer on account of a reference having been made to him in terms of Sub-section (1) of Section 16A in the course of the assessment proceedings. Therefore, the order passed by him was in the course of and part of the assessment proceedings. The WTO erred in not waiting for the said order in short-circuiting the assessment proceedings so to say and making the assessment earlier. For this error of the WTO, the reference made by him under Section 16A(1) did not become invalid and the valuer's report did not cease to be valid in law. The Commissioner could, therefore, look at this order and made up his mind whether he should interfere with the WTO's orders.

26. The contention of the learned counsel for the assessee based on the decisions of the Hon'ble Calcutta High Court in Smt. Ashima Sinha's case (supra), Panchanan Das's case (supra) and Anup Kumar Kapoor's case (supra) to the effect that the method of valuation followed by the Valuation Officer was against law as laid down by their Lorships of the Calcutta High Court was not examined by the learned Commissioner as he had left the matter on merits to be determined by the proper forum for it. He merely looked at the orders of the WTO and noticing that they were prima facie against law and were erroneous and prejudicial to the interests of the revenue set aside his orders and directed the WTO to frame fresh assessments in accordance with law. The plea of the assessee is that the Commissioner erred in passing such an order as he had to show that the order passed by the WTO was prejudicial to the interests of the revenue and before he could come to such a conclusion he should have given a finding that the order passed by him with regard to valuation was against law and thereby the revenue which should have legally come to the Government coffers did not come. The plea of the learned departmental representative in this regard, as noted above, was that it was not necessary for the Commissioner to make further inquiries and to give a positive finding before cancelling the order of the WTO as erroneous if he was convinced that the WTO should have done something which he did not do and as a result of it the assessments have been made which should not have been made at a figure much less than at which they should have been made in accordance with Sub-section (6) of Section 16A read with Sub-section (3) of Section 7.

27. The contention of the learned departmental representative appears to us to be correct. Under the Act, as pointed out earlier, the WTO should have waited for the report of the Valuation Officer and he should have passed the assessment order with regard to the valuation of the properties for which reference had been made in terms of Sub-section (1) of Section 16A in accordance with the valuation reported by the Valuation Officer. The WTO did not do so. Further, the valuation reported by the Valuation Officer was more than the valuation adopted by the WTO, prima facie, therefore, the orders of the WTO were not only erroneous but prejudicial to the interests of the revenue. If he had waited for the report of the valuation by the departmental valuer, he could not have taken a valuation less than what was recommended by the Valuation Officer. By taking the valuation at a figure less than that, the WTO had committed an error which was prejudicial to the interests of the revenue. In law he could not have done that and yet he did it. The Commissioner is certainly entitled to intervene in such a situation. The Commissioner, may it be noted, is not sitting in appeal against the order of the WTO ; he is merely exercising an administrative power vested in him to ensure that the orders passed by the WTO are in conformity with law and are not prejudicial to the interests of the revenue. In the exercise of this right the Commissioner need not go into the question of merit of valuation, which could have been gone into by an appellate authority only. The Commissioner has, therefore, wisely refrained from expressing any opinion about the correctness or otherwise of the valuer's report on merits and having left the matter entirely to be decided by the proper forum, There can hardly be any grievance to the assessee on account of this. The submission that the Commissioner should have himself examined the question of correctness or otherwise of the valuer's report before coming to the conclusion that the order of the WTO was erroneous and prejudicial to the interests of the revenue appears to us to be rooted in the assumption as if the Commissioner has to act as an appellate authority, which he is not, in terms of Sub-section (2) of Section 25. We have pointed out above that it is not the correct presumption. Under this sub-section the Commissioner, in our opinion, had merely to see whether the WTO was obliged to follow the valuation report of the valuer and if so, whether the valuation adopted by him was more or less than that indicated in the order of valuation by the Valuation Officer. The moment he found that the order of the Valuation Officer indicated a higher valuation figure and that the WTO was obliged to wait for it and to pass an order in accordance with it, the Commissioner was justified in passing the impugned orders.

28. We also do not accept the contention of the learned counsel for the assessee that the method of valuation adopted by the departmental valuer has been disapproved by their Lordships of the Hon'ble Calcutta High Court and has been held by them as unfit for being applied under any circumstances whatever. We have carefully gone through the three decisions in Smt, Ashima Sinha's case (supra), Anup Kumar Kapoor's case (supra) and Panchanan Das's case (supra) relied upon by the assessee and are of the opinion that the said judgments have to be appreciated and understood in the setting of the peculiar facts of the respective cases and it may not be correct to infer from them as if their Lordships have laid down an inflexible principle of valuation applicable to every conceivable situation.

29. In all the above cases, the question was as to how should the properties fully developed and tenanted be valued. The Tribunal had valued them by yield method following the ratio of CED v. Radha Devi Jalan's [1968] 67 ITR 761 (Cal.) The departmenal valuer had valued them by yield method and then added the reversionary value of land and building to such value. Their Lordships referred to Parks' Principle and Practice on Valuation, 4th edition, page 37 and observed as follows : ...According to Parks a fully developed and tenanted property fetching a steady rent has to be valued by the 'yield or rental' method. No doubt 'land and building' method might be applied even in such a case to check the value arrived at by the former method but it is not the opinion of Parks that in such cases the result arrived at by 'land and building' method must be accepted in preference to that obtained by the 'yield and rental' method. (p. 38) In the case of Smt. Ashima Sinha (supra) as also in other cases their Lordships pointed out that the 'property is fully developed and let out to tenants in its entirety. The quantum of rent realised has been duly ascertained and such rent is likely to be maintained for years to come.

The method indicated in Parks Principle and Practice on Valuation at page 37 clearly applies to such facts and, in our opinion, the Tribunal has rightly applied the 'yield or rental' method for the valuation in the instant case'. After stating as above their Lordships referring to the method of valuation adopted by the departmental valuer observed as follows : We have failed to understand either the principles or the logic of the 'reversionary' method of valuation as applied by the Valuation Officer of the department in the instant case. After following the 'yield or rental' method and having arrived at a figure the Valuation Officer has added to it the value of an imaginary reversion in future. We invited Mr. Pal to cite any authority which has approved or even indicated this method but he was unable to do so. It is stated in Parks' Valuation (at page 38) that when a property is valued on rental basis the result is the value of the land and building taken together which cannot afterwards be apportioned. In the method adopted by Valuation Officer the value of the land is taken twise, being included in the amount arrived at by the 'yield or rental' method and again under the 'reversionary' method. This is an entirely novel approach but in our view erroneous. (p. 38) The observations in the other two cases Panchanan Das's case (supra) and Anup Kumar Kapoor's case (supra) are similar.

30. It will be apparent from the above observations specially those underlined by us above.

(i) that their Lordships have approved the views expressed in Parks' book and have regarded that book as an authority on valuation, (ii) that the department's valuer, according to their Lordships, was adding the value of land and building twice once as part of the value worked out on yield basis and again by adding it separately under the reversionary, method, and (iii) that Mr. Pal had not been able to cite any authority which might have approved or even indicated the 'reversionary' method of valuation.

From the above it follows that if it could be shown on the facts of a given case that the value of land was not being taken twice, that there was good authority, including that of Park, in support of the method of valuation in which reversionary value of land is to be added to the value of the property worked out on yield basis, the ratio of the above cases would not be a bar to adopting such a method of valuation.

31. At the outset, it may be pointed out with great respect that there is no method of valuation known as 'reversionay method of valuation'.

There are two acknowledged methods of valuation, namely (i) the yield method ; and (ii) the land and building method. Reversionary value of land may, in certain circumstances, be added to the value of the property arrived at by yield method. When the value of a property is arrived at by land and building method, there is no question of taking note of the reversionary or deferred value of land as under the land and building method, the present value of land and structure is worked out and after allowing proper depreciation to the value of the structure, the two values of land and building are added together to arrive at the value of the property on land and building method. The occasion to add to it the value of the future right of reversion of land and building to the owner would just not arise. But, as pointed out earlier, in a case where the value of building is being arrived at by rental method, the reversionary value of land and old material value of the structure also assume importance in certain situations.

32. To understand this, we would have to examine the underlying logic of rental method of valuation. At page 14, (Chapter 2) 4th edition of Principal and Practice on Valuation, Parks has explained the logic underlying rental method of valuation as follows : If a property produces a net return of Rs. 1,000 per annum and a purchaser desires 6 per cent return on his capital, he will pay Rs. 1,000 X 100/6 Rs. 1,000 x 16.6=Rs. 16,666 maximum for the property.

If he pays more, he will not have a 6 per cent return on his capital. If he pays less, he will obtain a greater return than 6 per cent. The multiplier of the net rent to obtain capital value is known as the years' purchase. The security of rent which a property produces is reflected in the years' purchase. For valuation purposes, therefore, security and the years' purchase are the same.

From the above observations it can be readily seen that the purchaser is presuming yield of 6 per cent from the property in question in perpetuity. From Parks' table given at page 296 (4th edition) this position becomes immdiately clear (see foot of column 2 read with column 1).

33. In the case of Smt. Ashima Shina's case (supra) the net annual return of the property was Rs, 6,493. The Tribunal multiplied this annual income with the multiple of 12 and then deducted from the product 10 per cent of such product on account of undivided share of the assessee. The value worked out in the aforesaid manner came to Rs. 73,046 approximately (Rs. 6,493 multiplied by 12 minus 10 per cent of the product) which was less than the actual sale price of Rs. 80,000 recorded in the instrument of transfer. The aforesaid multiple of 12 times implied that the expected yield from the property was 8 per cent of the capital invested and that this yield would be forthcoming in perpetuity (see Parks' table of years' purchase at page 296, 4th edition). The above value was upheld by the Hon'ble Calcutta High Court to be correct. Apparently there would be no question of reversionary value of land if the building erected thereon would last in perpetuity and if by the erection of this building the land has been fully developed (the above was the finding of the Hon'ble High Court as seen above).

34. The same would, however, not be the position if the life of a building was limited to a few years only, say 10 years and after that the said building would be uninhabitable and would cease to yield any rent whatsoever. In such case it would be against facts to presume that the rent of the building would nevertheless be maintained in perpetuity. The valuation of such a building will have to proceed on the footing that the yield from the building would be for 10 years only and that after that the rent will stop and the building will be valueless except for its old materials and that the land along would be left in the possession of the owner which he would be able to develop in the manner he deemed best. The land would apparently have some value 10 years after. The value of the land to the owner on its reversion 10 years, hence, would be the reversionary value of the land. Its present value has to be determined by applying Parks' table appearing at pages 299 to 302 of his book 4th edition. Simultaneously the present value of the rent that would be received by the landlord for the period of 10 years would have to be found out by applying the Parks' table given at page 295. At 8 per cent yield for 10 years the multiple to be applied according to this table to the net rent would be 6.710 (and not 12) the sum total of the two figures described above would be the value of the property in question.

35. The above method of valuing an old building is well recognised and Parks illustrates this at pages 50, 51 and 52 of his book referred to above 4th edition. The relevant observations may be extracted here for ready reference as follows : It may be argued that as the building is producing a rent which when capitalised gives a value greater than the value of bare land, therefore, more than old material value should be taken for the structure. It may also be argued that as the building is producing a rent, that rent should be capitalised for the period it is expected and then revert to land plus old material value of the buildings deferred the period taken as the life of the building. The life of an old building is of a speculatve nature and towards the latter part of its effective life the rent is liable to be considerably reduced.

Assume that the rent of Rs. 250 per month will be maintained for the next 15 years. Then a rent of Rs. 200 for the next 5 years and for the last 10 years the rent will be reduced to Rs. 150, the value of this would be :6 1/2 per cent.

9,403 18,618 ______6 per cent 11,019Years purchase 15 years at the rate of6 per cent deferred 15 years 1,616 2,560Next 10 years' gross rent 1,8006 per cent deferred 20 years 204 2,424 ______rate of 6 1/2 per cent 1,512 3,226 _______ _________ The capitalissed value of the rent that is likely to be received for a deteriorating property plus the reversionary value after 30 years is Rs. 26,828 whereas the value of the land plus old materials of the building is Rs. 21,333. (p. 51) The minimum value for example 5 is, therefore, Rs. 21,333 and the maximum value Rs. 26,828 and in this case I would say that Rs. 24,000 would represent the fair present market value.

The above discussion appears in Chapter 4 which deals with rental method of valuation. Apparently this portion was not brought to the attention of their Lordships by Mr. Pal. It would not, therefore, be correct to say that their Lordships had considered and disapproved these observations in the judgments referred to above. In fact in the aforesaid three cases their Lordships have nowhere said that, even though a building may be capable of yielding rent only for a period of 10 years on account of its oldness as in the present case, yet the value of the said property should be computed on the footing as if the said building would go on yielding the same rent in perpetuity. If the building is such as would, with reasonable repairs, go on yielding the present rent in perpetuity as was the presumption underlying the observations of the Hon'ble High Court, there can be no question of the reversionary value of the land and of the old material value-of the structure being taken into consideration for in such a case, a reversion is not contemplated till perpetuity. But, when a building would last only a few more years and would thereafter yield no income by way of rent whatsoever, the land would become available for such use thereof as may be made by the owner and as it is a valuable asset, it has to be valued and as such value would be available to the owner after a given number of years only its present value has to be computed.

That is the rationale of the reversionary value of land and of the old material value of structure. Its relevance, may it be emphasized, is only to the rental method of valuation and, as noted above, it can have no relevance whatsoever to the land and building method.

36. The observations of their Lordships of the Calcutta High Court in the three cases, referred to above, have to be appreciated in the context in which and with the qualifications with which they have been made. Inasmuch as the position, as stated above, has not been considered and commented upon by their Lordships and inasmuch as their Lordships have more or less shown their agreement with the views of Parks, it would not be proper to construe the said judgments as negativing the Parks views contained at pages 50, 51 and 52 of his book in the chapter of rental method of valuation, referred to above by us.

37. The valuer in the present case has asserted (this assertion has to be tested in appeal by the assessee as and when there would be an appeal against the Valuation Officers report in due course) that the useful economic life of the property under consideration is no more than 12 years (see para 7.1 of the valuer's report) and, therefore, he has worked out the valuation of the said property on the basis indicated in paragraph 7.1 prima facie, his method does not appear to be against logic.

38. It was pointed out by the learned counsel for the assessee, with his characteristic insight into the details of a case, that in the case of Smt. Ashima Sinha (supra) also, the building was an old structure and the useful economic life of the said structure was estimated by the departmental valuer at 20 years only and he had worked out the valuation of the said structure on this hypothesis by adding (i) the present value of the rent of the building for 20 years and (ii) the deferred value of the land and old material of the building after 20 years and yet his method of valuation was disapproved by their Lordships and as the method of valuation, adopted in the present case was absolutely identical to that adopted in Smt. Ashima Sinha's case (supra), there could be no escape from the conclusion that their Lordships disapproved of this method as not only novel but 'erroneous'.

39. No doubt, the facts of Smt. Ashima Sinha's case (supra) are, as indicated by the learned counsel. But a careful reading of the said judgment would show that despite the opinion of the departmental valuer that the building would last only 20 years and, therefore, the present value of Re. 1 per annum in respect of the yield from the said building would be Rs. 9,654, the Tribunal did not accept the said finding and instead, proceeded on the footing that the net rent, which was being derived from the said building, was 'likely to be maintained for years to come', i.e., in perpetuity and, therefore, adopted the present value Re. 1 per annum at the rate of expected yield of 8 per cent at 12.50.

This method was upheld by the Hon'ble High Court as rental method according to Parks 'clearly applies to such facts' (page 37, 4th edition). The facts of a case are those as are found out by the Tribunal and not as stated by the valuer or any other lower authority.

Once the Tribunal gave the above finding it became the fact of the case. The observation of the departmental valuer merged into (or get obliterated by) the above finding of the Tribunal. In the face of the said finding, the addition of reversionary value of land and old material of the building became inappropriate and redundant. The Hon'ble High Court, therefore, rightly dismissed the half-baked submission of the standing counsel (the meaning of which he could not himself grasp and articulated with regard to the multiplier of 12 having been adopted by the Tribunal instead of 9.654 adopted by the departmental valuer. This is what their Lordships said on this point: The only other point to be considered is whether the Tribunal applied a proper multiplier, i.e., 12 times. In our opinion, this point is academic. The Valuation Officer applied the rental method and computed the capitalised value of the said property at Rs. 62,513 by applying a multiplier of only 9.654. The assessee's valuer has applied a multiple of 12 which was accepted by the Tribunal.

The appellant has no reasons to be aggrieved that a multiplier higher than that suggested by its own valuer has been applied. (p.

39) 40. The above observations cannot ipso facto be applied to the facts of the present case unless the opinion of the departmental valuer, as contained in para 7.1 of his report, is held to be erroneous and a finding is, instead, given that the present rent of the premises in question would be forthcoming in perpetuity. The said finding of the learned DVO is yet to be tested on facts in the proper forum and it would be entirely inappropriate for us to express any opinion on it without the assessee getting an opportunity to assail it, if possible, in the appropriate forum. The Commissioner has also refrained from making any observations on merits as pointed out by us above nor shall we make any at this stage. Suffice it to say, as we have already said in para 3 supra that prima facie the method of valuation adopted by the departmental valuer is not against logic and established practice. If what he says is correct his method is correct. But whether or not what he has said is correct is yet to be adjudged let it be adjudged in the normal course.

41. Accordingly, we refuse to interfere with the orders of the learned Commissioner. His orders are valid in law and, therefore, we affirm them.


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