1. Involving the same issue, these five wealth-tax appeals of the assessee for the assessment years 1970-71 to 1974-75 are conveniently considered together and disposed of by a common order. These appeals were heard in common with similar five appeals of Shri Nathu Ram Ahuja (deceased) through legal heir Shri Surinder Kumar Ahuja. These are WT Appeal Nos 102, 103, 104, 105 & 106 (Asr.) of 1981 and relate to the same five assessment years. The decisions in the assessee's appeals will also govern the disposal of the other five appeals in the case of Shri Nathu Ram Ahuja (deceased).
2. The assessee along with his father and his brother was co-owner of a theatre by name Deenar Theatre situated in Hanumangarh, a place in Rajasthan. He and the late Shri Nathu Ram Ahuja owned one-third share each in the theatre on all the five valuation dates. The valuation of this one-third share is the only contention, raised by the assessee for the five years under appeal. The assessee on the basis of approved valuer's report, which was based on land and building method, returned the value of his one-third share as under but the WTO referred the matter to the Valuation Officer and he enhanced the value as shown below on the basis of the report of that valuation:Asst. Year Value returned by the Value determined assessee by the WTO The assessee filed appeals but the AAC upheld the value determined by the WTO and dismissed his appeals and hence these appeals to the Tribunal.
3. Another important fact, which ndeds to be noticed is that the duly furnished and equipped cinema house known as Deenar Theatre belonging to the assessee, his father and his brother, was leased out on yearly basis on rent to a partnership firm styled as Ahuja Enterprises, Fazilka. This firm up to the assessment year 1971-72 consisted of the wives of Shri Nathu Ram Ahuja and Shri Baldev Krishan Ahuja and the assessee Shri Surinder Kumar Ahuja. From the assessment year 1972-73, Shri Surinder Kumar Ahuja retired and his wife became partner. Thus the firm Ahuja Enterprises had all the three lady partners. It is this firm which ran cinema as its business, We were told by the assessee's counsel Shri S.P. Krishnan that the lease of the cinema property was given to Ahuja Enterprises right from the assessment year 1966-67. He also pointed out a mistake of fact in the report of the Valuation Officer about the yearly lease rent payable to the assessee. According to him, for all the five assessment years under consideration yearly lease rent payable to the three co-owners was Rs. 40,500 and not Rs. 36,000 for the assessment year 1970-71 and Rs. 40,000 for the assessment year 1971-72 as stated by the Valuation Officer in his report.
4. We have heard the rival submissions about the validity of the approach of the Valuation Officer in the matter of valuing the cinema property. The Valuation Officer valued the property on profit capitalisation method even when the property so far as the assessee was concerned was leased on rent. In the annexure to his report, the Valuation Officer has considered the figures of gross income, expenditure and net income received from the running of cinema and on the basis of that net income, he worked out the value of the property on three valuation dates: 31-3-1970, 31-3-1971 and 31-3-1972, which were referred to him. The reasons for adopting the profit capitalisation method instead of determining the value on the basis of annual lease rent are given in para 6.6 of his report, which is reproduced below:6.6 Gross income received from The above annual rents cannotthe entire property monthly/ be accepted for the followingannually.
reasons: It may be stated that in the preceding para 6.5 the Valuation Officer had noted the annual rent figures as on 31-3-1970, 31-3-1971 and 31-3-1972 as Rs. 36,000, Rs. 40,000 and Rs. 40,500 which he considered to be low or on concessional basis. It may be stated here before we deal with para 6.6 that according to the assessee, the figures of the rent were wrong as on the first two valuation dates and according to him the annual rent for all the three valuation dates and even for all the five valuation dates was the same Rs. 40,500 per year.
5. Before dealing with the approach of the Valuation Officer in para 6.6, we may straightaway note that it was not in dispute that so far as the Valuation Officer was concerned, he proceeded to value the cinema property totally disregarding the lease agreement and on the footing that the property and its income by running the cinema, in fact, belonged to the three co-owners, in other words, for him the fact that the three co-owners had leased the property to a partnership firm, no doubt, of their relatives, carried no weight. In our opinion, such an approach of the Valuation Officer is not in accordance with law and, therefore, his report is prepared on an altogether wrong basis.
Reference to a Valuation Officer is made by the WTO under Section 16A of the Wealth-tax Act, 1957 ('the Act'). The WTO can refer the valuation of any asset to the Valuation Officer provided the conditions mentioned therein are satisfied and under Section 16A(1)(a) it is provided that the WTO can make a reference to a Valuation Officer where the value of the asset as returned, though in accordance with the estimate made by the registered valuer, is yet considered by the WTO to be less than its fair market value. It is clear from Section 16A(1)(a) that what is referred to the Valuation Officer by the WTO is the value of an asset as returned. In the instant case, the value of the asset returned by the assessee was the value of a share in a leased out property from which annual rent was received. It is this property thus which was the subject-matter of valuation. In Section 16A(2) again it is stated as under: For the purpose of estimating the value of any asset in pursuance of a reference under Sub-section (1), the Valuation Officer may serve on the assessee a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require.
Here also the scope of the enquiry of the Valuation Officer is restricted to estimating the value of any asset in pursuance of a reference made by the WTO under Section 16A(1). The Valuation Officer has not confined himself to the scope of the enquiry open to him under Section 16A. He was to proceed in our view to value the asset, which was a leased out property and had no jurisdiction to hold that the lease was sham and to proceed to value the property as if it was in the occupation of the co-owners themselves for the purpose of running the cinema business. In our view, the Valuation Officer had no authority to imagine a situation different from what was exhibited by the assessee on his own version and which alone had been referred by the WTO to him.
It was not open for him to observe as he did at 6.6(1) that "The property in shown as leased out by the assessee to their own family members or themselves through a partnership firm, as a matter of business convenience." He was in law concerned only with the yield from the property, which was leased out when he chose to determine the value of the propety by income capitalisation method. As far as we understand, he could not throw out the lease agreement and proceed to assume for the purposes of income capitalisation method as if the co-owners therrselves were running cinema business. This has completely vitiated the basis of his valuation.
6. We may also point out from another angle the error in the approach of the Valuation Officer. The WTO did not decide that legal question in that manner and it is further not in dispute that so far as the income-tax proceedings are concerned, the lease agreement is considered to be genuine, as it is, in fact, in the eye of law, and the co-owners are being taxed only in respect of the lease income and the revenue has nowhere treated the income of cinema business as belonging to the assessee and the other two co-owners. The assumption of the Valuation Officer, therefore, runs counter even to the approach of the Income-tax Department.
7. To sum up, in our opinion, the Valuation Officer could only determine the valuation of the property on income capitalisation method by taking note of the lease agreement and the rent payable and the period of lease. If the principles of valuation in the facts and the circumstances of the case, permit taking note of higher rental income, then only the Valuation Officer can ignore the rental income shown by the assessee and thereafter arrive at the fair market value of the property. However, before rejecting the assessee's version about the rental income it will be for the Valuation Officer to find out the rental income if the property were to be let out at Hanumangarh without any concessional element, in other words, it has to be established first by proper evidence and material that the rent charged by the assessee and the other two co-owners was low and concessional and the market rent was higher.
8. In view of the above discussion, we are unable to sustain the combined order of the AAC and the orders of the WTO on this point and consequently, vacate the findings of both the authorities and restore the issue to the WTO for fresh disposal in accordance with law for all the five assessment years after hearing the assessee.
9. For statistical purposes only, all the five appeals may be treated to be allowed.