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Smt. Rubabbai Inayat HussaIn Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Indore
Decided On
Judge
Reported in(1983)5ITD526Indore
AppellantSmt. Rubabbai Inayat Hussain
RespondentWealth-tax Officer
Excerpt:
.....proper deductions have not been allowed. it is first said that the adjustment for reversion of land value has not been done in a proper manner, but it is not quite clearly explained what is the error in the approach of the central board of revenue in this respect.... (p. 200) the court then confirmed the valuation made by the board. this judgment does not show that the question whether the reversionary value has to be taken into account or not, had been argued before the court. in other words, this was not a clear issue before the court. the above quotation shows that the only question was whether the adjustment for reversionary value had been done in a proper manner or not. therefore, this case does not appear to be a clear authority for the proposition that the reversionary value.....
Judgment:
1. The assessee is the owner of certain immovable properties and for the purpose of wealth-tax for the assessment year 1973-74, he had declared the value thereof at Rs. 1,40,000 based on an approved valuer's report. The WTO, however, took the value of Rs. 1,89,000. The property is rented out. The AAC has confirmed this valuation.

2. Before us the assessee's counsel has argued that on the basis of calculation of net income at Rs. 8,008 the value shown by him, i.e., Rs. 1,40,000 is 17 1/2 times net income which is much more than multiple mentioned in the case of CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj.), i.e., 8 1/3 times. Therefore, this value should be accepted. According to him the value taken by the WTO comes to 24 times the net income which is very high and unjustified. He has also relied upon the following authorities : (1) Jaswant Rai v. CWT [1977] 107 ITR 477 (Punj. & Har.). In this case relying on the Supreme Court judgment in the case of State of Kerala v. P.P. Hassan Koya AIR 1968 SC 1201, their Lordships have approved the method of capitalisation of return actually received from building. It is also held that the method which is beneficial and favourable to the assessee should be applied.

(2) Parmatmidevi v. WTO decided by the Indore Bench of the Tribunal in Appeal Nos. 309 to 311 (Indore) of 1981 [Assessment years 1973-74 to 1975-76].

3. He has arrived at the net income of Rs. 8,008 by taking 40 per cent from the gross income of Rs. 10,512 basing that on the decision in the case of Vimlaben (supra).

4. On the other hand, the learned departmental representative has argued that the assessee's valuation arrived at by the departmental Valuation Officer is perfectly fair because he has also followed the yield method which is appropriate in the case of rented property.

However, according to him, the reversionary value of the property has to be taken into account because the life of the structure after a certain number of years would be exhausted and so the vacant land would come back to the possession of the assessee and the valuation thereof as at present which is reversionary value, had to be taken into account. He has also urged that the assessee is not entitled to deduct 40 per cent from the gross rental income for the simple reason that he has not proved the expenses regarding method, etc. and so the six per cent allowance made by the departmental Valuation Officer is perfectly in order. To this the assessee's counsel has replied that the reversionary value cannot be taken into account at all because of the Rent Restriction Act which enables the tenant to stay on and for these purposes he has relied upon the Tribunal's decision in WT Appeal Nos.

309 to 311 (Indore) of 1981 a copy of which he has supplied to us.

5. There is no dispute in this case that the yield method has been applied by both the sides and that is the right method to be applied in the case of the property in question because it is rented property.

Therefore, the dispute is on two points : (i) whether the reversionary value has to be taken into account or not and (ii) how much deduction has to be allowed from the gross rented incorne on account of expenses.

6. In the two decisions of the Calcutta High Court, i.e., CIT v. Smt.

Ashima Sinha [1979] 116 ITR 26 and CIT v. Anup Kumar Kapoor [1980] 125 ITR 684, the High Court has in no uncertain terms stated that the reversionary value should not be taken into account. In the former case, i.e., Smt. Ashima Sinha (supra), the High Court has observed as follows : ...In the method adopted by the Valuation Officer the value of the land is taken twice, 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.

39) In the latter case, namely, Anup Kumar (supra), the High Court has observed as follows : ...The Valuation Officer under the method adopted by him, has taken the value of the land twice, once in arriving at the figure by the 'yield or rental' method and again in applying the 'reversionary' method. This in our view was wholly wrong. (p. 699) 7. The learned departmental representative has taken considerable pains and pointed out that the High Court has not taken into consideration the fact that when the reversionary value is taken into account the value of the land is not taken into consideration twice because perpetuity factor is ruled out, i.e., the value of the land is taken into account only on a yield method for a limited period of tenancy and thereafter the value as at present on the possibility of the land becoming available in a vacant and unencumbered condition is taken into account. This point was not placed before the Hon'ble High Court and according to the learned departmental representative this has made all the difference in the aforesaid cases. It is clearly true that in the course of the judgment there is no discussion regarding this point.

However, in both the cases, the judgments show that the method of valuation takes into consideration the limited period for which the tenancy exists. There are calculations in the former case at page 29 and in the latter case at page 688 of the reports. They clearly show that the value is taken into account on a yield method only for the limited period of the tenancy and to that the value on the basis of possibility of the land becoming available in a vacant condition is added. Therefore, although there is no discussion in the above judgments regarding the perpetuity factor being ruled out in the above method of valuation, the calculations recorded as above in the judgments show that this aspect was before the Court. In spite of that the Court has stated that the reversionary value should not be added.

The learned departmental representative has relied upon the decision in the case of Dina Nath v. CED [1970] 77 ITR 193 (Punj. & Har.). In that judgment of the report it is observed as follows : There is only one other argument which is urged on the side of the person accountable and that is that proper deductions have not been allowed. It is first said that the adjustment for reversion of land value has not been done in a proper manner, but it is not quite clearly explained what is the error in the approach of the Central Board of Revenue in this respect.... (p. 200) The Court then confirmed the valuation made by the Board. This judgment does not show that the question whether the reversionary value has to be taken into account or not, had been argued before the Court. In other words, this was not a clear issue before the Court. The above quotation shows that the only question was whether the adjustment for reversionary value had been done in a proper manner or not. Therefore, this case does not appear to be a clear authority for the proposition that the reversionary value has to be taken into account.

8. The learned departmental representative also cited certain Tribunal's decisions where the reversionary value had been taken into account but we are unable to find in these decisions any discussion regarding pros and cons for taking a reversionary value into account nor is there any reference to the aforesaid two decisions of the Calcutta High Court.

9. To a question put to the learned departmental representative from the Bench, how the reversionary value could be taken into account in view of the difficulty of getting the tenants to vacate the land the learned departmental representative replied that when the life of the building was over, the tenants were bound to vacate it and could not stay on. The assessee's representative at once pointed out that even when a new structure was built up on the same land the old tenants had to be given equivalent accommodation and to that again the learned departmental representative replied that the old tenants had to be given accommodation on a rent which took into account only the cost of the new construction.

10. Now, there is something to be said for the view that the reversionary value should be taken into account. The learned departmental representative has taken considerable pains and there is substance in his arguments. However, the aforesaid two decisions of the Calcutta High Court are quite clear. It may be true that there is no discussion therein regarding the perpetuity factor being ruled out when the reversionary value is taken into account but the calculations as indicated above show that the facts were before the High Court. As stated above the decision of the Punjab High Court in the case of Dina Nath (supra) is not a clear authority on this point. The decisions of the Calcutta High Court are later decisions. Therefore, we are of the view that we should be guided by the above decisions of the Calcutta High Court. Further, when reversionary value is taken into account there is an assumption that the land will be available in a vacant condition at the end of the life of the structure after a definite period as mentioned but all this is not a matter of certainty. It is not as if the building will collapse at the end of the life period according to the calculations. Tt may take many many more years thereafter, God only knows how many more. The tenants may not vacate the building immediately after the life of the building is over. They may even prefer to stay on in the building even after it is in a poor state of repairs or even in a dilapidated condition. All these are uncertainties. Therefore, in the light of the aforesaid two decisions of the Calcutta High Court and the aforesaid further consideration, the balance of reasoning is in favour of the view that the reversionary value should not be taken into account for the purpose of valuation in such a case.

11. Regarding the deductions for the expenses the learned counsel for the assessee has relied upon the decision in the case of Smt. Vimlaben (supra) and submitted that 40 per cent of the gross income should be allowed as deduction. The Valuation Officer has allowed 4 per cent on account of collection charges. In Smt. Vimlaben's case (supra), the Court was concerned with the rough method as provided in Schedule II to the Urban Land Ceiling Act. That is not the case here. We are of the view that the deduction should be allowed on the basis of actual expenses incurred by the assessee by way of repairs, if any, taxes and other charges. This matter is, therefore, restored to the file of the WTO for making valuation as indicated above.


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