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Hanumanmall Bengani Vs. Appellate Controller of Estate - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)12ITD37(Kol.)
AppellantHanumanmall Bengani
RespondentAppellate Controller of Estate
Excerpt:
.....and urged that these decisions were in a different context and, therefore, the multiplier of 12 times adopted by the judicial member may be maintained.7. the question of the market value at 25a, khagendra chatterjee road, calcutta, is in dispute. this property was consisted of about 44 god owns and all the god owns were let out. under the circumstances, the property for which the market value was to be arrived at on the date of the death of the deceased is a commercial property and it is not a residential or partly residential or partly commercial property. this basic fact has been ignored by the judicial member. once the property is wholly let out, the only method is the capitalization of net rent and the same has been adopted by the assistant controller. there is no dispute over.....
Judgment:
1. The President under Section 63(11) of the Estate Duty Act, 1953, read with Section 5A(7) of the Indian Income-tax Act, 1922, has referred the following question for the decision of the Third Member : Whether the multiple to be adopted for the purpose of computing the market value of the property located at 25A, Khagendra Chatterjee Road, Calcutta, for the purpose of computation of net principal value of the estate of the deceased should be taken to be 8.5 or 12 2. Smt. Mina Devi Bengani expired on 24-1-1979. She was owning before her death movable and immovable properties. The immovable property owned by her included the property of 25A, Khagendra Chatterjee Road, Calcutta. This property consisted of about 44 god owns, which were used for storing raw jute and other materials. The gross rent receivable from the god owns amounted to Rs. 46,462. The ITO after considering the outgoings, took the net rent of the god owns at Rs. 32,965. The accountable person declared the value of this property on the death of the deceased at Rs. 3,72,000, which was subsequently revised at Rs, 2,95,933 through a letter. The value shown by the accountable person was not accepted by the Assistant Controller. He capitalized the net rent of Rs. 32,965 by applying a multiple of 12.5 times. He, therefore, took the value of the god owns at Rs. 4,12,063.

3. The accountable person made various contentions before the Appellate Controller. One of the contentions of the accountable person was that the multiplier adopted by the Assistant Controller was excessive. The multiplier was reduced to 12 times by the Appellate Controller. The assessee before the Tribunal, inter alia, contended that the multiplier adopted by the Appellate Controller at 12 times was highly excessive and it should be adopted at 8.5 times.

4. The learned Accountant Member found that in WT Appeal No. 770 (Cal.) of 1981 a multiple of 8.5 times was applied after considering the decision of the Supreme Court in Union of India v. Smt. Shanti Devi AIR 1983 SC 1190. He, accordingly, decided that the multiple of 8.5 times should be applied. He also referred to the decision in CIT v. Smt.

Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj.). The learned Judicial Member after commenting upon the order of the Accountant Member and the cases upon which reliance was placed by him, came to the conclusion that the multiple of at least 12 times should have been adopted in the present case following the Special Bench decision in Biju Patnaik v. WTO [1983] 3 ITD 693 (Delhi) (SB) under rule IBB of the Wealth-tax Rules, 1957. As both the learned Members did not agree to a common factor for capitalizing the net rent, the issue has been referred by the President to the Third Member.

5. The counsel of the accountable person stated the facts and urged that all the god owns were let out and, therefore, Rule IBB or the Special Bench decision in Biju Patnaik's case {supra) is not applicable on the facts of the case. He further indicated that the multiple of 8.5 times was reasonable and he relied on Smt. Vimlaben Bhagawandas PateVs case {supra). He also referred to the commentary of the learned author, C.A. Gulanikar, at page 2.66 of Law & Practice of Gift-tax & Wealth-tax, 1984 edition. He further urged that assistance could also be taken from the decision in Smt. Shanti Devi's case {supra). The counsel further stated that if the investments in fixed deposit, National Savings Certificates, debentures, etc., are taken into consideration, the yield taken by the Accountant Member was fair and, hence, the multiple of 8.5 times should be adopted. He further indicated that the question of valuation of commercial property was in dispute. It is the common knowledge that the yield in the commercial building is more than the residential building. Even if this factor is adopted, the multiple adopted at 8.5 times was fair.

6. Shri Das, the senior departmental representative, stated that Rule IBB technically may not be applicable but the rate indicated therein is applicable and, therefore, the rate applied by the Judicial Member was fair. He referred to para 131 of the Estate Duty by Hanson, 10th edition, and urged that the best sale price should be taken into consideration. He distinguished all the cases relied upon either by the counsel and urged that these decisions were in a different context and, therefore, the multiplier of 12 times adopted by the Judicial Member may be maintained.

7. The question of the market value at 25A, Khagendra Chatterjee Road, Calcutta, is in dispute. This property was consisted of about 44 god owns and all the god owns were let out. Under the circumstances, the property for which the market value was to be arrived at on the date of the death of the deceased is a commercial property and it is not a residential or partly residential or partly commercial property. This basic fact has been ignored by the Judicial Member. Once the property is wholly let out, the only method is the capitalization of net rent and the same has been adopted by the Assistant Controller. There is no dispute over this fact. As the property in question was a commercial one, the question of application of Rule IBB or the decision of the Special Bench in Biju Patnaik's case {supra) does not arise. Therefore, the only question is that what is the proper multiplier which could be applied for capitalizing the net rent for the market value of the property on the death of the deceased. The valuation is to be made on 24-1-1979. It is to be seen what yield would a prudent businessman expect who would like to invest in real estate. The Gujarat High Court in an acquisition case in Smt. Vimlaben Bhagwandas Patel {supra) has indicated that the multiple of 8.5 would be fair. This conclusion is also supported by the decision in Smt. Shanti Devi's case (supra). The yield of about 12 per cent could not be said to be very high if the yield available on National Savings Certificates, fixed deposits in bank and the interest on debenture is taken into consideration.

Moreover, it was a commercial property. A prudent investor in real property would expect more yield from the commercial property than the residential building. If this factor is also taken into consideration, the yield which has been taken by the Accountant Member could not be said to be very high. The senior departmental representative distinguished the cases on which reliance was placed by the counsel of the accountable person. The cases are only indicative of a fair yield which can be taken while considering the market value of a property.

Therefore, those cases can at best be taken as a guide for determining the yield which could be taken while capitalizing the net rental income of the property.

8. Therefore, after considering the arguments of the respective parties, case law and the yield prevailing on the various investments, it appears that the multiplier of 8.5 times on the facts of the present cases is fair. Accordingly, the question referred to is answered as follows : The multiple for the purpose of computing the market value of the property located at 25A, Khagendra Chatterjee Road, Calcutta, for the purpose of computation of net principal value of the estate of the deceased should be taken at 8.5 times.

The matter is referred back to the original Bench for final decision in the light of the answer.


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