JAGADISAN J. - The following question has been referred to us under section 27 (1) of the Wealth-tax Act :
'Whether, on the facts and circumstances of the case, there was legal justification for the adoption of the valuation of Rs. 81,620 in regard to the above-said immovable properties ?'
The assessee is an individual subject to wealth-tax. He owns house properties within the municipal limits of the town of Tuticorin. For the assessment year 1957-58 he valued these properties at Rs. 51,270 on the basis of an estimate of valuation prepared by a retired municipal engineer. The Wealth-tax Officer did not accept this valuation as correct and valued the properties at Rs. 81,620. This figure was arrived at by multiplying the net annual letting value of the premises, which was Rs. 4,081, into twenty times. Apparently this mode of valuation, viz., twenty times the net annual letting value, was adopted having regard to the circular of the Central Board of Revenue to which we shall refer a little later. The assessee preferred an appeal to the Appellate Assistant Commissioner but failed. There was no further appeal to the Income-tax Appellate Tribunal.
The question of valuation came up for consideration for the subsequent year 1958-59. Both the Wealth-tax Officer and the Appellate Assistant Commissioner saw no reason to differ from the valuation adopted for the assessment year 1957-58 and they, therefore, fixed the same valuation of Rs. 81,620 for the subsequent year also.
The assessee, however, took up the matter by way of further appeal to the Income-tax Appellate Tribunal. The Tribunal was not prepared to accept the valuation of the retired municipal engineer and affirmed the valuation adopted by the department on the basis of twenty times the net annual letting value. The reason given by the Tribunal in reaching this conclusion is as follows :
'The assessee has not placed before us any data, such as what price any building situated in the neighbourhood of the buildings in question fetched in the open market on or about the crucial date, nor is he prepared to have the question of the disputed value referred to arbitration of the two valuers in terms of section 24 (6) of the Wealth-tax Act. In these circumstances, we must hold that the assessee has failed to show that the valuation adopted by the Wealth-tax Officer is in any way excessive or unreasonable.'
The important question that arises for consideration is whether the Tribunal has approached the matter of correct valuation from the proper legal perspective. Section 3 of the Wealth-tax Act is the general charging section. It brings to tax the net wealth of every individual and Hindu undivided family at the rate specified in the Schedule for every financial year commencing on and from the first day of April, 1957. The tax base is the 'net wealth' on the corresponding valuation date. 'Valuation date' is defined under section 2 (q) of the Act as meaning the last day of the previous year as defined in clause (II) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year. 'Net wealth' is defined under section 2 (m) as meaning the amount by which the aggregate value, computed in accordance with the provisions of the Act, of all assets, wherever located, belonging to the assessee on the valuation date, etc. Section 7, sub-section (1), reads :
'7. (1) The value of any asset other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.'
(Sub-section (2) is omitted as it is not necessary to refer to it in the present case). The duty of the Wealth-tax Officer is therefore to estimate the price which any asset (other than cash) would fetch if sold in the open market. In other words, what the officer has to determine is the market value of the asset or property as on the valuation date.
It may be pointed out that the estimate of the Wealth-tax Officer is a matter of his opinion. There cannot indeed be one universal mode of determining the market value of any property or asset. The assessing officer cannot, in the very nature of things, be expected to fix the valuation with a fine precision. In respect of a building, he can, for instance, ascertain the cost of construction of the building if the building were to be put up on the valuation date, ascertain the market value of the site on which the construction is put up, and determine that the aggregate amount would be the price which the property would fetch in open market; or, he can, if possible, find out whether any adjacent building in the same locality, more or less of the same plinth area, and more or less of the same quality of construction, has been sold in open market, and, if so, for what price. On this data he can estimate the value of the buildings in respect of which he has to assess the wealth-tax. However wide the discretion of the officer may be in making the estimate, it has to be remembered that the approach should be judicial. It would not be open to him to say arbitrarily that the valuation is so much. Nor should be follow blindly any fixed rule like multiplying the net annual letting value by twenty times. It is true that he is bound by the Central Board circular. But he has to apply it not as a general formula in every case without making any serious attempt to discharge the statutory functions which require the determination of the market value. The Central Board Circular is as follows :
'C. B. R. Circular No. 3 W. T. of 1957 of the Central Board of Revenue, New Delhi, dated the 28th September, 1957 :
The value of lands and buildings should be estimated with due regard to the nature, size and locality of the property, the amenities available and the price prevailing for similar assets in the same locality or in the neighbourhood of that locality. Where the value is not easily ascertainable in this manner, the Wealth-tax Officer may adopt the capital value of the property determined by the appropriate authority in the latest assessment for purposes of property taxation under the laws and regulations relating to the municipalities and municipal corporations. However, where the municipal valuation is prima facie too low having in view the rents actually received, or where an assessment of capital value is not made by a municipality or the property is located in an area where there is no municipality, the Wealth-tax Officer may estimate the reasonable annual value of the property and determine its capital value as a multiple, say 20 times, of such annual value.'
It is manifest from this circular of the Central Board of Revenue that discretion is granted to the Wealth-tax Officer to determine the actual value by multiplying the annual value by twenty times, only where other modes of determination of the true market value fail, or where materials are not available to make a proper determination. In fact, this mode of valuation should be the last resort and should not certainly be the first to be adopted in preference to every other mode of valuation. We are of opinion that the department has not truly understood the scope of the circular of the Central Board. There seems to be a popular departmental misconception that wherever the assessees mode of valuation is not to be accepted the wooden rule of twenty times the net annual letting value should be adopted. This procedure, it need hardly be pointed out, would contravene the provisions of section 7 of the Act which compels the assessing authority to determine the value only as the price which the asset, if sold on the valuation date, would have fetched in the open market. Further, the twenty years rule is not inflexible. It may be fifteen years or thirty years. In this case, the net annual letting value is Rs. 4,081. The capital value fixed is Rs. 81,620. The income yield is therefore about 5 per cent. If investments in immovable properties would fetch more then 5 per cent., the capital value will be less than Rs. 81,620. If the return would be less than 5 per cent., then the value will be more. We are only stating this to show how unsafe it is to have a fixed and rigid formula in estimating the net value of an asset, particularly a building. It is true that capitalisation by multiplication of the annual return into twenty times or thirty times is generally designed to approximate the value to gilt edged securities, as far as possible. But courts can take judicial notice of the fact that better returns are obtained by investments on house properties than from purchase of Government securities and bonds.
We are dealing with a charging enactment. What the statue empowers is only to levy tax on the net wealth of an assessee to be determined in accordance with the terms of the statue. The burden is upon the taxing department to find out the true net value assessable. The assessee is not liable to pay tax for any amount in excess of the true net value. There should be an earnest endeavour on the part of the department to conform to the provisions of the statue, and, in discharging this duty, the department should not even unconsciously overvalue the asset. It may be that the assessee would endeavour to under-estimate the value, but that is certainly not a ground why the department should not arrive at the true value. The task of estimating the value may often times be difficult. To quote the words of Viscount Simon in Gold Coast Selection Trust Limited v. Humphrey :
'Valuation is an art, not an exact science. Mathematical certainty is not demanded, nor indeed is it possible. It is for the commissioners to express in the money value attributed by them to the asset their estimate, and this is a conclusion of fact to be drawn from the evidence before them.'
The estimate must be, as far as possible, reasonably approximate to the market value and should not be wide of the mark. It seems to us that the department in the present case has merely adopted the value based upon twenty times the annual letting value in conformity with central Board circular without making any effort to ascertain the true market value. But, we must also observe that the Tribunal has not done anything better. The Tribunal is of the opinion that because the assessee failed to show that the valuation was excessive or unreasonable the valuation of the department should be assumed to be correct. In matters of discretion, particularly where the decision of one authority rest upon his opinion, the appellate authority sitting in judgment over this decision, would be slow to interfere and would be inclined to attach some importance to the view taken by the estimating officer. But, having regard to the provisions of the Wealth-tax Act, with special reference to the powers of the Appellate Tribunal under section 24 (6), the Tribunal cannot dismiss an appeal by an assessee questioning the valuation merely on the ground that the valuation has not been shown to be in any way unreasonable. Section 24 (6) reads :
'24. (6) Where the appellant objects to the valuation of any property, the Appellate Tribunal may, and if the appellant so requires shall, refer the question of the disputed value to the arbitration of two valuers, one of whom shall be nominated by the appellant and the other by the respondent, and the Tribunal shall, so far as that question is concerned, pass its orders under sub-section (4) conformably to the decision of the valuers :
Provided that if there is a difference of opinion between the two valuers, the matter shall be referred to a third valuer nominated by agreement, or failing agreement, by the Appellate Tribunal, and the decision of that valuer on the question of valuation shall be final.'
The Tribunal is bound to refer the question of valuation to two arbitrators, if the appellant before it so requires. But, if the appellant does not so require, the Tribunal has a discretion to refer the matter to two valuers. The Tribunal observes in its present order that the assessee was not prepared to have the question of dispute referred to arbitration. We understand this to mean that the appellant (assessee) was not willing to nominate his arbitrator. The arbitration procedure can be sabotaged by the assessee failing to co-operate by nominating an arbitrator. This is a lacuna in the section. The Tribunal must be given power to nominate an arbitrator in case the assessee acts unreasonably and fails to do what is fair and proper. No doubt the statute uses the expression 'one of whom shall be nominated by the appellant', but there is no penalty attached to non-conformity. The existing provision is unsatisfactory and is certainly unworkable. The Tribunal should, notwithstanding all this, determine the market price, or, if there has been no proper determination by the department, direct a further enquiry into the matter by the Wealth-tax Officer. There is no presumption that the officer has arrived at the proper valuation and the Tribunal is in error in dismissing the appeal on the ground that the valuation has not been shown to be unreasonable.
In all the circumstances of the case, we are of opinion that there has been no proper determination of the net value of the house properties of the assessee in accordance with section 7 of the Act. After this reference is returned to the Tribunal it would be open to it to dispose of the matter either by referring the matter to arbitration as provided for under section 24 (6) of the Act, or by remitting the matter to the Wealth-tax Officer for the proper determination of the value.
The question referred is therefore answered in favour of the assessee. There will be no order as to costs.