The universally accepted principle of allowing a 10% deduction for a co-owner's share due to the inherent difficulties in enjoying an undivided share in a property purchased in the open market.

JAGANNATHA SHETTY, J.

1. These are references under s. 27(1) of the WT Act, 1957. The common question referred is:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that a deduction of 10 per cent has to be allowed on the property owned by the co-owners even when the valuation is made on rental capitalisation method ? The facts lie in a narrow compass: The assessee is one of the co-owners of a property consisting of a shop building and a godown with appurtenant land. For the asst. yrs. 1976-77, 1977-78 and 1978-79, the WTO assessed the value of the property at Rs. 4,69,000 by rental capitalisation method by employing the multiple of 11.11.

2. The AAC upheld the valuation made by the WTO. But the Tribunal held that a multiple of 10 would be sufficient for determining the fair market value of the property. It also held that the assessee is entitled to deduction at 10 per cent on the valuation so made since the property is a co-owner's share. There is no other reason given by the Tribunal. It has followed its earlier order in another case. It is said that generally the Tribunal allows 10 per cent allowance while determining the fair market value of a co-owner's share. The question is, whether such allowance or deduction at the rate of 10 per cent is justified even when the valuation is determined by adopting the rental capitalisation method. Mr. Srinivasan, learned counsel for the Department, urged that when once the rent is ascertained and a proper multiple is employed, the fair market value determined thereon, for the purpose of s. 7, cannot further be reduced by 10 per cent merely because the assessee is a co- owner. If 10 per cent is allowed, according to the learned counsel, then it would be actually applying a method of valuation quite different from the rental capitalisation method.

3. Sec. 7 of the WT Act provides for ascertaining the market value of assets. It reads:

"7. Value of assets how to be determined.--(1) Subject to any rules made in this behalf, 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 WTO it would fetch if sold in the open market on the valuation date."

4. So far as immovable property is concerned, it has always a market value which has to be ascertained as on the valuation date, that is, the price it would fetch if sold in the open market on the valuation date. The valuation by rental capitalisation method depends upon the rent actually paid in respect of the premises occupied by tenants or on the rental value of the self-occupied buildings. After so ascertaining the annual rental value, it has to be capitalised by an appropriate multiplier. This has been generally accepted as the correct method of determining the fair market value of an immovable property. This method does not permit any other deduction in the valuation so determined. Thus far, Mr. Srinivasan is correct in his submission. But if the asset to be valued represents a share of a co-owner, whether 10 per cent deduction has to be allowed and, if so, on what principle, is the next question for consideration. By capitalisation of rental income, the fair market value of the property belonging to all the co-owners is first determined and then it is apportioned corresponding to the share of each co- owner for the purpose of s. 7. But the purchaser of a share in a property is not as comfortable as a purchaser of an absolute ownership. There are inherent disadvantages and difficulties of enjoying a co-owner's share by the purchaser if it is gold in the open market.

5. In Lalita Jabbar vs. Competent Authority (1982) 133 ITR 389 (Cal), the Calcutta High Court observed that an undivided half share of the property purchased would not and could not be half of the value of the entire property if sold in the open market. A purchaser of an undivided share of a property cannot also enjoy the property in the same way as