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High Court Of Calcutta
D. K. SEN, C. K. BANERJEE
COMMISSIONER OF INCOME TAX, WEST BENGAL-II - Appellant
Versus
ASHIMA SINHA - Respondent
. . Of .
Decided On : 01/20/1978
INCOME TAX - Acquisition of property - Valuation - Method of valuation - Rental method - Reversionary method - Land and building method - Fair market value - Principles and Practice of Valuation by Parks - Rustom Cavasjee Cooper v. Union of India - Controller of Estate Duty, West Bengal v. Radha Devi Jalan - J. N. Bose v. Commissioner of Wealth Tax, West Bengal II - Controller of Estate Duty v. Bijoy Kumar Khandelwal.
Fact of the Case:
The assessee sold two undivided half shares of a property in equal shares to two different persons for Rs. 40,000/- each. The competent authority initiated proceedings for acquisition of the said property under section 269c of the Income-tax Act, 1961 after recording his reasons for such initiation stating, inter alia, that on the basis of the report of the valuation officer the fair market value of the property exceeded the apparent consideration by 45% (i. e. more than 25%). The assessee preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal following a decision of the Calcutta High Court in Controller of Estate Duty, West Bengal v. Radha Devi Jalan, reported in 67 ITR 761 held that by reason of the provisions of the rent control statutes, the only proper method of valuation was by application of a multiple to the net yield of the property which the Tribunal determined to be 12 ½. The Tribunal also held that the said property having been sold in two undivided half shares, a further deduction of 10% would have to be made. On the above basis the fair market value of the property on the date of the transfer was found to be less than Rs. 80,000/- which was the value mentioned in the instrument of transfer. Accordingly, the Tribunal allowed the appeal and set aside the order of acquisition passed by the competent authority.
Finding of the Court:
The Tribunal has rightly applied the 'yield or rental method' for the valuation in the instant case. 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 a novel approach but in one view erroneous.
Issues: Whether the Tribunal erred in choosing an accepted method of valuation, namely, the "yield or rental" method in preference to other methods.
Ratio Decidendi: 1. The "yield or rental" method is the appropriate method of valuation for a fully developed and tenanted property fetching a steady rent. 2. The "reversionary" method of valuation, as applied by the Valuation Officer, is erroneous as it results in the value of the land being taken twice. 3. The Tribunal was justified in applying a multiplier of 12 ½, which was higher than the multiplier suggested by the appellant's own valuer.
Final Decision: The appeal is dismissed with costs.
( 1 ) THE proceedings which have culminated in this appeal and the facts relevant thereto are as follows: -
( 2 ) ASHIMA Sinha, the respondent herein, sold premises No. 74a, 75b and 74c, Elliot Road, Calcutta-16 (hereinafter referred to as the said property) in equal undivided shares to Mst. Sayeeda Khatun and Mst. Fatima Khatun by executing two separate conveyances both dated the 10th December, 1973 for Rs. 40,000/- each.
( 3 ) STATEMENTS under section 269p (1) of the Income-tax Act, 1961 in the prescribed form and verified in the prescribed manner were duly filed by the transferees along with a copy of the instrument of transfer disclosing the following particulars: - (a) The said property consisted of a partly two and partly three storeyed building together with one-storeyed out-houses in a total area of 6 Cottahs, 5 Chittacks and 25 sq. ft. (b) The buildings were approximately over 50 years old. (c) The entire premises were let out to tenants. (d) The fair market value of the undivided half part of the said property was approximately Rs. 35,000/ -.
( 4 ) BY his communication in writing dated the 13th June 1974, the Inspecting Assistant Commissioner Acquisition Range I, Calcutta, a competent authority within the meaning of section 269b of the Income-tax Act, 1961, made a reference to the Assistant Valuation Officer Unit No. III under section 269l (1), requiring the latter to determine the fair market value of the said property and make a report.
( 5 ) PURSUANT thereto, the said Valuation Officer inspected the said property on the 26th June, 1974 and on the 9th July, 1974 submitted his valuation report, inter alia, stating as follows: - (a) The said property was situated in a middle class residential area with all civil amenities. (b) The buildings in the said properties were not properly maintained. (c) The buildings were electrified and had Corporation tap connection as also sewerage connection which, however, had out-lived their utility. (d) The building was about 60 years old and past its useful life and its future life was estimated to be only 20 years more. (e) The premises were fully tenanted, total rent realized being Rs. 820. 37p. per months. (f) There was every possibility for extension of the property.
( 6 ) ON the basis of the location the said property and amenities available, the market price of the land was determined at Rs. 20,000/- per cottah aggregating Rs. 1,26,300/ -. The valuation of the said property however was determined to Rs. 1,16,000/- which according to the Valuation Officer was the fair market price of the said property, the half share thereof being valued at Rs. 58,000/ -.
( 7 ) THE actual computation of the Valuation Officer was as follows: -
Rental Method of Valuation
Gross annual rent
Less outgoings 1. Municipal tax 4 x 2
Rs. 820. 37x12=rs. 9,844/-
Rs. 1431/-
(Rs. 7. 69+161. 75+9. 42) 2. Government revenue payable
Rs. 16/-
annually Rs. 15/7/4 3. Maintenance & Repair
Rs. 1400/-
1/16 of 9844 (1431+16) 4. Management & collection charges
Rs. 9844- (1431+16)
@ 6% of Net annual return : Rs. 6,493/- ( - )= 504
Capitalised value: - Rs. 3,351/- For 20 years life years @ 7% with Rs. 62,513/-
Redemption capital @4@=rs. 6493/- x 9. 654
Less capital repair done by vendees =l. S. = ( - ) = Rs. 3,000/- Total structural value on 10. 12. 74 Rs. 59,513/-
Land
Land value on reversion land = 6k. Rs. 1,26,300/-
5 ch. 2 sq. ft. = 6. 315 cottahs @ 20,000 per cottah.
Salvaged value of building 10% of the estimated
Reproduction cost of bldg. i. e. @ 10% of Rs. 2,40,000/-
Rs. 24,000/-
Rs. 1,50,300/- Deferred for 20 years @5% Y. P. = 0. 3769 x Rs. 1,50,000/- Rs. 56,648/- Total value of the property by Rental method as on 10. 12. 74 1. Structure Rs. 59,513/-
2. Land
Rs. 1,16,161/-
Rs. 1,16,000/-
Rs. 56,648/-
( 8 ) ON the 24th August, 1974, the competent authority initiated proceedings for acquisition of the said property under secti
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