1. The various assessees who are partners in a firm M/s Nand Lal Cold Storage & General Mills have filed these appeals for the various assessment years and the Department have also filed cross appeals for the various assessment years against each of those assessees and the common issue that is involved in these appeals is related to the value that is to be adopted in regard to land & building housing and the cold storage of the firm. Therefore, these appeals have been grouped together and are being disposed of by this composite order.
2. Shri K.C. Srivastava appearing for the various assessees submitted that the approved valuer's report was obtained for the valuation dates relevant for assessment years 1980, 1981, 1982 and 1983 respectively.
The approved valuer has noted that the cold storage has no open land and that if the properties were to be demolished then the Moradabad Development Authority had placed restrictions on the sale of the land.
He had also observed that the properties owned by seven partners and when all the members of the family are concerned, since some of the partners represented their HUFs, there would be as many as 21 persons owning the properties. The land rate, in view of development around the cold storage has been reduced by 15% because of restriction that have been placed by the Moradabad Development Authority on sale of land beyond the normal limits allowed for residential purposes. The approved valuer also had noted that there are no sewer lines and the assessee had made its own arrangement for water supply through the tube well.
The rates of cost of construction as per the PWD Schedule of 1979-80 have teen taken into account in valuing the properties. He had observed that in view of various restrictions as explained earlier, the best method of valuation of such type of building which is very old, containing out-dated method of storage, is the yield capitalisation method. Shri K.C. Srivastava submitted that the land rates adopted by him are based on the notifications that were issued under Section 4(1)-2365/17-2-82-68 dated 17-9-1982 and this notification fixed the land rates at Rs. 113.70 per sq.mt. for the year 1982. These rates were so fixed by Moradabad Development Authority for acquiring lands for housing development purposes. Mr. Srivastava submitted that the approved valuer, thereafter considered the type of construction of various chambers in which various kinds of commodities were stored. He had also considered the various portions of the building, by relating to the year in which they were constructed namely certain chambers constructed in 1962, 1967, 1970, 1976 and the like and he had arrived at the value as under :Particulars 1980 1981 1982 1983Gross value 18,39,100 22,37,109 24,14,945 28,81,053Deduction 25% 75,875 1,06,225 1,21,400 1,71,477being fullyDeduction for 1,83,918 2,23,710 2,41,494 28,81,651co-owners15% deduction 2,75,877 3,35,566 3,62,241 4,32,148due to problemDeduction at 25% 4,59,795 5,59,277 6,03,736 9,20,263for use of very oldTotal deductions 9,95,465 12,24,777 13,28,872 16,12,004Net 8,43,715 10,12,329 10,86,073 12,69,049 As against these values,the valuation adopted by the Valuation Officer are given below :Particulars 1981-82 1982-83 1983-84Land & Building 41,07,000 44,32,000 52,93,000Plant & Machinery 7,73,150 10,44,080 10,43,185Total 48,80,150 54,76,080 63,36,185 3. Shri Srivastava submitted that the property that is to be valued for wealth-tax purposes, though is a hypothetical value, is required to exhibit real value or the worth of the property. He submitted that the drawbacks of the property namely, it being constructed over stages and that very old technology is used with no possibility of any expansion or modification whatsoever and at the same time, it has seven partners, who in fact become co-owners of the properties. He submitted that a willing buyer would always take all these factors into consideration before venturing to buying the said property. The willing buyer would always hesitate when there are more than one owner because unless and until all the co-owners of the property agree to sell the property, he may not be in a position to buy them and in such situation, where there are large number of co-owners selling of a property or locating willing buyer is always a very difficult task. Shri Srivastava submitted that if we proceed on the assumption that there would be a willing buyer then the property being a commercial property, he would place emphasis over the income of commercial properties which that property would generate. In fact, every buyer when he buys the property as an investment or as a business asset would always visualise the return of such an investment, whether it would be fast so as to recoup the investment and whether it would also leave him sufficient margin so as to ensure growth of its capital or not. He submitted that though the assessee's valuer had proceeded on the land and building method, he had stated that in such kind of valuation, the proper method would be capitalisation of the yield from the property. Shri Srivastava contended that he is well aware of the fact that profit is a variable factor which would never be uniform over the years and if in the years when there are no profits or very little profits are also taken into account then it would give a distorted picture of the value of the property. He pleaded that it is always an accepted principle that in valuing the property based on yield from that property, to exclude the abnormal years that is thus which show abnormally high incomes or abnormally low profits or loss. He pleaded that since the capacity that is available of the cold storage is a known factor and the rate that is charged of the storing of the commodity is also know and the expenses in maintaining and providing services in regard to such storage are usually a fixed factor, arriving at the figure of uniform yield from the property would not be difficult. He submitted that in the case of Naval Kishore Paliwal v. WTO [WT Appeal Nos. 604 to 608 Delhi Bench 'A' vide its order of 6-5-1987] had upheld the contention of the assessee for valuing the cinema building on the yield that is derived from the cinema building. He pleaded that the principle that was recognised in that case by the Tribunal was that a commercial property which has been specifically designed for a particular business, which in that case, it was a cinema building and could be used only for exhibiting films, in the like manners, the cold storage building is also capable of being used for storage of commodity and is not at all suitable for any other work. He submitted that since the Tribunal had recognised that principle of specific building for the sale of business and adopting the yield method, the same factor should prevail upon in the instant case also. He placed reliance on the Tribunal decision in B.M.Sahni(HUF) v. WTO [1993] 46 ITD 134 (Delhi) and he also placed reliance in the case of State of Keralav. P.P. Hassan Koya AIR 1968 SC 1201 where the principle of capitalisation was propounded.
4. Shri Srivastava submitted that the objection of the CIT(A) in adopting the yield capitalisation was based on the profit not being uniformed but fluctuating over the years and another reason given by him was that the approved valuer of the assessee also had adopted the land and building method. He pleaded that he had never sought for averaging the incomes including those years where there had been abnormally low profits or loss. He contended that it was always open to the assessee to take a legal plea because what is the proper method of valuation is always a legal issue which the assessee is entitled to take at any point of time, notwithstanding the fact that it had filed the return on a totally different basis. He submitted that the fallacy in the valuation of the departmental valuer is clear when the valuation is compared with the book value of the building. The book value of the building after allowing of depreciation is in the range of Rs. 7 lakhs while the same had been valued at a little over Rs. 47 lakhs and it has further gone up in the subsequent years. He submitted that the valuation that is not based on real factor such as disadvantage, drawbacks of old type of construction, old type of machinery, surrounding areas restricting the movement of the commodities in and out of cold storage leading to reduced income generation. He submitted that when there are so much of restriction in the operation of cold storage, to claim that the building has a large value would be totally improper. He submitted that the land value that has been adopted by the D.R. by resorting to the notification that has been issued by the Distt. Magistrate in 1984. He contended that since the prices/cost index had been going up over the years, to say that the value in 1984 would hold good for the property in Dushera 1980, 1981, 1982 and 1983 is clearly not proper for the value should be very less. Shri Srivastava brought the fact of the assessee's claim of improper authority valuing the property that is the Distt. Valuation Officer coming into the picture as against the Asstt. Valuation Officer who was required to value the property. He submitted that though this was taken and the CIT(A) also held that the reference was not proper, however, he had used the valuation by the DVO as an expert view and consider the various aspects, the drawbacks as stated by the assessee and allowed deduction at 40% over the value, against which deduction, the Department has filed these appeals. He submitted that the CIT(A) having taken the trouble of considering the DVO's report as an evidence, then in all fairness he should have considered the approved valuer's report as well, because it would then be possible to evaluate the opinions of the two experts, and to judge for oneself which value is the near correct value. He pleaded that in all fairness the various restrictions as stated by him he would strongly plead that the yield method would be the most appropriate in the circumstances of the property.
5. Shri A.S. Luthra, Valuation Officer and Shri U.C. Mishra, Asstt.
Valuation Officer were present during the hearing and placed their submissions in regard to valuation of the property, plant and machinery etc. The Valuation Officer submitted that the land rates though was made with reference to the notification issued by the Distt.
Magistrate, Moradabad but same were adjusted and by taking into account time, factor and other factors and on that basis the land rate was adopted at Rs. 147, Rs. 162, Rs. 178, and Rs. 196 per sq.mt. as on the valuation dates Dushera, 1980, to 1983 respectively. He submitted that the Valuation Officer are governed by the prescribed rates by the CBDT which takes into account factor such as cost index, time & place etc.
referring to the valuation report submitted by the valuation authorities he submitted that each chamber and other portions were related to the year in which they were constructed. The prevailing rates at that point of time was compared with the rates that would be necessary or that would apply on the relevant valuation date's and factor of cost index at 83% was added. He submitted that these are the addition of 83% cost index to bring into the proper level of cost on the various valuation dates has been so prescribed by means of various notification issued from time to time and though the Valuation Officer did not readily have in his possession the basis of such determination of cost index, he pleaded that this was based on certain factors and therefore cannot be regarded an ad hoc assumption. He placed reliance on Rustom Cavasjee Cooper v. Union of lndia AIR 1970 SC 564 for the proposition that where the land is fully developed and there is absolutely no control of any sort by the Govt. in property, the proper method of valuing such a property is not necessarily rent capitalisation. He also placed reliance on T. Kanagasabapathi Pillai v.CWT[1964] 51 ITR 146 (Mad.), in which decision it was held that the method of capitalisation of valuing the property should be adopted as the last resort.
The Valuation Officer submitted that the method of construction of the cold storage as was in existence in 1962, 1966, 1976 etc. are still being adopted with the only variation of the type and method of providing various kinds of coils etc. that is some adopt and use one entire floor covering up the various pipe lines and things like that while the assessee had used a different technology. The technology that uses are on entire floor for laying of pipe lines results in less of storage space, which is gained when different method as is adopted by the assessee is taken, thus allowing of additional storage space. The Valuation Officer further submitted that the property which is divided to chambers and office, measurement of which were taken such as high thickness of the wall and the like and on that basis the CPWD rates of construction have been adopted and considering the extent of usage of the cold storage, the future life was estimated and for the period that has already been expired, depreciation has been allowed on a proportionate basis, giving almost near real value of the properties.
The Valuation Officer submitted that profitability of business depends on several factors such as management. He submitted that cold storage mainly depends crops are good that is grown in the year in which the crops are grown, the assessee would have more income consequent to storage and in the year in which the crops are bad, it would result in less storage income. Therefore, the valuing of the building based on income would give a wrong picture. He submitted that the co-owners are none other than the family members and therefore it should not be a impediment in sale of the property. Insofar as valuing the machinery is concerned, there is hardly and improvement in the type of machinery or technology that is used and it has remained more or less static. It was, therefore, pleaded that the value of the machinery as adopted was reasonable, in support of which reliance was placed on AIR 1967 SC 641 (sic) and on the Supreme Court decision in the case of Juggi Lal Kamlapat Bankers v. WTO [ 1984] 145 ITR 485. The Valuation Officer further submitted that the CIT(A) had allowed rebate of 40% from the value framed by the Valuation Officer. This has been based on the factor of the Valuation Officer adopted CPWD rates in respect of PWD rates, usage of old technology. He submitted that the above deduction was totally uncalled for. The D.R. in addition to what was submitted by the Valuation Officer contended that the assessee had filed its return adopting the land and building method and therefore the assessee cannot be allowed to plea that yield method should be adopted.
6. We have given our very careful consideration to the rival submissions. Section 7(1) of the Wealth-tax Act, 1957 states that subject to any rule 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 Assessing Officer, it would fetch if sold in the open market on the valuation date. Sub-section (2) of Section 7 prescribes the value of properties that are used in a business, separately for each kind of the assets used in the business.
The reading of this section implies that the value of any asset need to be estimated, that estimate should be based on an hypothetical market i.e., the open market on the valuation date, implying the existence of a willing buyer and the willing seller. It is an accepted principle that the method of valuation that is adopted for wealth-tax purposes should be that which is more objective and provides reliable data rather than mere subjective opinion. The law enjoins determination of the fair market value which does not necessarily mean which is favourable to either the assessee or the revenue. The Gujarat High Court in CIT v. Smt. Vimlaben Bhagwandas Patel's [ 1979] 118 ITR 134 had observed the proposition that when different methods of valuation of the property give different prices, the price that should be adopted is that which is the minimum. However, there are decisions to the effect that unless the minimum price is a fair price it should not be adopted. The Gujarat High Court in Smt. Vimlaben Bhagwandas Patel's case (supra) on the aspect of capitalisation had observed that the rate should be just and should not be un-real and must have regard to the commercial rate of return. The Supreme Court in CWT v. P.N. Sikand [1977] 107 ITR 922 had observed that in valuing the property that is encumbered it should be valued as if there are no such encumbrances and from that value, the value of in cumbrances should be deducted, as in that case, the sale of the land was subject to the un-earned increase being shared by the concerned authorities.
7. The valuation of any property normally involves certain elements such as identification, time, place or location of the property, the standard or method of valuation and the like. It is an accepted factor that exclusive ownership is more valuable then shared or joint ownership because the co-owner cannot enjoy the property as a full owner. The basis of estimate of value of the property has to necessarily take note all the relevant material, evidences, such as the nature of the property, type of construction, the place on which the property is located, surrounding areas, restrictions on sale of large area of land and many such factors. The properties have to be necessarily valued as it existed on the valuation date. Various methods of valuation that are usually adopted with reference to land and properties are comparative sales, development method, income capitalisation, income profit method, land and building method and average method. The method that is ideally suited for the type of building, which building is capable of being used in varieties of situation that is in more than one situation and is under self occupation or used for the purposes of once own business, the proper method of valuation would be land & building. However, where a particular building which has been designed specifically for a particular type of business and it could not be used for any other type of business then it clearly places restrictions on its usage for purposes other than for which it was intended. In the instant case, the building has been constructed as a cold storage and the various chambers and also some portion for office use and the portions that are used as cold storage are surrounded by various pipe lines and other cooling chambers and thereby it restrict the usage of the building to only one business namely cold storage. It is on this consideration that the Tribunal in the two cases cited by the assessee, which took into account the valuation of the cinema building which building was capable of being used only for exhibition of films and with modifications only the building could be used for any other business, the conclusion was that the reasonable method of valuing the property would be the capitalising the net yield or the net income, which method gave the reasonable value and whether such a method is proper being purely a question of law, notwithstanding that the assessee returned the value on land and building method, it would be entitled to claim for adoption of the yield method, merely because the assessee had pleaded for adoption of the yield method, for valuation of the property, it is not necessary for the Courts to accept the same unless the situation warrants it. We have observed earlier that the building is capable of being used only as cold storage and therefore in the light of the decisions of the Tribunal (supra) we would adopt the yield method for valuing the said land & building and the machinery together. We are conscious that the factor of capitalisation has to be the normal rate of return and the income that is derived from the property also has to be the normal income. The factor normally would be based on the available capacity of storing of goods or commodities. The income that has been derived from the stated property has been fluctuating over the years and there does not appear that in any of the years, the income earned was on the available capacity of the building. The valuation dates being Dushera 1980, 1981, 1982 and the multiplication factor has already been so prescribed in Rule IBB which could be adopted as the basis for determining the multiplication or capitalisation factor and on that basis we would adopt the multiplication factor as 12 times the net yield which is based on available capacity, not necessarily the capacity that is used by the persons but the capacity that is available for storage, after allowing of deduction on account of normal expenses.
The various case laws cited have only provided a caution in adopting income capitalisation, which caution is based on consideration of abnormal profit or abnormal loss, resulting in abnormal value of the property which are not near the real value. The optimum capacity or the available capacity of storage is a determinable factor which brushes aside or abnormal factor of low storage or excessive storage, thus the income so derived from optimum or available capacity when capitalised at 12 times, would give the near true value. We direct the WTO to arrive at this value and adopt the same for the above asst. years.
8. In the case of two assessees Shri Shanker Saran and Someshwar Saran, one other aspect is common namely the valuation of Town Hall property which property represents several shops that are let out for the whole of the year and this is relevant only for asst. year 1980-81. The assessee had shown the value and which was so accepted by the WTO but the CIT(A) after issuing of enhancement notice determined the value of those properties like capitalising the rental. The objection of the assessee is that since the properties were constructed that almost at the beginning of the year, the value as shown by it should be adopted because invariably commercial properties fetches larger rent then other properties. The D.R. and the Valuation Officer relied on the orders.
9. On this issue, after giving it very careful consideration we have no doubt in our minds that the CIT(A) had evaluated the property by adopting the most ideally suited method of valuation which has been accepted by the various Courts because the property is fully tenanted, the yield therefrom was fully known and therefore the true value could be arrived only by rent capitalisation. We accordingly confirm the order.
10. In the case of Shri Shanker Saran one other aspect is allowing of deduction under Section 5(1)(iv) in regard of the property. In regard to this claim, the deduction has to be allowed at the option of the assessee, irrespective of the fact that whether the property is owned by the assessee or is included by virtue of his share in the firm.
11.The claim of estate duty liability and initiation of penalty proceedings in fact has not been pressed. However, we may state that the penalty proceedings are independent and they misplaced in the present appeal.
12. In the result, the appeals filed by the assessees are allowed while that of the Department are dismissed.