S.K. Mal Lodha, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short ' the Tribunal '), has referred the following questions for the opinion of this court, which are said to arise out of its order dated August 31, 1976, which was subsequently modified on April 19, 1978, passed in Wealth-tax Appeals Nos. 94 and 95 of 1974-75:
' 1. Whether, on the facts and circumstances of the case, the Tribunal was justified in treating the appellant on the valuation date as owner of Jhandewalon property and including the value of the same in the total wealth ?
2. Whether in view of the fact that property was constructed in the immediate past, the cost of construction is accepted by the Department and sale value of the land was before it, the Tribunal was justified in estimating the value of the property by applying a certain year's purchase price when its value as on the valuation date can be estimated exactly on land and building method ?
3. Whether the Tribunal in view of the fact that the property did not stand registered in the name of the appellant on the valuation date, there was agreement in the form of a partnership deed to divide the profits and when the right to sell of the appellant was registered was justified in estimating the value of the property at Jhandewalan by applying a multiple of 14 times?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in including the fall value of the property at Jhandewalan in the total wealth of the appellant ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the valuer's report filed by the appellant in respect of her property at Jhandewalan and valuing this property by applying a certain years' purchase '
2. In this reference, the assessment years involved are 1967-68 and 1968-69. We are concerned with the valuation of the property situate at Jhandewalan, Delhi. The assessee, in support of the market value of this property as well as the properties situate in Greater Kailash, Delhi, submitted the report of a valuer, namely, M/s. Pradhan Ghosh and Associates, to the Wealth-tax Officer. The Wealth-tax Officer did not accept the market value as stated by the valuer and disclosed by the assessee, in regard to the two years in question. The Wealth-tax Officer determined the net annual letting value of the property at Rs. 39,838 and by capitalising the annual rent by certain number of years purchase, i.e., by applying the multiple of 16.66 times, he valued this property at Rs. 6,63,717. An appeal was taken before the Appellate Assistant Commissioner. He, vide his order dated June 26, 1974, determined the value of the property at Jhandewalan at Rs. 5,57,746 against the value determined by the Wealth-tax Officer at Rs. 6,63,717. A further appeal was preferred. The Tribunal agreed with the finding of the Appellate Assistant Commissioner in regard to Jhandewalan property. The Tribunal, while holding that the valuation of Jhandewalan property was rightly determined by applying the multiple of 14 times, observed as under :
' We have heard the parties and perused the material available on record. It is common ground that the property in question is commer-cial property and its net annual letting value was the same as was determined by the Wealth-tax Officer. The Wealth-tax Officer has determined the net annual letting value of this property at Rs. 39,839. In view of the ratio of decisions referred to above, for such a building the only proper and correct method for finding out market value of the property would be to apply multiple of certain years purchase to the net annual letting value of the property.
In respect of immovable property, there could not be any fixed market such as market for share, or for other commodities like sugar, cloth, etc. For determining market value of immovable property, there must be certain amount of guess but the guess must be an intelligent one based on certain objective factors which have a rational nexus with the valuation. In order to find out market value of the immovable property, the location of the immovable property, viz., whether it is situated in a high class locality or ordinary residential area, has easy access to business and shopping centres has a good road from, etc., are also factors which affect the market value of the property considerably,'
3. It further observed :
'The Wealth-tax Officer after considering the entire material on record valued the property by applying the multiple of 16.66 times. The learned Appellate Assistant Commissioner applied the multiple of 14 times. Before us, on behalf of the assessee, no convincing material was brought on record to show that the multiple of 14 times applied by the Appellate Assistant Commissioner was unfair and excessive. Similarly, on behalf of the Revenue, no cogent material was brought on record to establish that the multiple of 16.66 times was fair and reasonable. The learned Appellate Assistant Commissioner considered all the facts and circumstances of the case. In our opinion, the discretion exercised by the learned Appellate Assistant Commissioner is not perverse or not against the facts and the material on record. Thus, in our opinion, the finding of the learned Appellate Assistant Commissioner on this point is quite correct and no interference is called for.'
4. While dealing with the contention that the Jhandewalan property did not absolutely belong to the assessee, the Tribunal held that it did belong to the assessee. It, therefore, agreed with the findings of the Appellate Assistant Commissioner. The application under Section 27(1) of the Wealth-tax Act, 1957 ('the Act' hereinafter), was moved and the questions stated hereinabove have been referred,
5. Question No. 1: The Tribunal has found that on the valuation date the assessee was the owner of Jhandewalan property and its entire valueis to be included in the assessee's total wealth. On the basis of the document dated November 5, 1964, it was submitted by the learned counsel for the assessee that Nitin Mohan Nagpal became entitled to 50% of the net profits or receipts from the immovable property on account of rent after payment of tax and other expenses. It may be stated that D.B.I.T, Reference No. 37 of 1975 was made at the instance of the assessee in respect of the assessment year 1965-66. The document relied on was an agreement dated November 5, 1964, according to which Nitin Mohan and Savita Mohan Nagpal were entitled to share the net profits half and half out of rents of the building after payment of taxes and defraying of expenses, on the basis that it was held that no attempt was made by Smt. Savita Mohan to part with the ownership of the half of the property in question to her son. The Tribunal, therefore, held that Smt. Savita Mohan continued to remain the sole owner of the entire property. After construing the agreement dated November 5, 1964, a Division Bench in Smt. Savita Mohan Nagpal v. CIT (D.B.I.T. Reference No. 37 of 1975, decided on April 4, 1984 ) held that Smt. Savitha Mohan Nagpal remained the absolute owner of the immovable property and she had no intention of parting with a share of the title or ownership of the property, but by virtue of the document dated November 5, 1964, an overriding charge was created in favour of her son, Nitin Mohan, on account of which he became entitled to 50% of the net profits or receipts from the immovable property on account of rent after payment of taxes and other expenses. It may be stated that the learned counsel for the assessee as well as the Revenue stated before us that in view of the pronouncement of this court in Smt. Savita, Mohan Nagpal's case , the finding of the Tribunal that on the valuation date, the assessee was the owner of the Jhandewalan property, is not open to challenge and question No. 1 referred by the Tribunal should be answered in the affirmative. We have considered the (document) dated November 5, 1964, and also the reasons for holding that the assessee was the owner of the Jhandewalan property despite the agreement dated November 5, 1964. We hold that the conclusion arrived at by the Tribunal treating the assessee as the owner of the Jhandewalan property is correct.
6. Question No. 2: For this question, we shall have to notice the relevant provisions of the Act.
7. 'Asset' has been defined in Section 2(e) of the Act, as under :
'(e) 'assets' includes property of every description, movable or immovable, but does not include,--
(1) in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year-
(i) agricultural land and growing crops, grass or standing trees on such land;
(ii) any building owned or occupied by a cultivator of, or receiver of rent or revenue out of, agricultural land :
Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling-house or a store-house or an out-house;
(iii) animals;
(iv) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;
(v) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee ;
(2) In relation to the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year-
(i) animals;
(ii) a right to any annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;
(iii) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee :
Provided that, in relation to the State of Jammu and Kashmir, this sub-clause shall have effect subject to the modification that for the assets specified in item (i) of this sub-clause, the assets specified in items (i) to (iii) of Sub-clause (1) shall be substituted and the other provisions of this Act shall be construed accordingly; '
8. 'Net wealth' has been defined in Section 2(m) of the Act, which is as under :
'(m) 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-
(i) debts which under Section 6 are not to be taken into account;
(ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and
(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),--
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him; or
(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date. '
9. In accordance with Section 2(9) of the Act, the valuation date in relation to any year for which the assessment is to be made under the Act, means the last date of the previous year as defined in Section 3 of the Income-tax Act, 1961. There are provisos to this section with which we are not concerned. Section 7 of the Act provides as to how the valuation of assets is to be determined.
10. It is correct that the property was constructed during November, 1965, and its construction was completed in July and August, 1967, The total covered area of this property was found to be 4,514 sq. ft. The investment made up to the end of the assessment year 1968-69 was Rs. 1,76,414, and the cost of the land was shown separately at Rs. 24,000. This is said to be the admitted market value of the Jhandewalan property, viz., Rs, 2,54,189. It is also correct that the cost of construction was accepted by the Department, but that is only for the purpose of payment of tax under the Income-tax Act. Under the Act, wealth-tax is payable on the net wealth of the assessee and in accordance with Section 7 of the Act, the value of assets is to be determined by the Wealth-tax Officer on the basis of the estimated price that that property would fetch, if it is sold in the open market. So, there is no justification for the learned counsel for the assessee to contend that the accepted cost of construction by the Department should be taken as value of the property for the purpose of the payment of wealth-tax. The value of the asset is to be determined in accordance with Section 7(1) of the Act and so, the actual cost of construction or admitted cost of construction is not of much consequence.
11. Further question that now arises is as to what is the proper method for determining the value of such property. It is an admitted position, ashas been stated in the statement of the case, that the Jhandewalan property is situate in a commercial locality in Delhi. The assessee is not in possession of it. It has been rented out to tenants and the tenants are in possession of it. There is no specific mention in the orders of the taxing authorities or for that matter in the order of the Tribunal or in the statement of the case that the Rent Control Act is applicable to the area in Delhi where the property is situate. For the purpose of this question, we shall take notice of the facts that the Jhandewalan property is situate in a commercial locality in Delhi and is occupied by tenants, who pay rent to the assessee, or, in other words, it is a rented property. Now, how the valuation of such property is to be determined under Section 7 of the Act, we shall notice the cases bearing on this question.
12. In T. Kanagasabapathy Pillai v. CWT : [1964]51ITR146(Mad) , it was observed that under Section 7(1) of the Act, for the purpose of assessment of wealth-tax, the value of any asset other than cash was the price which, in the opinion of the Wealth-tax Officer, the asset would fetch in the open market and it was the duty of the Wealth-tax Officer to estimate the price which the asset would fetch if sold in the open market. The formula of multiplying the annual letting value could be resorted to only if the market value was not easily ascertainable by other methods. Under a circular, in that case, of the Central Board of Revenue, discretion was given 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 failed or where materials were not available to make a proper determination.
13. The question was again considered in CWT v. V. C. Ramachandran : [1966]60ITR103(KAR) , wherein it was held that in the case of buildings with compounds in a city, which were in the possession of tenants and the tenants could not be either evicted or the rent payable by them enhanced except in accordance with the provisions of the Rent Control Act, the only appropriate method of valuation was to capitalise the annual rent by certain number of years' purchase.
14. The Calcutta High Court in CED v. Radha Devi Jalan : [1968]67ITR761(Cal) , under the Estate Duty Act, had to consider a similar question with which we are concerned. It was held in that case that in the case of buildings which were in the possession of tenants and the tenants could not either be evicted or the rent payable by them enhanced, except in accordance with the provisions of the Rent Control Acts, the only appropriate method of valuation was to capitalise the annual rent by a certain number of years' purchase. The method of valuing the land and the building separately and adding up the values would be improper in suchcases, because that would ignore the impact of the Rent Control Acts on the value of the land and the building.
15. Stale of Kerala v. P.P. Hassan Koya AIR 1968 SC 1201, was a case under Section 23 of the Land Acquisition Act. The Supreme Court observed that in determining compensation payable in respect of land with buildings, compensation could not be determined by assessing the value of the land and the ' break-up value ' of the buildings separately and that the land and building constituted one unit and the value of the entire unit must be determined with all its advantages and its potentialities. The Supreme Court further observed that when the property sold was land with building, it was often difficult to secure reliable evidence of instances of sale of similar lands with buildings proximate in time to the date of the notification under Section 4,
16. In Devi Prasad Poddar v. CWT : [1977]109ITR760(Cal) , Sabyasachi Mukharji J., as he then was, with whom R. N. Pyne J. agreed, held that which one of the various methods would be suitable for a particular case must depend on the nature of the property, the location of the property, the purposes for which the property is used and several other objective factors, viz., when the valuation is made, the prospect of buying and selling in respect of the property at the relevant time and also special features in respect of the property, in that case. Having regard to the special features of the case, the rental method was adopted for determining the valuation of the property.
17. We have carefully considered the principles laid down in the aforesaid authorities. In our opinion, where the property in question is occupied by tenants and the assessee receives rent, the market value is to be determined on the basis of the annal rent multiplied by certain years' of purchase, which vary according to the situation of the property in a locality in a particular city or town, the age of the building and also the nature of the locality. In respect of the Jhandewalan property, the Wealth-tax Officer applied the multiple of 16.66 whereas the Appellate Assistant Commissioner had applied the multiple of 14. He reduced the multiple by 2.66 having regard to the nature of the property, but held that the valuation of the property is to be done by applying certain years' purchase price and the cost of construction accepted by the Department for the purpose other than for the payment of the wealth-tax under the Act, cannot be taken as the valuation of the property, For this reason, in our opinion, the view taken by the Tribunal regarding valuation of the Jhandewalan property is correct and the question has to be answered in the affirmative.
18. Questions Nos. 3 and 4.--It will be useful to deal with questions Nos. 3 and 4 together. Question No. 3 stands answered by the opinion that we have expressed on question No. 1, for, the assessee is the absolute owner of Jhandewalan property despite the agreement dated November 5, 1964, and 50% of the rent and profits of Jhandewalan property is payable to Nitin Mohan Nagpal, as an overriding charge was created by the agreement. In this view of the matter, question No. 3 has to be answered keeping in view the fact that the assessee is the absolute owner of the property. As stated above, according to the (document) agreement dated November 5,1964, Nitin Mohan Nagpal and the assessee were entitled to share the net profits half and half received out of the properties after payment of taxes and expenses. The assessee did not part with the ownership of the entire property and as found in Smt. Savita Mohan Nagpal's case , she was the sole owner of the entire property. The fact that the profits were divided or that the right of the assessee to sell will not make any difference as despite the stipulations contained in the document (agreement) dated November 5, 1964, Jhandewalan property was the asset of the assessee in terms of Section 2(e) of the Act and its valuation is required to be determined in accordance with Section 7(1) of the Act. We have already held that the multiple of 14 times was rightly applied by the Appellate Assistant Commissioner for determining the valuation of Jhandewalan property on the valuation dates in question. Questions Nos. 3 and 4 are, therefore, also answered in the affirmative and the findings of the Tribunal in this respect are affirmed.
19. Question No. 5.--The contention on behalf of the assessee is that the valuer has valued the property on the basis of the value of the land and the cost of construction. The assessing authority did not accept the valuer's report as that was not based on the criteria provided in Section 7(1) of the Act for determining the valuation of the assets. The valuer's report is the only evidence in the case in support of the valuation by the assessee. The valuation of an asset forming part of the net wealth is to be determined according to the principles mentioned in Section 7(1)of the Act, namely, the estimated price, which the asset would fetch if sold in the open market on the valuation date. The correct principles for determining the valuation of the property like the one with which we are concerned, when it is in the possession of the tenants, is by multiplying annual rent by certain years' of purchase. As the valuer's report in this case was based on the cost of construction and value of the land, which is not the proper basis, as held in the aforesaid authorities when the property is in possession of tenants, the Tribunal was justified in rejecting the valuer's report and applying the multiple of 14 times as was done by theAppellate Assistant Commissioner. Question No. 5 is also answered in the affirmative.
20. The result, of the foregoing discussion is that all the five questions referred for the opinion of this court are answered in the affirmative, i.e., in favour of the Revenue and against the assessee.
21. In the circumstances of the case, we leave the parties to bear theirown costs of this reference. Let the Tribunal be informed of this order.