1. The appellant assessee by the presebnt appeal contests the correctness of order dated 1-7-1986 of the learned Commissioner of Gift-tax, New Delhi, for the assessment year 1979-80. Ground No. 1 is to the effect that the learned first appellate authority erred in not accepting the assessee's contention that the value of the gift made of rights as sub-lessee of a residential plot of land should be taken at Rs. 22,625, being the amount of contributions paid by the assessee to the co-operative society for acquisition of the residential plot of land, i.e., the subject matter of gift. Another ground is that the value @ Rs. 600 per sq. yd. confirmed by the learned Commissioner of Gift-tax (Appeals) was excessive.
2. Assessee by status is an individual and the accounting period was the year ending 31-3-1979. A return was filed on 7-12-1979 declaring value of taxable gift at Rs. 17,625. It was explained before the learned Gift-tax Officer that the assessee had gifted to his son, Shri Rajesh Sethi, the assessee's rights as sub-lessee of a residential plot of la,nd bearing No. 380, in Block B, New Friends Co-operative House Building Society, New Delhi, measuring 492 sq. yds. It was also contended that since as per terms of the sub-leasedeed the assessee's rights in the said plot were absolutely restrictive and there was a total ban on transfer to a non-member of the society the value of a gift may be taken at the face value, i.e., actual investment made in the said plot with the cooperative society, amounting to Rs. 22,624.
Reliance before the learned Gift-tax Officer appears to have also been placed on the ratio in the case of CWT v. Smt. Promila Bali [1983] 141 ITR 942 (Delhi). The learned Gift-tax Officer after allowing the statutory deduction of Rs. 5,000, took the value of the taxable gift at Rs. 4,87,000 with the following observations : Assessee has no doubt quoted the case of Smt. Promila Bali in defence of his claim but as per recent instructions of the department, the decision is not being contested further by way of SLP because of low tax effect. In other words, the department has not agreed with the decision of Hon'ble High Court and would have contested had there been higher tax effect. Keeping the instructions in view, the value of the gift of the abovementioned plot is being taken at the fair market value. Since the plot is situated in a most modern and posh colony of Delhi where the elites of the society reside, its fair market value, keeping in view the rise in prices of land in the year under consideration is taken at Rs. 1,000 per sq.
yd. resulting in the total value of the gift at Rs. 4,92,000.
3. The issue was contested by the assessee and it was argued before the learned Commissioner of Gift-tax (Appeals) by Shri S.K. Chadha, the learned authorised representative that the subject-matter of gift being leased land the donor's right to transfer was restricted to some extent. It was submitted that the donor had paid total amount of Rs. 22,625 and, therefore, the same should be taken as value of the gift.
The rate per sq. yd. applied by the learned Gift-tax Officer was also argued to be excessive. The reference was also made to some note of the Ministry of Works & Housing, Government of India, according to which the value of land in New Friends Colony was shown at Rs. 786 per sq.
yd. According to the learned authorised representative in view of the above circular of the Government of India, the value of the subject matter of gift should be much less than Rs. 786 per sq. yd. The learned Commissioner of Gift-tax (Appeals) directed the learned Gift-tax Officer to take the value of the gift at Rs. 600 per sq. yd. as against Rs. 1,000 per sq. yd. taken by the learned Gift-tax Officer, with the following observations : I am of the opinion that for the sake of the gift, the valuation of the property should be taken as on the date of transfer and this should be the market value and not the value of acquisition.
Therefore, the first ground of the appellant that cost of acquisition should be taken as a gift is not tenable. There is a force in his other contention that the market value on the date of gift was much lower in view of the above circular than taken by the GTO. Looking to the circular, the valuation on the date of gift will be lesser than quoted in the above circular. Therefore, the GTO is directed to take Rs. 600 per sq. yd. as against Rs. 1,000 per sq.
yd. The appellant gets relief of Rs. 1,96,800 in the taxable gift.
4. The assessee's first two grounds are against that finding of the learned Commissioner of Gift-tax (Appeals). Before us, Shri S.K.Chadha, the learned authorised representative, repeated the submissions earlier made before the learned lower authorities and also invited attention to the copy of the perpetual sub-lease placed at pages 36 to 46 of the paper book. The mention was also made of the ratio in the case (supra). According to Shri Chadha, the value of the gift should be the price the assessee paid for acquiring the property gifted. It. was also argued that the rate confirmed by the learned Commissioner of Gift-tax (Appeals1) was excessive. The mention was also made at pages 3 and 4 of the paper book mentioning certain comparable sales.
5. On behalf of the Revenue, Shri N.B. Singh, the learned Departmental Representative, supported the order appealed against.
6. Submissions have been heard and considered. Copy of sub-lease deed has been carefully examined. In terms of Clause 6 of the same indicates that there were certain restrictions on transfer, i.e., certain conditions were to be satisfied before the transfer could take place.
Further condition is that in case the consent is given by the Delhi Administration for transfer, it will be entitled to claim and require a portion of the unearned increase in the value, i.e., the difference between the premium paid and the market value of the residential plot at the time of the sale, transfer, assignment or parting with the plots possession. The amount of unearned increase is mentioned as 50 per cent of the unearned increase. These are the conditions with which the subject matter of gift was suffering. However, it is not seen that there was a total prohibition on the transfer. In view thereof the ratio in the case of Smt. Promila Bali (supra) would appear to be inapplicable as in the said case there is said to be a ban on transfer.
7. No doubt, the donor for acquiring the plot might have been required to invest Rs. 22,625, but that amount could not be determinative of the cost of the land at the time of making the gift. The price paid at the time is neither here nor there. In fact, the assessee herself brought a circular of the Government of India applicable for the rates in the same locality wherein the land rate was shown at Rs. 786 per sq. yd.
The learned Gift-tax Officer had applied the rate of Rs. 1,000 per sq.
yd. The learned Commissioner of Gift-tax (Appeals) taking into consideration the entire material including the clogs and conditions the property was suffering from confirmed rate of Rs. 600 per sq. yd.
In our view the learned first appellate authority has already been very fair to the parties. We see no scope for further interference.
8. Vide ground No. 3 the assessee had contended that the learned Commissioner of Gift-tax (Appeals) erred in not deducting the amount representing the 50 per cent of the unearned increase in the value of the plot, from the valuation made by him in respect of the said gift.
Submissions have been heard and considered. The lessor, i.e., the Delhi Administration was indeed entitled to such like unearned increase in terms of proviso in Clause 6 of the sublease deed at page 40 of the paper book. The assessee's contention finds further support from the ratio in the case of CWT v. P.N. Sikand [1977] 107 ITR 922 (SC). In view thereof we direct that the unearned increase in terms of the ratio and the proviso should be deducted while determining the value of the taxable gift.
9. The assessee has also taken another ground that deduction of Rs. 1,821 from the gift-tax payable was not allowed in terms of Section 18A of the Gift-tax Act. On this issue there is not much of discussion in the orders of the authorities below. However, it is seen that through this ground the assessee is talking about the credit for stamp duty paid on instrument of gift-deed. The learned Gift-tax Officer in this respect may ascertain from the record including the copy of the gift-deed as to by whom such expenditure was incurred. In case it was not incurred by the assessee, the claim would appear to be without any basis.
10. No other ground was raised before us. The paper book has been perused. In the result, the appeal is allowed in part.
1. As it has not been possible for us to come to an agreed conclusion with regard to ground Nos. 1 to 3, we refer the following question for the opinion of the Third Member in terms of Section 255(4) of the Income-tax Act, 1961: On the facts and in the circumstances of the present case, what should be the value of the plot of land bearing No. 380 in Block B, New Friends Colony, measuring 492 sq. yds. given to the assessee on perpetual sub-lease by the Coop, Society named as New Friends Coop.
House Building Society Ltd. - whether it should be Rs. 22,625 as held by the Accountant Member or it should be valued @ Rs. 600 per sq. yd. as held by the Hon'ble Judicial Member 1. This is a matter coming to me as the Third Member out of a difference of opinion, that arose between the Members, who heard this appeal. This is an appeal arising out of gift-tax assessment made for the assessment year 1979-80.
2. The assessee, an individual, held leasehold rights of a residential plot of land bearing No. 380 in B-Block, New Friends Co-operative House Building Society, New Delhi measuring about 492 sq. yds. He gifted the leasehold rights in this plot of land to his son Shri Rajesh Sethi. For the purpose of gift-tax assessment, the value of this right was taken as equivalent to the contributions made to the society, which were Rs. 22,624. The assessee contended before the Gift-tax Officer that under the terms of the sublease deed, the rights of the assessee in the plot were absolutely restrictive as there was a total ban on the transfer of these rights to a non-member of the society. Because of the restrictive covenant and because of the further fact that on transfer of leasehold rights to another member of the society, what he would be entitled to receive was only the contributions made by him, the value of the contributions was also taken as the value of the gift. In support of this view, the assessee placed reliance upon a decision of the Delhi High Court in the case of Smt. Promila Bali (supra). The Gift-tax Officer held that as per the recent instructions of the department the decision of the Delhi High Court in Smt. Promila Bali's case (supra) was not accepted, as it was being contested further by way of a Special Leave Petition before the Supreme Court. For that view, he valued the plot at market value as if the transfers were permissible. He considered Rs. 1,000 per sq. yd. as reasonable market value and arrived at a value of Rs. 4,92,000 and levied gift-tax thereon. Thereafter the assessee came up in appeal before the Commissioner (A) and repeated the same contentions. The Commissioner (A) did not accept the asses-see's pleas and held that the Gift-tax Officer was justified in taking the market value of the land. He, however, held that the market value should be taken at Rs. 600 per sq. yd. as against Rs. 1,000 per sq. yd.
adopted by the Gift-tax Officer. On that basis some relief was given to the assessee. Dissatisfied still with the order of the Commissioner (A), the assessee filed a further appeal before the Tribunal and repeated the contentions again.
3. The learned Judicial Member held that under the terms of the sub-lease deed there was not a total ban on the transfer of the land.
Therefore the ratio in the case of Smt. Promila Bali (supra) would not be applicable as that case proceeded on the basis that there was a total ban on transfer. He further held that the amount paid by way of contribution to acquire the leasehold rights could not be determinative of the cost of land at the time of making of the gift. The Commissioner (A) had taken the circular issued by the Government of India to determine the market rates for the purpose of determining the unearned increase and the value fixed by the Commissioner (A) being in conformity with the values adopted by the Government in that circular, the assessee was not entitled to any relief. The learned Accountant Member, however, held in a very brief order written in Hindi that the facts of the case were identical to the facts obtaining in the case of Smt. Promila Bali (supra). As a consequence of this difference of opinion between the two Members, the difference of opinion in the following terms was referred to the Third Member for his opinion : On the facts and in the circumstances of the present case, what should be the value of the plot of land bearing No. 380 in Block B, New Friends Colony, measuring 492 sq. yds. given to the assessee on perpetual sub-lease by the Coop. Society named as New Friends Coop.
House Building Society Ltd. - whether it should be Rs. 22,625 as held by the Accountant Member or it should be valued @ Rs. 600 per sq. yd. as held by the Hon'ble Judicial Member 4. I have heard the learned representatives for the assessee and the department, perused the orders passed by my learned Brothers as well as the orders passed by the Commissioner (A) and the Gift-tax Officer and also the decision of the Delhi High Court in Smt. Promila Bali's case (supra). Eventually the difference of opinion in this case turned upon whether the facts obtaining in the case of Smt. Promila Bali (supra) were identical to the facts obtaining in the present case or was there any difference. As mentioned earlier, the learned Judicial Member was of the opinion that the facts of Smt. Promila Bali's case (supra) were different because in that case there was a total ban on the transfer of property whereas in the present case there was no such total prohibition on the transfer and this difference made Smt. Promila Bali's case (supra) distinguishable. Whereas the learned Accountant Member categorically held that the facts in the present case were identical to the facts in the case of Smt. Promila Bali's case (supra).
The facts in the case of Smt. Promila Bali (supra) assumes therefore importance and we have to see what those facts are. The first question referred to the Hon'ble High Court of Delhi in Smt. Promila Bali's case (supra) was : Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in holding that the value of the plot on the relevant valuation date was Rs. 21,200 which is the premium paid by the assessee, following the decision of the Tribunal in the case of Miss Beneeta Seth [WT Appeal Nos. 592 to 594 of 1974-75, dated 10-5-1976], which has been agitated by the Department in reference application under Section 27(3) of the Wealth-tax Act So, the question here is whether the decision taken by the Tribunal in the case of Miss Beneeta Seth [WT Appeal Nos. 592 to 594 of 1974-75, dated 10-5-1976] determined the correctness of the decision in the case of Smt. Promila Bali's (supra). In dealing with this aspect, the Delhi High Court observed as under : As far as the first question is concerned, it was held by the Tribunal in Miss Beneeta Seth's case that the property was not freely saleable in the open market as it was a plot allotted to a member of Chiraj Co-operative House Building Society Ltd. The property was valued at the amount of contributions made to the society towards the plot as there was a total bar on transfer to a non-member of the society. The Tribunal accepted the view that the plot was not transferable and, therefore, its value could be determined according to the contributions made to the society.
This shows that the decision of the Tribunal in the case of Miss Beneeta Seth (supra) was held to be correctly decided by the High Court and that principle was correctly applied to the case of Smt. Promila Bali (supra) and that the case of Smt. Promila Bali (supra) was also rightly decided by the Tribunal. The High Court held in this case that the question be referred to it for its opinion was essentially a question of fact and not a question of law. While deciding this issue the High Court further observed at page 944 of Report: The rights which were valued in the present case were the rights of a sub-lessee. An owner whose rights to transfer are restricted can be treated on a different footing from a person who has only a leasehold right. A leasehold right can have a market value only if a transfer is permitted under the terms of the contract. If there is only a personal right which is not transferable, then it would not be possible to value the property on the basis that it was an absolute right equal to ownership. To disregard the terms of the lease and to assume that the sub-lessee was an owner would naturally give rise to huge difference in the matter of valuation.
Principally, this is a question of fact and the market value of any given property must be read in the light of the prevailing restrictions regarding that property. The valuation cannot be made without taking into account the legal rights and liabilities and obligations of the person involved.
In coming to this conclusion the Delhi High Court relied upon the judgment of the Supreme Court in P.N. Sikand's case (supra) wherein it was held that the restrictions in the lease have to be taken into account in determining the value. Thus, the decision of the Delhi High Court was to the effect that there is a difference in the valuation between a leasehold right and a personal right which is not transferable, a right transferred circumscribed by restrictions. It was also held that the terms of the lease should not be disregarded and the sub-lessee should never be considered as owner. It was applying these legal principles the High Court held that the decision of the Tribunal in the case of Smt. Promila Bali (supra) which followed the earlier decision in the case of Miss Beneeta Seth (supra) was proper and rightly decided. Applying this principle to the facts before me, I find that the lease deed contained the following Clause : (6)(a) The Sub-lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the residential plot in any form or manner, benami or otherwise, to a person who is not a member of the Lessee.
(b) The Sub-lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the residential plot to any other member of the Lessee except with the previous consent in writing of the Lessee which he shall be entitled to refuse in his absolute discretion : PROVIDED that, in the event of the consent being given, the Lessor may impose such terms and conditions as he thinks fit and the Lessor shall be entitled to claim and recover a portion of the unearned increase in the value (i.e., the difference between the premium paid and the market value) of the residential plot at the time of sale, transfer, assignment, or parting with the possession, the amount to be recovered being fifty per cent of the unearned increase and the decision of the Lessor in respect of the market value shall be final and binding : PROVIDED FURTHER that the Lessor shall have the pre-emptive right to purchase the property after deducting fifty per cent of the unearned increase as aforesaid.
The terms of this lease deed are identical to the terms obtaining in the cases of Smt. Promila Bali (supra) as well as Miss Beneeta Seth (supra). In fact all the sub-lease-deeds are executed on forms prescribed by the Government and there is no difference at all. It was considering a like Clause in these, lease deeds, the Tribunal held that the assessee acquired a right to be allotted a plot subject to the serious restrictive conditions which totally prohibited the sale, transfer, assignment or otherwise dealing with this property in whole or in part in any manner except with a member of the society, i.e., the property was not open to sale in an open market to a non-member. It is also Clause 6 provied for the same kind of restrictions. This is thus a case where there is severe restriction on transfer and a prohibition on sale. It cannot therefore be said that the facts of this case are different from the facts obtaining in the case of Smt. Promila Bali (supra). The learned Judicial Member, therefore, is not right in his view that the facts of Smt. Promila Bali's case (supra) are distinguishable and that it contained a covenant of total prohibition on transfer. I am, therefore of the opinion that the value of the plot of land in question should only be Rs. 22,625 as held by the learned Accountant Member.
5. The matter will now go before the regular Bench for disposal of the appeal according to majority opinion.