1. Appeal Nos. 624 & 625/Bom/1991 are by the Revenue in which following grounds of appeal has been taken : "On the facts and in the circumstances of the case and in law and the learned CWT(A) erred in holding that value of building (hotel) should be recomputed by applying the rent capitalisation method and as per guide lines of r. 1BB and erred in allowing claim of assessee to that extent." The appeal Nos. 576 & 577/Bom/1991 are by the assessee, wherein the assessee has taken five grounds of appeal in which the assessee has disputed the applicability of provisions of s. 40 of the Finance Act, 1983 itself.
2. We have heard the learned Departmental Representative as well as assessee's counsel. The facts of the case are that the assessee owned a building commonly known as Hotel Ambassador building and had given it on rent to its subsidiary company styled as M/s. Narang Hotel (P) Ltd. which was using the building for carrying on business of hotel. The assessee had not filed any return of wealth as required under s. 14 of the WT Act but in response to notice under s. 17 for both these years issued on 30th September, 1987 and served upon by the assessee on 1st October, 1987, the assessee filed returns of wealth declaring total wealth of Rs. 2,42,000 and in both these years the value of this property was shown on the basis of rent capitalisation method. Later on, the assessee furnished revised returns for both these years in 27th June, 1988 in which the value of this property was shown on the basis of valuation report of the registered valuer. The return for the asst.
yr. 1984-85 was further revised declaring wealth of Rs. 4,00,000. The AO referred the valuation of the property to the Valuation Officer, who as per his order No. VOI/BOM/WT/460/87-88, dt. 10th January, 1989 determined the fair market value of the property as on 30th June, 1983 at Rs. 228.37 lakhs and as on 30th June, 1984 at Rs. 249.40 lakhs.
During the course of assessment proceedings, the assessee disputed the taxability of building itself because according to him the provisions of WT Act were not applicable to this property as the same was used by assessee's holding company vis-a-vis M/s. Narang Motels (P) Ltd. for its hotel business. The AO rejected the assessee's contention and assessed the value of the building at Rs. 2,28,37,000 for the asst. yr.
1984-85 and Rs. 2,49,40,000 for the asst. yr. 1985-86. When the matter was brought before the CIT(A) by the assessee, the CIT(A) rejected the assessee's contention that the property was being used by itself for business and therefore was not taxable in assessee's hands, but on merits of the case, relying on the decisions reported Maharaval Lakshman Singh vs. CIT (1986) 160 ITR 103 (Raj), Sudesh Chandra Talwar vs. CWT (1982) 137 ITR 483 (Cal) and CWT vs. Ramsaran Kajriwal (1987) 168 ITR 485 (All), held that the property being on rent and governed by the Bombay Rent Control Act, the provisions of r. 1BB were not applicable. The CIT(A) further held that the value of the property should be re-computed by applying the rent capitalisation method and while doing so, the multiplier as suggested in r. 1BB should be taken because the multiplier will normally be a good guide. Before us, both the Revenue as well as the assessee are in appeal.
3. Both these appeals are by the Revenue and the main grievance is that CIT(A) was not justified in directing the AO to value the property by applying rent capitalisation method and using the multiplier as suggested in r. 1BB. We have heard the learned Departmental Representative, Valuation Officer as well as counsel for the assessee.
The Valuation Officer submitted that he had determined the value of the property under r. 1BB and, therefore, this was right method for valuing the property which was let out. The learned Departmental Representative submitted that the AO was bound by the report of the Valuation Officer and, therefore, was justified in assessing the valuation of the property as determined by the Valuation Officer. The counsel for the assessee, on the other hand, submitted that the property was not a residential property and, therefore, provisions of r. 1BB were not applicable at all. According to him, the proper method for valuation of this property, which was let out and was governed by the Bombay Rent Control Act; was rent capitalisation method by using 'Ten' as the multiplier. He therefore, supported the order of the CWT(A) and relied on the decisions referred in the order of the CWT(A).
4. After considering the submissions from both the sides and having gone through the facts and circumstances of the case as well as decisions referred in the order of the CWT(A), we are of the opinion that r. 1BB, which was applicable till 30th March, 1989; was applicable only to residential property and not to the commercial properties, consequently, the property under reference being a commercial property its value could not be determined by applying r. 1BB and, therefore, we are of the opinion that valuation report of the Valuation Officer which, as admitted by the Valuation Officer himself before us was arrived at by applying the provisions of r. 1BB could not be taken into evidence and hence was not a binding evidence on the AO.5. Having held so, the next question for us is as to what method should have been adopted for valuing this tenanted property which was governed by the provisions of Bombay Rent Control Act. After considering the submissions, we are inclined to agree with the submissions of assessee's counsel that the method for valuation of the property in question could be rent capitalisation method and this view finds support from the decisions in the following cases : Malabar Hill Co-operative Housing Society Ltd. vs. Union of India & Anr. (1990) 184 ITR 216 (Bom); 6. After having come to this conclusion, the only question left for our decision is as to what amount should be taken as annual letting value for the purpose of determination of the valuation on rent capitalisation method. Considering the fact that the property is let out since long and is governed by the Bombay Rent Control Act, as well as submissions from both the sides, we are of the opinion that annual letting value should be higher of the following amounts : (i) the amount of income from this property as assessed in IT proceedings; or The aforesaid proposition is further supported by the following decisions : (a) The Hon'ble Bombay High Court in the case of Harbanslal B. Gupta vs. CWT (1990) 186 ITR 652 (Bom), has held that the Tribunal was right in taking the net income from the property as per IT assessment for applying the multiplier in adopting the rental or yield method.
(b) At the same time, the Hon'ble Supreme Court has dismissed the Revenue's SLP's in following three cases : 1. CWT vs. Ashwini Kumar Gordhanbhai Patel in SLP (Civil) No. 2364 of 1985 (1992) 193 ITR (St.) 2.
"Valuation of house property let out to company whose shareholders were close relatives of assessee. - 19th November, 1991 : Their Lordships Ranganath Misra, C.J.I. and Kuldip Singh and A. S. Anand, JJ. dismissed the Department's special leave petition to appeal against the order, dt. 14th September, 1984 of the Gujarat High Court in WTA No. 34 of 1984 whereby the High Court declined to call for a statement of case on whether the AAC had rightly allowed the assessee's appeal and directed calculation of the annual value of a warehouse by adopting the rental method instead of the market value method adopted by the WTO. In this case the assessee's warehouse had been let out to a company in which the shareholders were close relatives of the assessee." 2. CWT vs. Bai Nani in SLP (Civil) Nos. 4187-4196 of 1983 :- (1990) 186 ITR (St.) 70.
"Property let out by the assessee to firm in which partners are members of HUF (assessee) : Effect. - 8th October, 1990 : Their Lordships S. Ranganathan and R. M. Sahai, JJ. dismissed the Department's special leave petition against the order dt. 8th July, 1972 of the Gujarat High Court in ITA Nos. 16-25 of 1982, declining to call for a statement of case on the question whether, where property (viz. a cinema theatre) was let out by the assessee HUF to a firm in which the partners were members of the family, the value of the property should be, as claimed by the AAC and as valued by the District Valuation Officer, arrived at by the land and building method, or, as held by the Tribunal, based on the income capitalisation method." 3. CWT vs. Ashinkumar Gordhanbhai Patel in SLP (Civil Nos. 5750-5753 of 1984 (1990) 186 ITR (St.) 33.
"Valuation of immovable property. - 10th September, 1990 : Their Lordships S. Ranganathan and R. M. Sahai, JJ. dismissed the Government's special leave petition against the order, dt. 21st November, 1983 of the Gujarat High Court in WTA Nos. 8-11 of 1983 rejecting a reference application on the question whether in valuing immovable property, land and building method was not applicable but rental method after ascertaining standard rent under the Rent Act and applying a multiple of 10" : The resultant view after considering the aforesaid decisions remains that the valuation of property in question can be arrived at only on the basis of rent capitalisation method considering the higher of the three amounts - (i) or (ii) or (iii) as the annual letting value.
7. From the submissions of the parties and the facts on records, we have noticed that in assessee's income-tax case, the income from this house property has been assessed on the basis of actual rent received by the assessee, which was Rs. 1,38,000 and the Municipal Corporation's valuation was Rs. 1,37,654. In view of these facts, it is noticed that the actual rent received by the assessee was higher and, therefore, the value of the property should be determined by rent capitalisation method adopting the annual rent at Rs. 1,38,000.
8. In view of the aforesaid facts and circumstances of the case and discussion, we are of the opinion that CWT(A) was justified in directing the AO to re-compute the value of the property on the basis of rent capitalisation method by adopting multiplier applicable to rented house as suggested in r. 1BB.9. In the result, the orders of the CWT(A) are confirmed and the appeals of the Revenue are dismissed.
10. In both these appeals, the assessee has disputed the taxability of the property in question on the plea that the building, being used by the assessee's holding company for hotel business; is deemed to have been used by the assessee for business purpose and therefore, was outside the scope of s. 40 of the Finance Act, 1983. At the time of hearing, the assessee's counsel submitted that in case the Revenue's appeals fail then he would not like to press these appeals, otherwise, he submitted that the issues involved therein may be decided in accordance with the decision of Hon'ble Supreme Court in the case of State of UP vs. Renusagar Power Co. AIR 1988 p. 1737 (SC) because the tenant company i.e. Narang Hotel (P) Ltd. was a 100 per cent subsidiary of the assessee company and the property being used by the subsidiary company for hotel business was deemed to have been used by the company for its business and consequently the same was outside the purview of the s. 40 of the Finance Act, 1983.
11. As we have dismissed the Revenue's appeals for both these years, we do not consider it necessary to decide this issue and consequently, the appeals of the assessee are dismissed.
12. In the result, the appeals of the Revenue as well as assessee are dismissed.