| SooperKanoon Citation | sooperkanoon.com/65554 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Sep-14-1992 |
| Judge | T Natarajachandran, T Bukte, J Member |
| Reported in | (1993)44ITD481(Pune.) |
| Appellant | Controller of Estate Duty |
| Respondent | D.G. Cooper |
determined by the Departmental Valuation Officer. The revenue has taken specific grounds against the aforesaid decisions of the Appellate Controller of Estate Duty and urged that the order of the Appellate Controller of Estate Duty may be vacated and that of the Assistant Controller of Estate Duty be restored.
2. The relevant facts are as follows : Shri D.G. Cooper passed away on 5-8-1980. The accountable person filed estate duty account in which, inter alia, he returned the value of property at 3 Queen's Garden, Pune, at Rs. 1,84,000. The valuation shown was not accepted by the Assistant Controller. He referred the matter to the Departmental Valuation Officer who determined the value of the property as per the land and building method at Rs. 9.15 lakhs. After calling for objections of the accountable person, if any, to the proposal for adoption of the said valuation and after getting the objections of the accountable person, the Asstt. Controller did not accept the objections, but adopted the valuation made by the Departmental Valuation Officer.
3. At the time of hearing before the Asstt. Controller, the counsel for the accountable person submitted that the value of the property should be taken as per rule IBB read with Sections 7(4) of the Wealth-tax Act, 1957. However, the Asstt. Controller did not apply rule IBB of the Wealth-tax Rules on the ground that the death in the instant case occurred prior to 1-3-1981 and for the same reasons, the amended provisions of Section 36(3) of the estate Duty Act were also not applicable because those provisions apply to deaths occurring on or after 1-3-1981 and not prior to 1 -3-1981. For this proposition, the Asstt. Controller relied on the Circular of the C.B.D.T reported at 138 ITR (Statute) 8. He has also referred to the judgment of the Bombay High Court In the case of Jehangtr Mahomedall Chaglav. M.V.Subrahmanian, Addl. First ACED (1985] 155 ITR 637 but did not follow the same on the ground that the CBDT had not accepted the judgment and consequently, adopted the valuation made by the Departmental Valuation Officer.
4. On appeal before the Appellate Controller of Estate Duty, the accountable person pointed out the correct area of actual construction of the bungalow, claimed depreciation at 1 per cent per annum for the life of 45 years and the vacant land should be valued at the rate of Re. 1.00 per sq. ft. after the manner of application of the Urban Land Ceiling Act, 1976. Alternatively, it was claimed that in case rent capitalisation method was adopted the fair rent would be the standard rent fixed for the property.
5. The Appellate Controller came to the conclusion that the proper method of valuation of self-occupied property along with its appurtenant land should be as per rule IBB based on capitalisation of maintainable rent in the light of the judgment of the Bombay High Court in the case of Jehangtr Mahomedali Chagla (supra). Noting the rate of 75 paise per sq. ft. adopted by Mr. Mathur, Asstt. Valuation Officer for wealth-tax as on 31-3-1977, he applied the same rate for the self-occupied property of the bungalow. The said valuer has also noted that rents in areas around the bungalow and even in far away places varied between 1.25 to 1.60 per sq. ft. of the floor area. It was observed that Queen's Road is an area favoured by Officers who pay higher amounts than the normal rent paid by the individual tenants.
Proceeding on the basis of valuation made by Mr. Mathur, Assistant Valuation Officer, the Appellate Controller accepted the quantum of annual yield at Rs. 67,066 including Rs. 6,000 for the tenanted portion. As regards the repairs, the Appellate Controller held that 17 per cent is to be allowed for a building of 40 years old, because for computation of income from house property l/6th deduction is allowed for repairs as against 10 per cent allowed by the Valuation Officer. On this basis, the Appellate Controller arrived at the net annual income of the bungalow at Rs. 43,000 roughly. He further held that the net annual income at 8 1/2 per cent rate of interest in perpetuity, the multiplier would be 12 and the valuation of the building would be Rs. 5,16,000 instead of Rs. 7,31,000 determined by Mr. Mathur. Thus, he allowed relief of Rs. 2.15 lakhs on account of valuation of the main bungalow.
6. As regards the vacant land, the surplus land available for development was taken as per valuer's report at 1,15,238 sq.ft. after deducting the land wedded to the structures from the total land of 2,96,905 sq. ft. secured on "Old Grant" from the Government. According to the accountable person, the land value is to be taken at Nil in view of the terms and conditions which enabled the Government to resume the land at a short notice with no permission to sell and transfer or to build new structures or use it in any other way except that allowed by the Cantonment authorities. It is in the "Red Zone" where no construction was permitted. The deceased held the right of ownership only of the superstructure.
7. The Appellate Controller also noted the fact of valuation of the land at Nil in valuation report dated 6-12-1978 by Mr. Dole of the Income-tax department and that of the AVO stating that the period of lease was for 30 years which was renewable up to 90 years and there were also certain further rights which would be availed of by the lessee, and yet the Appellate Controller valued the vacant land at Rs. 1,20,000 which worked out to Re. 1.00 per sq.ft. for the surplus land.
The Appellate Controller has also referred to the fact that in the grounds of appeal, the accountable person stated that the land should be valued at the rate of Re. 1.00 per sq.ft. which is the amount paid under Urban Land Ceiling Act, 1976. This valuation gives a multiplier of 10 for the average yield from the open land of about 12000 net per annum, returned regularly by the assessee from the open land. Thus, the Appellate Controller allowed relief of Rs. 2.15 lakhs on account of valuation of main bungalow and Rs. 1.10 lakhs on account of open surplus land and thus determined the value of 3 Queen's Garden Road at Rs. 7.50 lakhs as against Rs. 9.15 lakhs determined by the Asstt.
Controller of Estate Duty.
8. At the time of hearing, Smt. G.V. Samant, learned departmental representative has vehemently contended that the basis of valuation of residential property in terms of rule IBB of Wealth Tax Rules, 1957 provided for in Section 36(3) of the Estate Duty Act, 1953 which has been inserted by the Estate Duty (Amendment) Act, 1982 with retrospective effect from 1-3-1981 is applicable for deaths taking place from 1-3-1981 and not earlier. As late Shri D.G. Cooper died on 5-8-1980 which is earlier than the date of 1 -3-1981 on which date Sub-section (3) of Section 36 came into force, the benefit of concessional valuation was not available to the accountable person. In this connection, the learned departmental representative relied on Circular No. 349 dated 30-8-1982 issued by the Secretary of CBDT containing the Explanatory Notes on the provisions of the amendment.
Referring to the judgment of the jurisdictional High Court in the case of Jehangir Mahomedali Chagla(supra), it was contended that that judgment is not applicable in view of the clear indication that sub-Section 3 of Section 36 came into force with effect from 1-3-1981.
A contention was also raised that even if rule IBB is to be applied, yet it is not to be applied in view of the fact that the house property was not mainly used for residential purposes because the built-up area used for residential purposes v/as less than 66 2/3rd of the total built-up floor area of the properly. Thus, the learned departmental representative strongly supported the reasons given by the Asstt.
Controller for adopting the valuation of the property on land and building method.
9. Shri K.C. Bhambhani, Valuation Officer, who appeared for the department has also been duly heard. According to him, only the let out portion of the property was required to be valued in terms of rule IBB, while self-occupied portion of the property was required to be valued on the basis of land and building method. In this connection, he maintained that since the valuation was made on prime cost method, the value of the building built in the year 1936 will be depreciated as on the material date of valuation and that depreciated value may normally be considered by any purchaser. On this basis, the depreciation at 10 per cent allowed by the Asstt. Valuation Officer Shri E.P. Dhane and also the Asstt. Valuation Officer Shri R.G. Mathur in his report dated 4-10-1981 was justified by him.
10. As regards the valuation of vacant, land, he referred to the valuation made by Shri E.P. Dhane in para 5.2 of his report, wherein he has cited the sale instance of a property at 28 Kahun Road, Pune, which was agreed to be sold to Mr. Shaikh Zuber Ahmed in March 1974 for Rs. 35,000. After deducting depreciated value of the structure of that property, the land rate reflected was Rs. 1.10 per sq.ft. It is stated that this property was located in military area of Pune Cantonment and same lease conditions were applicable thereto. In the report, he has observed that the occupational and enjoyment rights of the land varied normally with the land market in surrounding area and after taking into account all the factors governing the land rates and the trend of the land rates during the period, he adopted a land rate for occupational and enjoyment rights at the rate of Rs. 2.50 per sq.ft. Relying on the aforesaid rate of Rs. 2.50 per sq.ft. adopted by the Asstt. Valuation Officer Shri Dhane, it was stated that the land value adopted in the case of the accountable person at Rs. 2.00 per sq.ft. is considered to be reasonable.
11. Shri G.N. Gadgil, learned counsel for the accountable person, on the other hand, vehemently supported the order of the Appellate Controller of Estate Duty and the application of rule IBB by strongly relying on the judgment of the Bombay High Court in the case of Jehangir Mahomedali Chagla (supra). He referred to para 4 of the order of the Appellate Controller of Estate Duty, wherein he has allowed repairs at the rate of 17 per cent as a deduction from the gross maintainable rent for the purpose of arriving at net maintainable rent because the Income-tax Act itself permits deduction of repairs to the extent of l/6th of the gross maintainable rent which exceeds the taxes levied by the local authorities. The multiplier of 12 adopted by the Appellate Controller of Estate Duty on net income at 81/2 per cent of interest in perpetuity is in accordance with rule IBB and therefore, the value of the property used for self-occupation determined at Rs. 5,16,000 was justifiable.
12. Coming to the valuation of open land, the learned counsel for the accountable person referred to the valuation report dated 6-12-1978 of Shri H.Y. Dole, Valuation Officer, Agricultural Lands, Income-tax department, Pune, wherein he has shown the fair market value of the land as on 31 -3-1976 at Nil by treating the land as agricultural land and stating that the ownership of the land vested in the Defence Department. In view of this report, the rate of Re. 1.00 per sq.ft.
adopted by the Appellate Controller of Estate Duty was justifiable.
13. In reply, the learned departmental representative, relied on para 5,2 of the report of Shri Dhane wherein rate of Rs. 2.50 per sq.ft. was adopted.
14. We have duly considered the submissions of the parties, valuation reports and paper compilation and also heard the Valuation Officer, Shri K.C. Bhambhani. At the outset, it is to be stated that the Estate Duty (Amendment) Act, 1982 inserted Sub-section (3) of Section 36 of Estate Duty Act only to provide a concessional valuation of residential property belonging to the deceased. In order to effectuate this concession in the matter of valuation of such category of property, the amendment provides that the valuation should be done as per the Wealth-tax Act and the rules made thereunder which are applicable to valuation of residential house. In this connection, the relevant portion of para 6 of Circular No. 349 dated 30-8-1982 is reproduced below: The new Sub-section (3) inserted in Section 36 makes a departure from the method of valuation laid down in Sub-sections (1) and (2) of Section 36, and provides for a concession in the valuation of one residential house or part thereof belonging to the deceased. This is by way of adopting the basis of valuation laid down by the Wealth-tax Act and Rules made thereunder in valuing a residential house. This concession, however, applies only to the valuation of one residential house or part thereof belonging to the deceased.
Therefore, from the above extract, it is clear that the intendment of the amendment was only to provide a concessional valuation of residential property of the deceased for the purpose of Estate Duty.
15. The amendment in Sub-section (3) contains a non obstante clause , viz: "notwithstanding anything contained in Sub-section (1) or Sub-section (2)" and thereafter, Sub-section (3) proceeds to lay down the manner of determination of value of the property as indicated in Clause (a) and clause (b) thereof. In this connection, it is also necessary to refer to Sub-section (1) and Sub-section (2) of Section 36. Sub-section (1) provides that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death. In other words, the market price as on the date of the death of the deceased is the criterion for determination of principal value of the property. Sub-section (2) prohibits making of any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time. However, proviso to Sub-section (2) provides that where it is proved to the satisfaction of the Controller that the value of the property has depreciated by reason of the death of the deceased, the depreciation shall be taken into account in fixing the price. Thus the proviso takes into account exceptional circumstances which would affect the normal basis of valuation of the property under Sub-section (1) of Section 36. Against this backdrop of estimating principal value of the property, Sub-section (3) which is inserted by the Estate Duty (Amendment) Act, 1982 provides a departure in the matter of valuation of residential house property occupied by the deceased by enjoining that the valuation is to be made as per the Wealth Tax Act and the rules made thereunder.
(3) Notwithstanding anything contained in Sub-section (1) or sub- Section (2), the principal value of one residential house or part thereof belonging to the deceased (which the accountable person may at his option specify in writing in this behalf) shall be, (a) where the value of such house or part is included in computing the net wealth of the deceased for the purposes of making an assessment under the Wealth-tax Act, 1957 (27 of 1957) (hereafter in this sub-section referred to as the Wealth-tax Act) in respect of his net wealth on the valuation date immediately preceding the date of his death, the value as taken by the Wealth Tax Officer for the purposes of such assessment; and (ii) where such house or part was constructed, acquired or otherwise became the property of the deceased after the said valuation date, on the date of his death, as determined by the Controller in accordance with the provisions of the Wealth-tax Act and the rules made thereunder; and, for this purpose, in a case where the provisions of Sub-section (4) of Sections 7 of that Act apply, the provisions of that sub-section shall have effect as if the words: Throughout the period of twelve months immediately preceding the valuation date', occurring therein, had been omitted and as if the references therein to the option of the assessee had been references to the option of the accountable person.
Explanation 1: Where the value adopted to be the value of a house or part in accordance with the provisions of Clause (a) of this sub-section is subsequently varied by an order in any proceeding under the Wealth-tax Act, the value as so adopted shall be deemed to be a mistake apparent from the record within the meaning of Section 61 and the Controller shall rectify the order, if any, passed by him, by substituting for the value as so adopted the value as so varied and the provisions of the said section shall apply accordingly, the period of five years specified in that section being reckoned from the date of the order under the Wealth-tax Act varying the value of the house or part.
Explanation 2: For the purposes of this sub-section, the expressions 'net wealth', 'valuation date' and 'Wealth-tax Officer' shall have the same meanings as in the Wealth-tax Act.
16. From the aforesaid provision, it is clear that the valuation of one residential house or part thereof belonging to the deceased is thus required to be valued. There is no dispute that the property under consideration is self-occupied property and also a part of it is also tenanted. But that does not detract from the adoption of concessional valuation in terms of Sub-section (3) of Section 36. Clause (a) of Subsection (3) provides that if such house or part is also included in the net wealth of the deceased for the purpose of assessment under the Wealth-tax Act on the valuation date immediately preceding the date of his death, the value as taken by the Wealth-tax Officer for the purpose of such assessment should be adopted. In the case of the accountable person, it is stated by the learned counsel of the assessee by letter dated 8-7-1992. that the wealth-tax returns for the assessment years 1979-80 and 1980-81 were furnished by the assessee, but particulars of valuation of such property were not available. However, from the paper book compilation filed already, it is seen that the deceased Shri D.G.Cooper was assessed to wealth-tax for the assessment year 1979-80 as seen from the assessment order under Section 16(1) dated 30-3-1984 wherein net wealth of Rs. 90,400 returned by the assessee was accepted by the WTO. Similarly, it is seen that for the valuation date 31-3-1980 relevant for the assessment year 1980-81, the assessee filed return of wealth on 30-6-1980 admitting net wealth of Rs. 93,030 and this was accepted by an order under Section 16(1) by the WTO on 29-1-1985.
Although the assessment orders are filed on record, break-up details of the net wealth were not furnished, especially the valuation of the property in dispute. If the wealth-tax assessment order dated 29-1-1985 is to be taken as the wealth-tax assessment immediately preceding to the date of death, the valuation of the property is not to exceed Rs. 93,030. In case the wealth-tax assessment order for the year 1980-81 does not reflect valuation on valuation date as contemplated by Clause (a) of Sub-section (3), then recourse is to be taken to Clause (b) for arriving at the valuation of the property. Clause (b) contemplates valuation in other circumstances not covered by Clause (a). Even then Sub-clause (i) of Clause (b) requires the valuation of the property is to be determined on the said valuation date, namely, the valuation date immediately preceding the date of death. Sub-clause (ii) provides that where such house or part of such house was constructed, acquired or became the property of the deceased after the said valuation date, then valuation is to be determined on the date of his death. Therefore, it is clear that where wealth-tax assessment has been made including the valuation of the residential property as part of net wealth on the valuation date immediately preceding the date of death of the deceased, it is to be taken into account or where it was not applicable valuation should be made of such property on the said valuation date or if the deceased became the owner of the property after such valuation date on the date of his death. Thus, Sub-section (3) focusses the date of valuation of the residential property of the deceased according to circumstances prevailing, but in all cases, valuation is to be made in accordance with the provisions of the Wealth-tax Act and the rules made thereunder. Not only this, but also the amendment provides further concession in order to effectuate the concessional valuation. The said provisions of Sub-section (3) of Section 36 shall have effect as if the words "throughout period of 12 months immediately preceding the valuation date" occurring in Sections 7(4) of the Wealth-tax Act, 1957 had been omitted and as if the references therein to the option of the assessee had been references to the option of the accountable person.
In other words, the strict satisfaction of technical requirements contained in Sections 7(4) of the Wealth-tax Act, namely, a house exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date has been done away with. Therefore, the issue is required to be considered in the light of concessional valuation offered by the amendment.
17. In this connection, it is relevant to consider whether in the facts and circumstances of the case, rule 1BB is applicable at all or not.
According to revenue, the amendment is applicable only to deaths occurring on or after 1-3-1981 and therefore, even the judgment of the Bombay High Court in the case of Jehangir Mahomedali Chagla (supra) is not in accordance with the amended law. In our considered opinion, this is a contention which is to be merely stated to be rejected. The judgment of the jurisdictional High Court is binding on all the authorities functioning within the territorial jurisdiction and thus judicial propriety requires it to be followed, unless it is stayed or reversed by the Supreme Court. The amended law has linked the question of valuation for the purpose of Estate Duty with the valuation for wealth-tax purposes so far as residential property or part thereof is concerned. The relevant provision of Wealth-tax Act is contained in Sections 7(4} of the Wealth Tax Act, 1957. Section 7(4) prescribes the value to be taken as a market price on the valuation date next following the date on which he became owner of the house or on the valuation date relevant for the assessment year commencing on 1st of April, 1971 whichever valuation date is latter. Thus, this sub-section provides for substitution of the valuation of the property on the valuation date immediately after becoming owner of the property or as on 31-3-1971 whichever valuation date is later and this valuation once adopted, such valuation is frozen or pegged down for all the years to come. The point for consideration is whether the quantum of valuation in terms of Sections 7(4) is to be different from the valuation prescribed in Sections 7(1) of the Wealth-tax Act according to which the valuation shall be estimated to be the price which, in the opinion of the W.T.O. the property would fetch if sold in open market on the valuation date. In view of special provision in Sections 7(4) the quantum of valuation is different from that under Sections 7(1) though the basis/or criterion is the same. However, this sub-section which is the basis for valuation of all the assets except cash is subject to any rules made in this behalf.
18. Rule IBB, which is relevant for our consideration, has been inserted with effect from 1-4-1979 by Wealth-tax (Amendment) Rules, 1979. Therefore, it is to be considered whether the valuation of residential house is to be done under Sections 7(1) or 7(4) in view of the non obstante clause contained in Sections 7(4). A careful consideration of the relevant provisions would show that the method and manner of determination of valuation of assets contained in Sub-section (1) of Sections 7 with effect from 1-4-1979 is contained in Rule IBB of the Wealth-tax Rules, but in so far as valuation of residential house is concerned, it is still required to be determined under Sections 7(1), but only with reference to the two dates mentioned in Sections 7(4) whichever is later. When once it is so determined, such valuation gets frozen or pegged down for subsequent years. Thus, we arrived at a conclusion that valuation of the residential house or part thereof is required to be done under rule IBB read with Sections 7(4) of the Wealth-tax Act. It is seen that the determination of value under Sections 7(1) is the same as in Sections 7(4), namely, the price which it could fetch if sold in the open market on the valuation date. Rule IBB provides that for the purpose of Sections 7(1) value of a house which is wholly or mainly used for residential purpose shall be the aggregate of following amounts, namely : (a) the amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the fraction 100/8; and (b) the amount arrived at by multiplying the net maintainable rent in respect of the remaining part of the house, if any, by the fraction 100/9: The proviso to rule IBB provides that in relation to a house which is built on leasehold land, this sub-rule shall have effect as if for the fraction 100/8 in Clause (a) or, as the case may be, the fraction 100/9 in Clause (b), the fraction 100/9 and 100/10 respectively had been substituted. In this connection, Explanation to rule IBB states that for purposes of this sub-rule, a house shall be deemed to be mainly used for residential purposes, if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-third per cent of its total built-up floor area.
19. From the aforesaid rule, it can be seen that if a house is wholly or mainly used for residential purposes, then both the portion of the residential house and the portion not used for residential purposes were required to be valued in terms of rule IBB only, but subject to different quotients of multiplication of the net maintainable rent relating to that portion. The Appellate Controller had applied rule IBB in respect of both self-occupied portion of the house as well as tenanted portion of the house and this is in accordance with Sections 7(1) read with rule IBB of the Wealth-tax Rules which came into force from 1-4-1979. Inasmuch as Sections 7(4) of the Wealth-tax Act, 1957 pertaining to valuation of residential house does not override Sections 7(1) in the manner of valuation, but Sections 7(4) only pegs down or freezes the valuation of such house on a prescribed date, the value of such residential house has necessarily to be determined only in accordance with rule IBB.20. As regards Explanation under rule IBB, it lays down the test of "wholly or mainly" user of house for residential purposes. The scope of Explanation is only to explain the provisions of the relevant rule. It does not override the rule or render it unworkable. If such is the intention of the Explanation, rule 1BB(1) is not at all workable because it applies to valuation of "a house" in contradistinction with "one residential house or part thereof contained in Section 36(3) of the Estate Duty Act. The solution to the "impasse" is contained in the relevant provisions themselves. Clause (b) of Sub-rule (2) of Rule IBB defines "house" to include an independent residential unit, i.e., a part of house, as Rule 1BB(1) is to be read with Clause (b) of Sub-rule (2) so that "a house" includes a part of the house or an independent residential unit. If so read, then the emphasis placed on the words "wholly or mainly" disappears and the Explanation becomes inapplicable.
This construction placed by us is harmonious with Sections 7(4) of the Wealth-tax Act, 1957 read with Clause (ii) of Explanation thereunder and Section 36(3) of the Estate Duty Act, 1953 pertaining to valuation of one residential house or part thereof. If part of the house belonging to the deceased is exclusively used by him for residential purposes, valuation of such part of the house requires concessional treatment. The amended provisions of Section 36(3) substitute the valuation made under Sections 7(4) of the Wealth-tax Act, if an assessment had already been made. It is not disputed that in the instant case, Clause (a) of Section 36(3) applied and not Clause (b) and therefore, it is not necessary to determine the value of such part of the house afresh on the relevant valuation date or on the date of death as contemplated in sub-clauses (i) and (ii) of Clause (b) of Sub-section (3) of Section 36 of the Estate Duty Act. It is a case of mere substitution of the value already determined by the W.T.O. as on 31-3-1979. In view of the extra-ordinary concessional valuation "conferred on the deceased in respect of one residential house or part thereof by ignoring the exclusive user of the residential house by the deceased as contemplated by Sections 7(4) of the Wealth-tax Act, which is more stricter than "wholly or mainly" user contemplated by rule IBB as laid down by Explanation thereunder, the Explanation does not really bar granting of concessional valuation of residential house or part of the house used by the deceased. However, in the absence of specific valuation of such property in terms of Sections 7(4) of the Wealth-tax Act, 1957 not having been brought on record by the Assessing or Appellate Authority and as the proceedings were pending on 1-4-1979 when rule IBB came into force, valuation of such property by resort to rule 1BB is warranted. Whether the house or part of the house satisfies the tests of wholly or mainly used for residential purposes as contemplated by the Explanation, valuation is to be done in terms of rule IBB by applying an appropriate factor and there is no question of ignoring the valuation as per rule IBB which has come into force as on 1-4-1979.
21. It is also relevant to consider whether the amended provisions of Section 36(3) of the Estate Duty Act is applicable even in respect of deaths occurring prior to 1-3-1981, even though the amendment is effective from 1-3-1981. The Circular No. 349 dated 30-8-1982 clarified that the amendment would apply to cases of deaths occurring on or after 1-3-1981 and not earlier. The Special Bench of the Tribunal considered in the case of Biju Patnaik v. WTO [1982] 1 SOT 623 (Delhi) (SB) the question whether rule IBB of the Wealth-tax Rules, 1957 which were introduced on 1-4-1979 is applicable prospectively or retrospectively.
Rule IBB provides for valuation of assets in conjunction with Sections 7[1) of the Wealth-tax Act. The Tribunal, Special Bench, held that rule IBB is only procedural provision and it is mandatory and it is retrospective in operation and applies to all assessments which are pending before the W.T.O. or are pending in appeal before the A.A.C. or C.W.T(A) or Tribunal. The judgment of the Bombay High Court in the case of Jehangir Mahomedali Chagla (supra) at page 646 of the judgment has held as follows: Sections 22 and 23 of the Income-tax Act and rule IBB of the Wealth-tax Rules recognise the same method, and, in my judgment, a harmonious construction demands that an identical method should be employed while determining the value under Section 36( 1) of the Estate Duty Act, even in cases where death has occurred prior to March 1, 1981.... The Legislature, therefore, to give effect to this harmonious construction inserted Sub-section (3) of Section 36 in the Estate Duty Act and in my judgment, the method recognised under rule IBB for valuation is the only method available to the Controller for valuation of the flat under Section 36( 1) of the Estate Duty Act.
In view of the harmonious construction of the relevant provisions placed by us and by the High Court, which is binding on us, we uphold the order of the Appellate Controller of Estate Duty as application of rule IBB is quite justified in law.
22. Coming to the ground relating to quantum of repairs allowed at 17 per cent, the rationale of allowing 10 per cent based on prime cost of the building on replacement basis as per valuation report of the Valuation Officer is not tenable in view of the statutory prescription that even residential house is required to be valued as per rule IBB and not as per land and building method. In this connection, it is relevant to point out that even when the valuation has been referred to the departmental valuation officer, he is equally bound to value the property in terms of rule IBB read with Sections 7(4) of the Wealth-tax Act. In this connection, it is to be pointed out that the Asstt.
Valuation Officer, Pune, Shri R.G. Mathur in his report dated 4-10-1981 at para 7 of his report has mentioned that as the property its partly tenanted and partly self-occupied, rent capitalisation method has been adopted by him. It is now to be seen whether the deduction for repairs is to be allowed at 17 per cent as determined by the Appellate Controller or at 10 per cent as determined by both the Valuation Officers Shri Dhane and Shri Mathur. Shri Bhambhani, Valuation Officer, has stated that normally only 10 per cent is allowed for repairs. But we do not consider it to be reasonable or adequate, because even rule IBB under which net maintainable rent is to be determined a sum equal to l/6th of the amount of the gross maintainable rent less the municipal taxes is allowed as a deduction which means that nearly 16 per cent is to be allowed as a deduction. Therefore, the rate of 17 per cent allowed by the Appellate Controller for a building which is 44 years old is in order in view of the fact that the building is constructed in the year 1936 as per the report of the valuer Shri Dhane and Shri Mathur. Therefore, no interference is called for with the rate of repairs allowed by the Appellate Controller of Estate Duty.
23. Coming to the valuation of surplus land, there is no dispute about the fact that the property under consideration is subject to the right of resumption by the Defence authorities, because the property is situated in Cantonment area and that too in "Red Zone", a fact which has been duly highlighted by both the valuers. The property is under an old grant in the military area of Pune cantonment of which the assessee got only occupancy rights and ownership of the land vested only with the Government. No new building or additions and alterations to the existing building would be permitted without the written permission of the Competent Authority. The valuation report also highlights the fact that out of the land area of 28328 sq.mt. Only an area of 8303 sq.mt.
is exempt under UL(CUR) Act 1976 and rest of the land area of 20025 sq.mt. is declared surplus under the said Act. It is stated that the land of the property is a lease-hold land more or less on perpetuity with a provision of resumption by the Government and in such case compensation is restricted to the market value of the authorised structures only. Therefore, it is clear that the land is subject to right of resumption by the Government any time by giving one month's notice or in emergency 24 hours' notice and any surplus land acquired would be compensated at the rate of Re. 1.00 per sq.ft. The Appellate Controller has pointed out in para 8 of his order that the appellant himself, in the grounds of appeal, stated that the land should be valued at the rate of Re. 1.00 per sq. ft. which is the compensation payable under the Urban Land Ceiling Act, 1976.
24. The Tribunal, Ahmedabad Bench, had occasion to consider similar question in the case of WTO v. Smt Lataben U. Sheth [1989] 35 TTJ (Ahd.) 546 wherein it has been held that where the land is covered by the provisions of Urban Land Ceiling Act, same should be valued at the rate of compensation prescribed under the provisions of the Urban Land Ceiling Act. In another case of WTO v. Manibhai Jesingbhai [1988] 31 TTJ (Ahd.) 610, it has been held by Ahmedabad Bench that in case of valuation of properties governed by the restrictive provisions of laws like Urban Land (Ceiling & Regulation) Act, 1976, the just reasonable and appropriate rate of capitalisation would be 81/3 time the net average annual value which would give the yield of 12 per cent per annum on the investment of capital in the property. It is also necessary to highlight the fact that Shri Y.D. Dole, Valuation Officer, Agricultural Lands, Income-tax department, Pune, in his report dated 6-12-1978 stated that the deceased had merely a permission to occupy the land and it did not create any title or interest and when an owner of the land has given permission or licence to construct building on such land, such permission is revocable at any time and it cannot be said that any right or title is given in the land to the person building the property thereon. He has also stated that the deceased was a mere licensee in respect of land in Cantonment area and therefore, it cannot be said that he had any right of occupying the land and what he had was only a temporary permission to occupy such land. In fact, he has pointed out in his report that the Asstt. Valuation Officer without realising the real right of the deceased presumed him to be a lessee and further presumed that he had right of occupation. For these and other reasons, he has reported the value of the land as on 31-3-1976 to be Nil. Another aspect which is to be highlighted is that both the Valuation Officers proceeded on the basis that this is a lease-hold land with right to renew the lease for 90 years and therefore in perpetuity. This position is nebulous inasmuch as under the present policy of the Government, no lease involving conversion of "old grant" into lease would be granted vide para 4.3 of the report of the Valuation Officer, Shri Mathur.
25. Even assuming this is a lease-hold land, Explanation under rule IBB provides that in relation to a house which is built on a lease-hold land, rule IBB shall have effect as if for the fraction 100/8 in Clause (a) or as the case may be the fraction 100/9 in Clause (b), fraction 100/9 and 100/10 respectively has been substituted. In other words, the value determined for the building by both the Asstt. Valuation Officers as well as Appellate Controller of Estate Duty has to be further reduced after taking into account the multiplying factor mentioned in Explanation to rule IBB. To this extent, the value of the self-occupied and tenanted portion of the property would be reduced.
26. The same conclusion can be arrived at after considering the amended provisions of law applicable from 1-4-1989 when the Wealth-tax Rules are incorporated in the Act as Part B of the Schedule III to Wealth-tax Act, 1957. Rule 3 of Part B of Schedule III to the Wealth-tax Act, 1957 effective from 1-4-1989 provides for valuation of any immovable property being a building or land appurtenant thereto or part thereof shall be the amount arrived at by multiplying the net maintainable rent by the figure of 12.5. Rule 4 provides for determination of net maintainable rent, while rule 5 provides for determination of gross maintainable rent. The basis is, in case of let out property, the amount of rent received or receivable or the annual value assessed by the local authority for the purpose of property tax whichever is higher. In case property is not let out, Le. self-occupied property for residential "purposes, the amount of annual rent assessed by the local authority in whose area the property is situated for the purpose of levy of property tax or where the property is situated outside the area of any local authority the amount which the owner can reasonably be expected to receive as annual rent had such property been let. Thus taking into account the latter provisions of the Rules also capitalisation of net maintainable rent is the basis for valuation of property which is similar to rule IBB of Wealth-tax Rules. Rule 4 of the Schedule III to Wealth-tax Act provides for deduction of a sum equal to 15 per cent of the gross maintainable rent besides the amount of taxes levied by any local authority in respect of the property in order to determine the net maintainable rent and computation of income from property provides for deduction of repairs by 1/6th from the gross maintainable rent less municipal tax. Therefore, deduction of 17 per cent allowed by the Appellate Controller of Estate Duty is in order.
Inasmuch as a regular assessment has already been made on the deceased for the assessment year 1980-81 accepting the net wealth at Rs. 93,030 inclusive of the self-occupied property under consideration, the valuation need not exceed Rs. 93,030. Therefore, even the valuation made by the Asstt. Valuation Officer, Shri Dhane is not to be taken into account strictly in accordance with Clause (a) of Sub-section (3) of Section 36 of the Estate Duty Act. In these facts and circumstances of the case, the valuation made by the Appellate Controller with respect of building as well as open land does not call for any interference and therefore upheld, as the accountable person is not in cross-objection or appeal before the Tribunal.