Commissioner of Income-tax Vs. P. I. George and Others. - Court Judgment

K. S. PARIPOORNAN J. - These are 12 connected cases. All these references are at the instance of the Revenue. The matter under the Wealth-tax Act for the years 1973-74, 1974-75 and 1975-76. The four brothers, P. I. George, P. I. Mathew, P. I. Issac and P. I. Itoop, are the assessees. The matter concerns the assessments of these four brothers to wealth-tax for the above three years. That is how 12 references have come up for the three years.

In I.T.R. Nos. 282 to 285 of 1980 relating to the assessment years 1973-74, at the instance of the Revenue, the following four common questions of law have been referred for the opinion of this court :

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in interfering with the figure of Rs. 2,55,775 which was adopted by the Wealth-tax Officer as representing the value of the undivided 1/4th interest of each of the assessees in the immovable property jointly owned by each assessee with three others on M.G. Road ?'

'(ii) If the answer to question No. (i) is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was right in directing that an average between the values assessed by the land and building method and the rent capitalisation method should be taken for arriving at the market value of the jointly owned property for the assessment year 1973-74

(iii) If the answer to question No. (ii) is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for arriving at the value by the land and building method, an addition of Rs. 1,18,980 for value of land at second floor level was not warranted

(iv) If the answer to question No. (ii) is in the affirmative, whether the Tribunal was justified in discounting the 1/4th value of Rs. 2 lakhs arrived at with reference to the average value of Rs. 8 lakhs by the land and building method and the rent capitalisation method to Rs. 1,75,000 for the special feature that the share of each assessee was only an undivided share as contradistinct with a demarcated share in the property in question ?'

In I.T.R. Nos. 431 to 438 of 1982 relating to the assessment years 1974-75 and 1975-76, at the instance of the Revenue, the following common question of law has been referred by the Appellate Tribunal for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in affirming the order of the Appellate Assistant Commissioner reducing the value of the building on M.G. Road to Rs. 7 lakhs and consequently reducing the value of the share of the assessees in the value of the building from Rs. 2,55,775 to Rs. 1,75,000 ?'

In the appeals for the years 1974-75 and 1975-76, the Appellate Tribunal, by its order dated November 21, 1981, followed its earlier decision rendered for the year 1973-74. (Order dated June 30, 1979). The controversy is regarding the valuation of a building for the purpose of the Wealth-tax Act. All the relevant facts and materials are contained in the appellate order dated June 30, 1979. This is the subject-matter of I.T.R. Nos. 282 to 285 of 1980. The four brothers, P. I. George, P. I. Mathew, P. I. Issac and P. I. Itoop, jointly owned the property bearing old door No. XXX/597 B to F, M.G. Road, Cochin Corporation. Each of the assessees had an undivided 1/4th interest in the said property. the Common issue, for all these 12 cases, is regarding the valuation of the 1/4th interest of each assessee for wealth tax purposes in the aforesaid property as on the valuation date. the valuation date relevant for the year 1973-74 is March 31, 1973. The assessees purchased the land in 1969 for a sum of Rs. 1,76,884. A building was put up in 1972 at a cost of Rs. 2,07,388. The entire value of the property was returned as Rs. 3,84,272 and eventually each brother returned his 1/4th share at RS. 96,068. It does not appear that the purchase value as also the cost of construction of the building was ever questioned. The Wealth-tax Officer was not satisfied with the value of the property as returned. He referred the matter to the Valuation Officer who passed an order under section 16A(5) of the Act dated October 3, 1974. The entire property was valued at Rs. 10,23,140 and the share of each brother was worked out at Rs. 2,55,775. The annual rental value of the property was Rs. 1,51,080 an after deductions for property tax, ground rent, repairs etc., the net rent was fixed at Rs. 1,02,314 and by capitalising the same by 10 times, the value was arrived at Rs. 10,23,140. The assessees objected to this valuation. Even so, the Wealth-tax Officer adopted the valuation made by the Valuation Officer and passed an order of assessment dated December 1, 1975. This was affirmed in appeals by the Appellate Assistant Commissioner, by orders dated August 11, 1976. the assessees appealed to the Appellate Tribunal. It was contended that the valuation based solely on the probable yield would not reflect that real value of the property. It was contended that the value reflected by the rental capitalisation method should be checked up by other appropriate methods such as the land and building method, etc. The multiplier of 10 adopted was also challenged. On behalf of the Revenue, it was submitted that since the instant property was a tenanted one, the capitalisation of rental method adopted is the only appropriate method to arrive at the value of the asset as on the valuation date. There was no question of adopting any other method of valuation. The Appellate Tribunal considered it necessary to arrive at a proper conclusion in the case to have the value of the building determined by the land and building method also. The Valuation Officer, who was present at the hearing before the Tribunal on April 30, 1979, was requested to make such a valuation. He did so. The report so submitted by the Valuation Officer is dated May 8, 1979. He took the value of the land at Rs. 2,67,750. The rate of construction of Rs. 265 per sq.m. was taken and additions were made for extra items of work. Besides the above, the Valuation Officer made an addition of Rs. 1,18,980 towards the concept of the value of land at second floor level. Finally, the Valuation Officer Fixed the value on the basis of land and building method at Rs. 7,32,000. The Tribunal heard the Valuation Officer as also the assessees counsel. It held that the addition of Rs. 1,18,980 for the vacant land available for future construction at second floor level is a new concept and there is no scope for making an addition of Rs. 1,18,980 aforesaid. So, deducting the above figure from Rs. 7,32,000, the Appellate Tribunal found that on the basis of the land and building method, as per the Valuation Report, the valuation will be at Rs. 6,12,847 which was rounded off to Rs. 6 lakhs.

The Tribunal opined that under section 7(1) of the Wealth-tax Act, the value of an asset has to be estimated to be the 'price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market' on the valuation date. After referring to the principles laid down in the judicial decisions in J. N. Bose v. CWT : [1976]104ITR83(Cal) , Debi Prosad Poddar v. CWT : [1977]109ITR760(Cal) and CIT v. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) , the Tribunal took the view : (a) that there are three different modes and approaches to find out the market value of a property like (i) comparable sales method, (ii) rental method of valuation and (iii) land and building method; and (b) that it is essential, as far as possible, to check the valuation arrived at by one method with that thrown up by another method, provided both methods are based on objective and reliable data and neither method is to be ruled out on the ground of its being inapplicable for any particular reason. The Tribunal proceeded to state further that while capitalisation of rental is certainly an appropriate method, it cannot be said to be the only method which is to be applied. On the facts of the case, the Tribunal held that a proper method which takes into consideration the inherent value of the property as well as the value with reference to rental would be obtained by averaging the two values, i.e., by the rental method and the land and building method. In this perspective, the Tribunal held that the value by the land and building method comes to Rs. 6 lakhs and the value by the capitalisation method is Rs. 10,23,140. The aggregate of the two values would work out to Rs. 16,23,140 and the average value works out to about Rs. 8 lakhs. So considered, the value of each undivided share would be Rs. 2 lakhs. It cannot be forgotten that the building is one which is jointly owned and what is transferable in each case is the undivided right of ownership and therefore, a discount has to be given for that aspect. Though there are cases in which the valuers had given a discount of 20% for an undivided share in a property the Tribunal, on the facts of this case, held that though the value of each undivided share would be Rs. 2 lakhs, taking into consideration the fact that a discount us called for, the value of each undivided share would be fixed at Rs. 1,75,000. The value returned by each assessee regarding his 1/4th share, was Rs. 96,068, the estimate made by the Wealth-tax Officer was Rs. 2,55,775 and the value fixed for each sharer by the Appellate tribunal was Rs. 1,75,000. Aggrieved by the aforesaid decision of the Appellate Tribunal, the Revenue filed applications under section 27 of the Wealth-tax Act, wherein the questions of law extracted herein above (p. 623) have been referred for the opinion of this court.

We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the assessees, Mr. V. Rama Shenoy. Under section 7 of the Wealth-tax Act, the value of any asset shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. It is the market value of the asset, as on the valuation date, that should govern the issue. It is the price which a willing vendor might reasonably expect from a willing purchaser. Decisions of courts have explained the principles to be borne in mind in finding out the market price of the property for the purpose of section 7 of the Wealth-tax Act. In J. N. Bose v. CWT : [1976]104ITR83(Cal) , delivering the judgment of the Bench, Sabyasachi Mukharji J., stated as follows (p. 87) :

'The purpose of valuation of a property of this nature under the Wealth-tax Act, 1957, is to find out the market price likely to be fetched on the valuation date in respect of the property by a hypothetical and willing purchaser in respect of a willing seller. The problem is not capable of easy solution.

Valuation is an art, not an exact science. Mathematical certainty is not demanded, nor indeed is it possible. It is for the Commissioners express in the money value attributed by them to the asset their estimate, and this is a conclusion of fact to be drawn from the evidence before them - said Viscount Simon in the case of Gold Cost Section Trust Ltd. v. Humphrey (Inspector of Taxes) [1949] 17 ITR (Supp) 19; [1948] AC 459. The problem of valuation of immovable property has been dealt with under the Land Acquisition Act, the Wealth-tax Act and in computing the capital gains under the Income-tax Acts in various judicial decisions. We may mention the decisions in the cases of Rajasekhara v. Chairman, City Improvement Trust Board, Mysore City, AIR 1957 Mys 20, State of Kerala v. P. P. Hasan Koya, AIR 1968 SC 1201, Narayana Gajapatiraju v. Revenue Divisional Officer, , T. Kanakasabapathi Pillai v. Commissioner of Wealth-tax [1974] 51 ITR 146, Commissioner of Wealth-tax v. V. C. Ramachandran [1966] 60 ITR 102, Controller of Estate Duty v. Radha Devi Jalan [1968] 67 ITR 760, C. Krishna Prasad v. Commissioner of Wealth-tax : [1970]76ITR115(KAR) , Goutham Chand Galada v. Commissioner of Wealth-tax : [1972]86ITR292(Mad) and Mahmudabad Properties (P) Ltd. v. Commissioner of Income-tax : [1972]85ITR500(Cal) . From the said decisions, the following principles emerge :

(a) In respect of immovable property, there is no fixed market, such as market for share, or for other commodities like sugar, cloth, etc.

(b) There must be a 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.

(c) There are different methods - and which one would be suitable for a particular property must depend upon the particular features of the property; of those methods that one should be preferred which can provide more objective data for reliance.'

In a later case, delivering the judgment of the Bench, in Debi Prosad Poddar v. CWT : [1977]109ITR760(Cal) , the same learned judge stated the principles in the following terms :

'(1) Attempt must be made to find out the price which the immovable property would fetch on the valuation date imagining a willing buyer to purchase the property from a willing seller in respect of the property ;

(2) In respect of the immovable property, there is no fixed market such as market for shares or for other commodities, like sugar, cloth, etc. In order to arrive at a valuation in respect of the property, there must necessarily be certain element of guess. But the guess must be based on certain facts and according to certain principles which would be, in the facts and circumstances of each case, as fair as possible to the Revenue as well as to the assessee in trying to imagine reasonably and intelligently the price which was expected to be fetched if it was possible to sell the property in question on the relevant valuation date.

(3) Such a determination, therefore, involves adopting certain methods in determining the valuation and there are different kinds of methods, as mentioned in the circulars of the Board and the principles enunciated in the several decisions of the court, as noticed before.

(4) Which one of the various methods would be suitable for a particular case must depend upon the nature of the property, the location of the property, the purpose for which the property is used and several other objective factors, viz., the time 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, if thereby any Taking also these factors into consideration it is, therefore, necessary to determine which one of the various methods will be most suitable to reach as accurate as possible a guess as to the valuation on the valuation date.

(5) Another factor that has to be borne in mind is that such method should be preferred which has more objective reliable data to rely upon than mere subjective opinions. For instance, if there are more objective data to work out in respect of one method more reliable than another then that method for a particular land should be preferred. If, however, there is any objective reliable evidence of any transaction of sale of the land or property similar in quality or of the same type and at approximately the same time, then that would, however, provide more reliable method to follow.'

The above two decisions were followed in a decision in Sudesh Chandra Talwar v. CIT : [1982]137ITR483(Cal) . These decisions were cited with approval by the Gujarat High Court in CIT v. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) . But the learned judge of the Gujarat High Court went further and held that since there are different methods and approached to find out the market value of a property, and there is really a problem in the application of these methods to the facts of a particular case and the choice as to which of the method should be preferred is difficult, the competent authority shall collect all the relevant materials and evidence by applying the well-known and recognised methods, i.e., land and building method, contractors method rental or yield basis and comparable sales method, and work out each estimation of the market value by the application of all the four methods, and for purposes of counter-check compare it with the municipal valuation for rateable purposes wherever it is possible, since it cannot be said with certainty that preference of one method to another should be a real aid arriving at the real estimation. After referring to the relevant decisions of the Supreme Court and English decisions, the court took the view that it may be necessary to take even two or all of those methods into account in appropriate cases in order to accurately determine the market value. In Smt. Tribeni Debi v. Controller, Ranchi : [1972]3SCR208 , the Supreme Court stated the proposition thus (p. 1419) :

'The compensation payable to the owner of the land is the market value which is determined by reference to the price which a seller might reasonably expect to obtain from a willing purchaser, but as this may not be possible to ascertain with any amount of precision, the authority charged with the duty to award compensation is bound to make an estimate judgment by an objective standard. The land acquired has, therefore, to be valued not only with reference to its condition at the time of the declaration under section 4 of the Act but its potential value also must be taken into account. The sale deeds of the lands situated in the vicinity and the comparable benefits and advantages which they have, furnish a rough and ready method of computing the market value. This however not the only method. The rent which an owner was actually receiving at the relevant point of time of the rent which the neighbouring lands of similar nature are fetching can be taken into account by capitalising the rent which according to the present prevailing rate of method. This court had in Special Land Acquisition Officer v. T. Adinarayana Setty : AIR1959SC429 , indicated at page 412 the methods of valuation to be adopted in ascertaining the market value of the land on the date of the notification under section 4(1) which are : (i) opinion of experts, (ii) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages; and (iii) a number of years purchase of the actual or immediately prospective profits of the land acquired. These methods, however, do not preclude the court from taking any other special circumstances into consideration the requirement being always to arrive as near as possible at an estimate of the market value. In arriving at a reasonable correct market valid it may be necessary to take even two or all of those methods into account inasmuch as the exact valuation is not always possible as no two lands may be the same either in respect of the situation or the extent or the potentiality nor is it possible in all cases to have reliable material from which that valuation can be accurately determined.'

Similar matter came up for consideration before the Full Bench of this court in Rarukutty v. Special Tahsildar [1973] KLT 573. Issac J. took the view that the market value of a land with buildings on it depends on a variety of circumstances and that the method of capitalisation of income is 'only a' method which may be resorted to in appropriate cases. The learned judge further held that there is no hard and fast rule that can be applied for determining the market value of a the property and the court can take into account, in a suitable and appropriate case, more than one method (pages 577 to 580). Subramanian Poti J. was also of the view and said that in some cases it may even be necessary to keep in view more than one method and even a combined application of these methods may be necessary to determine the real value (pages 583 and 584). Viswanatha Iyer J. also took the same view and held that the court may have to resort to more than one method in arriving at the market value of the land and a correct estimate should be arrived at (page 586). The above Full Bench decision was cited with approval in a later decision of this court in State of Kerala v. Chacko [1977] KLT 850.

From a review of the above decisions and particularly the decision of the Supreme Court in Tribeni Devi v. Collector, Ranchi, : [1972]3SCR208 , Vimlaben Bhagwandas Patels case : [1979]118ITR134(Guj) and Rarukutty v. Special Tahsildar [1973] KLT 573, it cannot ne doubted that in fixing or estimating the correct market value of an asset though there are different methods and approaches, the problem being difficult and a choice as to which of the methods should be preferred, raises imponderables, it may be necessary to take even two or all those methods into account and determine the market value. It is fairly clear that these decisions establish that to insist on finding out the market value by applying only one particular method would not give the correct estimation of the fair market value of a property. This principle seems to be well-settled in view of the decision in Tribeni Devis case, : [1972]3SCR208 , the decision of the Full Bench in Rarukuttys case [1973] KLT 573 and the decision of the Gujarat High Court reported in Vimlaben Bhagwandas Patels case : [1979]118ITR134(Guj) . So, the principle adopted and followed by the Appellate Tribunal, that it is essential, as far as possible, to check the valuation at by one method with that thrown up by another provided both methods are based objective and reliable data neither method is to be ruled out on the ground of its being inapplicable for any particular reason, is justified in law. We are satisfied that the approach of the Appellate Tribunal in finding out the value of the asset by taking into account more than one method is proper. Fixing the market value by taking into consideration the inherent value of the property as well as the value with reference to rental. obtained by averaging the two values, i.e., by the rental method and the land and building method, is justified and is not open to any objection.

If the principle of valuation adopted by the Appellate Tribunal is not open to any objection, the only further question that arises is whether the actual value of the asset, as fixed by the Tribunal, is open to any objection. As stated by the Supreme Court in CWT v. Raghubar Narain Singh : [1984]146ITR228(SC) , the market value of an asset would be a question of fact, if the Tribunal has arrived at the conclusion by taking wrong principles into consideration, then such a finding would not be binding on the High Court. We have already held that the principles borne in mind by the Appellate Tribunal in fixing the value of the asset is justified in law. On that basis, the Tribunal held that the value of the assets on the basis of the rental method (capitalisation) is Rs. 10,23,140. On the other hand, the value by the land and building method comes to Rs. 6 lakhs. The Tribunal worked out the average value at Rs. 8 lakhs. Since the value to be computed in the instant case is an undivided share, it called for an allowance of discount. Though the value of each undivided share was arrived at at Rs. 2 lakhs, after giving the discount, the Tribunal fixed the value at Rs. 1,75,000. The fixation of Rs. 1,75,000 as the value of each undivided share is perfectly justified. The fixation of market value is a question of fact, arrived at by the Appellate tribunal, by applying the correct principles of law. The market value of each undivided share, as fixed by the Appellate Tribunal, is correct and cannot be called in question. In this connection, we should stress one important aspect in fixing the market value of a property. It is settled law that the market value or the market price is one which a willing vendor might reasonably expect from a willing purchase. The market value or the market price has got to be fixed with reference to many statutes, like the Land Acquisition Act, Wealth-tax Act, Income-tax Act, Gift-tax Act, Municipalities Act etc. In fixing them market value or market price of a property or asset, the perspective of the proceedings will have to be borne in mind before applying the principles enunciated by courts in different contexts. It would not be sage to wholly import the principle laid down by courts in ascertaining the market value in the context of one statute while determining the amount of compensation or market value under a different statute. The perspective and principles certainly call for a different approach. This aspect is emphasised by the Gujarat High Court in Vimlaben Bhagwandas Patels case : [1979]118ITR134(Guj) . So also in Commissioner of Succession Duties v. Executor Trustee and Agency Company of South Australia Limited (74 Commonwealth Law Reports 358), at page 373, Dixon J. observed as follows :

'I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second, the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while is the first it is to ascertain what money value is plainly contained in the asset so as to afford proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a courts attitude in the application of the test. In a case of compensation, doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate.'

The above observations have our respectful concurrence.

We should state that the Appellate Tribunal is the final fact finding authority under the scheme of the Act. The ultimate purpose is to arrive at the correct/proper 'market value' of the asset. The law is clear that in arriving or fixing the 'market value', the authority is not tied down to adopt any one or the other of the methods. It is open to the appropriate authority to adopt any one or two or more methods or even a combination of the methods, provided they are reliable objective and relevant. It is for the Appellate Tribunal as the final fact finding authority to determine on the facts of each case which is the method to be adopted to arrive at the proper 'market value'. That this has been properly done in the instant case in light of the decisions of the Supreme Court and a Full Bench decision of this court, cannot be doubted at all.

In this case, the following aspects deserve special mention. The valuation report (land and building method), fixed towards the value of the second floor (terrace), a sum of Rs. 1,18,980 on the basis that further structure can be constructed on it. The Appellate Tribunal, after adverting to relevant facts and circumstances, held that in their experience and knowledge, condition in Ernakulam (Cochin) have not developed such as extent that such terrace (open space in the second floor) can be considered as potential house sites and the property market in Ernakulam still adheres to only conventional trends and does not reckon such factors. This is finding n a pure question of fact. On this basis, the sum of Rs. 1,18,980 was excluded from the valuation report based on the land and building method. We are of the view that this exclusion is justified and the finding relating thereto, being a pure finding of fact, is not open to objection. So also, the 'discount' made to the undivided share, is one recognised in law. (See J. N. Boses case : [1976]104ITR83(Cal) and CWT v. Nagabhushana Setty : [1985]156ITR484(KAR) ).

In the light of the above discussion, our answer to the questions referred to us are as follows :

ITR No. 282 to 285 of 1980 :

Question No. (i). - We are of the view that the Appellate Tribunal was justified in interfering with the figure of Rs. 2,55,775 fixed by the Wealth-tax Officer. We answer the question in the affirmative, against the Revenue and in favour of the assessee.

Question No. (ii). - The Tribunal was justified in directing that an average between the values assessed by the land and building and the rent capitalisation method should be taken for arriving at the market value of the jointly-owned property. We answer the question in the affirmative, against the Revenue and in favour of the assessee.

Question No. (iii). - We answer question No. 3 in the affirmative, against the Revenue and in favour of the assessee.

Question No. (iv). - We answer the question in the affirmative, against the Revenue and in favour of the assessee.

ITR Nos. 431 to 438 of 1982.

These references relate to the assessment years 1974-75 and 1975-76. In fixing the value of the Property at Rs. 7 lakhs, the Appellate Tribunal followed the decision rendered by it for the earlier year 1973-74, which is the subject-matter of ITR Nos. 282 to 285 of 1980, and held that there is no justification to depart from the course adopted by the Tribunal in valuing the every same property for the earlier for the earlier assessment year and fixed the value at Rs. 7 lakhs.

The reasoning and conclusion stated by us in answering the questions referred to us in ITR Nos. 282 to 285 of 1980 will govern these references also. On that basis, we answer the question referred to us in the affirmative, against the Revenue and in favour of the assessee.

A copy of this judgment under the seal of this court and the signature of the Register will be forwarded to the Tribunal, as required by law.