Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax vs K.M. Chinnappa (Huf) on 7 September, 2001
Equivalent citations: [2002]83ITD49(MUM), (2003)78TTJ(MUM)911
ORDER
Behari Lal, A.M.
1. This appeal of the Department has been directed against the order of the CIT(A)-XVIII, Mumbai, dt. 12th Nov., 1997, for the asst. yr. 1996-97. The only ground of appeal taken up by the Department reads as follows :
"On the facts and in the circumstances of the case, the learned CGT(A) erred in facts and in law in holding that the agreement regarding the property on rent to the Somaiya Chinnappa Trust is genuine and thereby in reducing the taxable gift from Rs. 6,37,11,050 to Rs. 1,31,02,113."
2. The assessee is an HUF consisting of Shri Chinnappa and his wife. The assessee was a managing director of Tata Electric Company. He purchased a flat from Tata group for Rs. 2.33 lakhs in June, 1982. In August, 1982, this flat was leased to M/s Standard Chartered Bank for a monthly rent of Rs. 15,000 and a deposit of Rs. 90 lakhs. The bank vacated the flat on 20th Sept., 1995. In the meantime, this flat was leased out to Somaiya Chinnappa Family Trust w.e.f. 19th Sept., 1995, for an amount of Rs. 5,000 per month. On 28th Dec., 1995, it was gifted to Shri Vikram Somaiya, grandson of the assessee. Subsequently, on 15th Feb., 1996, it was leased out to M/s Boeing International Corporation at Rs. 50,000 per month of rent and a deposit of Rs. 3.55 crores. Thus the AO has stated that the value of the gift should be decided taking into consideration, the rent that was actually received from M/s Boeing International Corporation. The AO also observed that the Somaiya Chinnappa Family Trust is an entity within the family of the assessee and is entirely for the benefit of the grandchildren of the assessee. Thus the AO observed that the rental agreement between the assessee and Somaiya Chinnappa Family Trust was a conscious attempt to reduce the taxable value of the gift made by the assessee. The AO has further referred to Leave & Licence agreement between the assessee and M/s Somaiya Family Trust and has stated that the agreement in question was a bogus one and the same had been entered into only with a view to reduce the taxable value of the gift made by the assessee. It was contended before the AO that the gift had been valued as per Rules 3 to 6 of Schedule III of the WT Act and if the flat had been vacant, then the same would have been valued at the original cost which is Rs. 2.33 lakhs. The assessee also contended that he had not achieved any tax benefit and he would have left the flat to his grandson in his will and there was no need for making any gift. It was thus submitted that the gift of the flat was not done with the intention of tax planning but with the view of family emotions. The AO, however, rejected the contention of the assessee and has stated that the flat in question has been let out to M/s Boeing International Corporation at a rent of Rs. 50,000 per month and with a deposit of Rs. 3.55 crores. He has also stated that the gift made by the assessee to Shri Vikram Somaiya was less than 2 months before that date. Therefore, the AO held that the rent and deposit received from M/s Boeing International Corporation was a very good indicator of the market value of the flat. According to the AO, the rent of Rs. 5,000 shown as receivable from M/s Somaiya Family Trust is not the proper indicator to determine the market value of the flat. The assessee worked out the value of the gift as follows :
Rs.
Annual Rent 60,000 Less : 15 per cent 9,000 Net maintainable rent 51,000 Value of the gift with multiple of 10 5.10 lakhs According to the AO, the above calculation is entirely wrong. He referred to the agreement dt. 28th March, 1995, between the assessee and M/s Somaiya Family Trust which is w.e.f. 19th Sept., 1995, only, therefore, the assessee has no reason to omit the actual amount of rent of Rs. 15,000 received upto this date. The AO has also referred to Rules 3 to 5 of Schedule III of WT Act and calculated the annual rent as follows :
Rs.
(i) Rent received from Standard Chartered Bank from 1-4-95 to 19-9-95 85,000
(ii) Rent received from Boeing International Corporation for 1 1/2 months 75,000
(iii) Proportionate rent for 5 months when the flat was vacant 1,14,000 2,74,000 Add: (i) Tax borne by the tenant in accordance with the proviso (i) tor. 5 4,668
(ii) l/9th for repair borne by tenant in accordance with proviso (ii) tor. 5 30,444
(iii) 15 per cent deposit of Rs. 90 lakhs for five months from Standard Chartered Bank and Rs. 3.55 crores for 1 month from Boeing International Corporation 10,06,250 13,15,362 Less : 15 per cent thereof 1,97,304 11,18,058 By multiplying the above amount with 12.5, the AO determined the value of the taxable gift at Rs. 1,39,75,725 but according to him, this is not the correct value of the taxable gift. He, therefore, considered the rent of Rs. 50,000 per month for which the flat was let out to M/s Boeing International Corporation and the deposit of Rs. 3.55 crores as the proper base for determining the taxable gift. He made the working as per Rule 8(a) of Sen. in of WT Act and determined the taxable gift as follows :
Rs.
(i) Rent received per annum from M/s Boeing International Corporation 6,00,000
(ii) Municipal taxes borne by tenant 4,668
(iii) Increase by 1/9 on repairs which are to be borne by the tenant in accordance with proviso (ii) of r. 5 66,666
(iv) 15 per cent of deposit received from M/s Boeing International Corpn. in accordance with proviso
(iii) to r. 5 53,25,000 59,96,334 Less: 15 percent thereof 8,99,450 50,96,884 The above amount is capitalised by multiplying 12.5 times as there was no evidence that the structure was on leased land, the AO, thus, determined the value of the taxable gift at Rs. 6,37,11,050.
3. Whether M/s Somaiya Family Trust was genuine or not, the learned CIT(A) has observed that the trust was created in 1983, and was in operation for more than 10 years. He has further stated that in the case of the family trust, the trustees are also members of the family and the beneficiaries are also family members. There is an agreement in writing for the lease deed. He further observed that when the property was given on lease to the family members, no security deposit was required. The learned C1T(A), therefore, held the trust as genuine. Regarding the rent at Rs. 5,000 per month, the learned CIT(A) has stated that as per the Bombay Rent Control Act, the rent to be taken into consideration is the first rent of the property received by the owner, the learned CIT(A) also referred to the certificate issued by the Sterling Co-op. Hsg. Society wherein the proportionate value of the house shown is lower than Rs, 5,000 per month. The CIT(A) has, therefore, held that the agreement to let out the property to Somaiya Chinnappa Family Trust was a genuine agreement. The CIT(A) has also held that 15 per cent of security deposit would be taken into consideration for computation of correct value of the property. Regarding application of Rule 8(a) of Schedule III of the WT Act, the learned CIT(A) has stated that sudden increase in the value of the property for rent and security deposit is not a sufficient reason for taking the ad hoc value of the property as has been done by the AO. According to him, there was a genuine agreement with Standard Chartered Bank and also with M/s Somaiya Chinnappa Family Trust. He also observed that there was sudden increase in the cost of properties in Bombay. He has also stated that in Sterling Apartments, some other persons of aircraft industry were staying, therefore, there was more demand for the flat after the gift. According to him, the increase in the rent cannot be taken as a reasonable ground for not following the WT Rules. Therefore, he rejected the valuation of the taxable gift made at Rs. 6,37,11,050 by the AO. The learned CIT(A), thus, determined the value of the taxable gift as follows :
Rs.
(i) Rent received from Standard Chartered Bank from 1-4-95 to 19-9-95 85,000
(ii) Rent received from Somaiya Chinnappa Family Trust from 19-9-95 to 31-12-95 15,000
(iii) Proportionate value of gross rent from 1-1-96 to 15-2-96 25,000
(iv) Rent received from Boeing International Corporation from 15-2-96 to 1-3-96 75,000 2,00,000 2,00,000 Add:(i) Tax paid by tenant 4,668
(ii) 1/9th for repairs by tenant 22,222
(iii) 15 per cent of deposit of Rs. 90 lakhs for 5 months and Rs. 3.55 crores for one month 10,06,250 12,33,140 Less : 15 per cent thereof 1,84,971 10,48,169 12.5 times of Rs. 10,48,169 as per Rule 3 of Schedule III of WT Act comes to Rs. 1,31,02,113. Thus according to the learned CIT(A), the correct value of the taxable gift should be adopted at Rs. 1,31,02,113. Aggrieved by the above order of the learned CIT(A), both the assessee and the Department filed their respective appeals before the Tribunal.
4. At the time of hearing, the learned counsel for the assessee brought to our notice that the assessee filed an application under the Kar Vivad Samadhan (KVS) Scheme, 1998 for settlement of the case. She also produced before us, the copy of the application and also the proof for making the payment of taxes. She also produced before us, a certificate under the KVS Scheme, 1998 for full and final settlement of all tax arrears pertaining to the asst. yr. 1996-97. She further stated that the assessee, thereafter filed an application before the Tribunal for withdrawal of the appeal since the case was settled under the KVSS. The Tribunal vide order dt. 31st May, 1999, has allowed withdrawal of the assessee's appeal. Thus according to her, the matter has been finally settled as to the amount of gift-tax payable and nothing survives. Therefore, she contended that the Departmental appeal may be held as infructuous. To support her contention, she invited our attention to the Notification No. 10685/F.N0.149/145/98-TPL, issued by the CBDT on 3rd Sept., 1998 ((1998) 233 ITR (St) 50) for clarification of Kar Vivad Samadhan Scheme, 1998. She referred to Question Nos. 8 & 16 which reads as follows :
Q. No. 8 : Where only certain items of addition are in dispute, can the assessee take advantage of the scheme for the entire demand of the year ?
Ans. : Yes. The scheme is applicable to the entire demand of an assessment year.
Q. No. 16 : Whether settlement of outstanding interest alone is possible when the declarant does not want to give up his right of appeal against the quantum of income-tax ?
Ans. : No. Samadhan Scheme is a package for settlement of tax arrears of a particular assessment year in entirety. Settlement of any part of arrears is not possible. If, however, arrears relating to only interest and penalty are outstanding, whether relating to any particular assessment year or otherwise, these can be settled at 50 per cent, of the arrears.
The learned counsel, thus, argued that the scheme is applicable to the entire demand of the assessment year and the Samadhan Scheme was a package for settlement of tax arrears of a particular assessment year in entirety. Thus assessee under KVSS and accordingly, the assessee has also paid the taxes, therefore, the issue has been finally settled down under the KVSS-1998. She contended that the issue involved in the Department's appeal is regarding the valuation of the taxable gift which has already been settled by the Department under the KVS Scheme by accepting the value of the gift at Rs. 1,31,02,113. She argued that there cannot be two valuation of the same property for gift purposes, one which has already been accepted by the Department under the KVS Scheme at Rs. 1,31,02,113 and the other at Rs. 6,37,11,050 which the Department is contesting through the present appeal, She also invited our attention to the definition of disputed value of gift as per Section 87(i) of the KVS Scheme, 1998 and argued that the disputed value of gift in relation to an assessment year means the whole of so much of the value of the gift as is relatable to disputed tax. According to her, the dispute regarding the value of gift has been settled down through the KVS Scheme, hence, no dispute regarding the value of the gift remains pending. She also relied on the judgment of the Delhi High Court in the case of All India Federation of Tax Practitioners v. Union of India and Ors. (1999) 236 ITR 1 (Del) wherein the High Court held that proviso to Section 92 of Finance (No. 2) Act, 1998, is ultra vires. Thus, she argued that in view of the aforesaid judgment, the appellate authorities are not entitled to decide the issue. On the merits of the case, she contended that the valuation of the gift has to be done on the date of the gift. She argued that on the date of gift, the rent being received was at the rate of Rs. 5,000 per month. If the flat had been vacant, the value of the flat would have been Rs. 2,33,000 only. Thus, she contended that there was no evasion of tax. She contended that the AO has erroneously taken into account subsequent events and past events and ignoring the position of the flat as on the date of the gift. Regarding the comments of the AO that there was a conscious attempt to reduce the taxable value of the gift made by the assessee, she contended that the flat was first let out and subsequently, it was decided for family reasons to make a gift. This was in the nature of a family settlement or a gift in contemplation of death as the parties were of advanced ages. The learned counsel argued that the value of the property has to be determined as per the provisions of Rules 3 to 5 of Schedule III of the WT Act and the AO has erroneously determined the value of the gift as per the provisions of Rule 8(a) of Schedule III of the WT Act. She contended that the standard rent or the actual rent received during the relevant year whichever is higher has to be considered for the determination of the valuation of the immovable property. Thus according to her, the value has to be worked out in accordance with the law and the law does not permit taking into account later and earlier events. She placed her reliance on the following Court cases :
(i) CGT v. Mrs. Shyle N. Patel (GTA No. 6 of 1999, dt. 30th Nov., 1999); and
(ii) Mrs. Shyla N. Patel v. Asstt. CGT (GTA No. 13/Mum/97 dt. 15th Oct.. 1998) for the asst. yr. 1991-92.
5. The learned Departmental Representative contended that the (KVS) Scheme was an offer by the Government for settling tax arrears. According to him, the tax arrears are locked in both the appeals filed by the Department as well as the assessee. He stated that the arguments advanced by the learned counsel are without any substance. The assessee filed an application under the KVS Scheme, 1998, for settlement of arrears involving in the appeal filed by the assessee before the Tribunal. He pointed out that the assessee had not even mentioned regarding the appeal filed by the Department before the Tribunal in their application. He invited our attention to the declaration under Section 89 of the Finance (No. 2) Act, 1998 in respect of KVSS 1998, made by the assessee. In column 5 of the application, the assessee has mentioned the taxable gift at Rs. 1,31,02,113 only and the taxable gift determined by the Department has not been mentioned anywhere in the application. Therefore, the learned Departmental Representative was of the view that the settlement of tax arrears has been made only regarding the gift determined by the learned CIT(A) and not regarding the gift determined by the Department. Therefore, he contended that the settlement of taxes pertaining to the appeal filed by the assessee has been made and it has nothing to do with the appeal filed by the Department. He argued that the appeal filed by the Department has to be decided on merits. He invited our attention to the instructions issued by CBDT in consequence of judgment dt. 17th Nov., 1998, of Delhi High Court in the case of All India Federation of Tax Practitioners (supra) on KVSS, 1998, to all Chief CITs/Director Generals of Income-tax dt. 17th Dec., 1998. Para 2 of these instructions reads as follows :
"Following the judgment of Delhi High Court, the Government has decided that the assessee who want to make declaration under KVSS in respect of tax involved in the appeals filed by the Department can do so. Such declaration would be regulated as under:
(i) The assessee has the option of filing declaration either in respect of arrears disputed in his appeal or of taxes involved in Departmental appeal or for both independently of each other.
(ii) For declaration relating to Department appeals also the existing Form No. 1A can be issued. In such cases, there are no outstanding taxes and hence the process of working out 'disputed income' from the outstanding taxes is not involved. The entire income under dispute in various grounds of appeal may constitute the 'disputed income' on which the sum payable can be determined. In respect of Departmental appeals, the declaration has to be for the entire income disputed in such appeals.
(iii) Where the declaration in respect of Departmental appeals are accepted by the designated authority, the CIT may proceed to withdraw such appeals on passing of the order under Section 90(2).
(iv) In the event of cross appeals on same issue, if the assessee does not opt to declare in respect of taxes involved in Departmental appeals, the provision of Section 92 would not apply as those place bar only in respect of issue concerned in the declaration in respect of which order under Section 90 has been passed. This will also be the position, if the assessee does not opt for declaration in respect of other Departmental appeals. The appeals in all such cases should not be withdrawn."
In view of the above instructions of the CBDT, the learned Departmental Representative contended that the appeal of the Department has to be decided on merits. The provisions of Section 92 are not applicable in this case as the assessee has not made any declaration in respect of the Departmental appeal. Regarding the merit of the case, the learned Departmental Representative relied on the order of the AO and contended that the lease to Somaiya Chinnappa Family Trust @ Rs. 5,000 per month was not genuine because immediately after two months, it received a rent of Rs. 50,000 per month and huge amount of Rs. 3.55 crores of deposit. He argued that Somaiya Chinnappa Family Trust consisted of two daughters of the assessee and the beneficiaries were the grandson and granddaughter of the assessee, therefore, the agreement was not valid as the lease to the family trust was not valid. He also contended that the correct value for the determination of the valuation of gift should be taken as the basis of rent received by the assessee from M/s Boeing International Corporation. He argued that keeping in view the facts of the case, the value of the flat has to be determined as per Rule 8(a) of Schedule III of the WT Act and not by the method provided in Rules 3 to 5 of Schedule III of the WT Act. Thus, he contended that the AO was fully justified in determining the value of taxable gift at Rs. 6,37,11,050.
6. We have carefully considered the submissions made by the rival parties. We have also gone through the various documents filed before us during the course of hearing. The first issue for consideration in this case is regarding the declaration made by the assessee under the KVSS 1998. The assessee filed an application under the KVSS for settlement of his case. From the copy of the application filed under the KVSS, we find that the assessee had opted to declare in respect of the taxes involved in his own appeal filed before the Tribunal. In the form of declaration under Section 89 of the Finance (No. 2) Act, 1998 in respect of KVS Scheme, 1998, the assessee had made declaration of taxable gift of Rs. 1,31,02,113. The assessee had not made any mention regarding the cross-appeal filed by the Department. Therefore, the settlement under the KVSS, 1998 has been made only regarding the gift tax arrears pertaining to the disputed value of gift of Rs. 1,31,02,113. Therefore, the designated authority had passed the order under Section 90 of the KVSS for the disputed amount of gift of Rs. 1,31,02,113 which was involved in the assessee's own appeal filed before the Tribunal. Under the circumstances, it cannot be said that the dispute regarding the entire amount of taxable gift of Rs. 6,37,11,050 determined by the AO has been settled by the declaration made by the assessee which was made only for an amount of Rs. 1,31,02,113. In this connection, we would like to refer to the object of the scheme as explained by the Finance Minister in his speech which reads as follows :
"Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being grittered in pursuing large number of litigation pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentives honest taxpayers, enable Government to realise its reasonable dues much earlier but coupled with administrative measures, would also make the system more user friendly. I, therefore, propose to introduce a new scheme called 'Samadhan'."
Thus, the scheme made an offer by the Government for tax arrears, locked in litigation, at a substantial discount. It is really a recovery scheme and not necessarily a litigation settlement scheme. The scheme provides that any tax arrears under direct or indirect tax levies, can be settled by declaring them and paying the prescribed amount in respect of tax arrears. It also offers some other benefits and immunities from penalty and prosecution. Therefore, the contention of the learned counsel that the issue regarding the valuation of- the taxable gift had been finally settled by the Department by accepting the declaration made by the assessee is without any basis. The object of the scheme as we have mentioned above, was not to settle the issues involved in the appeals but to settle the tax arrears locked up in litigation. It was infact a recovery scheme for the taxes involved in appeals and had nothing to do with the issues involved in such appeals. The assessee by making the declaration of taxable gift of Rs. 1,31,02,113 involved in his own appeal had in fact settled the tax arrears pertaining to that amount. Therefore, settling the issue of the valuation of the total gift has nothing to do with the declaration made by the assessee. Moreover, the assessee had not made any reference of the Departmental appeal in the declaration form, therefore, the question of settling the entire tax arrears in the case does not arise, Even the certificate issued by the designated authority under the provisions of Section 90(2) of the KVS Scheme, nowhere mentions the issues involved in the appeal. The certificate deals only with the payment of taxes. Proviso to Section 92 lays down that where an appeal is filed by the Tax Department relating to such issues arising from disputed amount or tax arrears, save where tax arrears comprises of only penalty and/or interest, the appellate authority should decide the appeal filed by the Tax Department irrespective of the declaration made by a person. In other words, even in respect of an issue covered by the declaration, the appeal filed by the Tax Department would survive. The definition given in Section 87(i) of the KVSS, 1998, also makes it abundantly clear that the disputed value of gift in relation to an assessment year means the whole or so much of the value of gift as is relatable to the disputed tax. The words 'relatable to the disputed tax' is quite relevant to decide this issue which means only that part of the gift is relevant which pertains to the disputed tax. In the present case, only the amount of Rs. 1,31,02,113 was relevant value of the gift which pertained to the disputed tax in that appeal. Therefore, in the declaration filed by the assessee, the disputed tax was only regarding the gift of Rs. 1,31,02,113 and it did not pertain to the entire disputed tax determined on the valuation of gift at Rs. 6,37,11,050. The Delhi High Court decision in the case of All India Federation of Tax Practitioners (supra) has no application to the facts of the present case. Proviso to Section 92 of Finance (No. 2) Act, 1998, was considered by the Hon'ble High Court as ultra vires' only in such cases where the declaration has been made regarding the disputed tax demand involved in the Departmental appeal also and-even then, the Departmental appeal would survive. In the present case, the assessee had not even made mentioned of the Departmental appeal in the declaration form. This has also been clarified by the CBDT in their instructions issued to all Chief CITs/Director Generals of Income-tax vide letter dt. 17th Dec., 1998, (supra) where in para 2(iv), it has been stated that "in the event of cross-appeals on same issue, if the assessee does not opt to declare in respect of taxes involved in Departmental appeals, the provisions of Section 92 would not apply as those place bar only in respect-of issue covered in the declaration in respect of which order under Section 90 has been passed." In view of the aforesaid discussion, we do not find any force in the arguments of the learned counsel that the appeal filed by the Department does not survive because of the settlement of all taxes pertaining to the appeal filed by the assessee. We, therefore, decide this issue in favour of the Department and the appeal filed by the Department has to be decided on its merits.
7. On merits, the main issue for consideration is regarding the valuation of the taxable gift, The AO considered the lease to Somaiya Chinnappa Family Trust at Rs. 5,000 per month as non-genuine because of the reason that immediately after two months, the assessee received a rent of Rs. 50,000 per month and large amount of deposit from M/s Boeing International Corporation. He rejected the value of the flat which was computed by the assessee at Rs. 5,10,000. According to the assessee, the valuation was to be done on the date of gift. On the date of gift, the rent being received was @ Rs. 5,000 per month. The AO, however, has taken into account subsequent events and past events to determine the value of the flat. He took into account the rent receivable per annum from M/s Boeing International Corporation at Rs. 6,00,000 and also 15 per cent interest on deposit of Rs. 3.55 crores received from M/s Boeing International Corporation at Rs. 53,25,000 and determined the value of the taxable gift at Rs. 6,37,11,050 by applying the provisions of Rule 8 of Schedule III of WT Rules. The learned CIT(A), however, observed that the lease agreement with Somaiya Chinnappa Family Trust was a genuine one and he determined the valuation of the property at Rs. 1,31,02,113 under the provisions of Rules 3 to 5 of Schedule III of WT Act. While determining the valuation of the property, the learned CIT(A) considered the actual rent received during the relevant year plus 15 per cent interest of deposit of Rs. 90 lakhs for five months and Rs. 3.55 crores for one month. The assessee has accepted this valuation by making declaration under KVSS, 1998. Therefore, the appeal filed before the Tribunal by the assessee regarding this valuation has been withdrawn. Thus, there is no dispute pending regarding the valuation of the property at Rs. 1,31,02,113 by the learned CIT(A). The only dispute pending is regarding the Departmental appeal wherein the Department is supporting the findings of the AO, After going through the facts of this case, we agree with the learned CIT(A) that the lease agreement with Somaiya Chinnappa Family Trust was genuine one. Now the only issue remains for consideration is whether the valuation of the property should be done as per the provisions of Rules 3 to 5 or the same should be done under Rule 8 of Schedule III of WT Act. The value of gifts has to be determined as per the provisions of Section 6 of the GT Act, 1958. Under the newly substituted Section 6(i) of the GT Act w.e.f. 1st April, 1989, the value of any property, other than cash transferred by way of gift is its value as on the date on which the gift was made. Such value is to be determined in the manner laid down in Schedule II to the GT Act, 1958. It may be noted that for such determination, the said Schedule II has adopted the provisions of Schedule III of the WT Act, 1957. We would now like to refer to the provisions of Schedule III of WT Act, 1957, for the determination of the value of the gift. Part-B of Schedule III of WT Act deals with the valuation of immovable property. Rules 3 to 8 provides the manner in which the value of any immovable property being a building or land appurtenant thereto, or part thereof is to be determined. Rule 3 is applicable for determining the value of any immovable property being a building or land appurtenant thereto, or part thereof. The rule is also applicable to any such property constructed on leasehold land. Rule 8 sets out certain circumstances where under the provision of Rule 3 shall have no application. These circumstances are as follows :
(a) Where having regard to the facts and circumstances of the case, the AO with the previous approval of the Dy. GIT, is of the opinion that it is not practical to apply the provisions of the said Rule 3 to such a case.
(b) Where the difference between the unbuilt area and the specified area exceeds 20 per cent of the aggregate area.
(c) Where the property is constructed on leasehold land and the lease expires within a period not exceeding fifteen years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease.
It is also provided that in any case referred to above, Clause (a) or Clause (b) or Clause (c), the value of the property is to be determined in the manner laid down in Rule 20. According to Rule 4, for the purpose of r, 3, net maintainable rent in relation to an immovable property referred to in Rule 3, is the amount of gross maintainable rent as defined in Rule 5, as reduced by
(i) The amount of taxes levied by any local authority in respect of the property.
(ii) A sum equal to 15 per cent of the gross maintainable rent. Now Rule 5 coins the definition of the expression 'gross maintainable rent' for the purpose of Rule 4, in relation to any immovable property referred to in Rule 3. For the purpose of the definition, the property has been divided into two categories (i) in relation to property which is let, and (ii) In relation fo property which is not let. We are concerned with property which is let. In that case 'gross maintainable rent' would be as follows :
(i) The amount received or receivable by the owner as 'annual rent' as defined in Expln. (1), or
(ii) The annual value assessed by the local authority in whose area the property is situated for the purpose of levy of property tax or any other tax whichever is higher.
For the purpose of Rule 5, the expression 'annual rent' has been defined in Expln. (1). In the case of property let throughout the year ending on the valuation date, the annual rent means the actual rent received or receivable by the owner in respect of such year. If the property is let only a part of the previous year, the amount of rent is to be determined proportionately. Under the proviso to the said Expln. (1) the annual rent is to be increased in the following circumstances :
(i) Where the landlord receives a benefit from the tenant by way of the municipal taxes borne wholly or partly by the tenant, the annual rent is to be increased by the amount so borne by the tenant.
(ii) Where the owner has accepted any deposit (not being advance rent for three months or less), the annual rent is to be increased by 15 per cent of such deposit per annum less the interest payable by the owner to the tenant.
(iii) Where the tenant bears the expenditure or repairs the annual rent is to be increased by 1/9th of the actual rent.
(iv) Where the owner has received any amount by way of premium or otherwise for leasing the property, the annual rent is to be increased by the amount obtained by dividing the premium or other amount by the number of years of the period of the lease.
(v) Where the owner derives any benefit or perquisite, whether convertible into money or not, as consideration for leasing of the property or any modification of the terms of the lease, the annual rent is to be increased by the value of such benefit or perquisite. Expln. (2) to Rule 5 coins a definition of the expression rent received or receivable so as to include :
(i) all payment for the use of the property by whatever name called;
(ii) the value of all benefits or perquisites, whether convertible into money or not;
(iii) any sum paid by a tenant or occupier of the property in respect of any obligation which, but for such benefit, would have been payable by the owner.
In view of the above provisions of Schedule III of the WT Act, the valuation of the immovable property has to be determined as per Rule 3 of Schedule III of WT Act. For the purpose of Rule 3 of Schedule III, the net maintainable rent is the amount of gross maintainable rent as defined in Rule 5. The gross maintainable rent is the amount received or receivable by the owner as annual rent as defined in Expln. (1) or the annual value assessed by the local authority in whose area the property is situated for the purpose of property tax or any other tax on the basis of such assessment whichever is higher. So for the purpose of valuation of the immovable property, what one has to find out is the annual rent and the annual value assessed by the local authority and which is higher out of the two has to be adopted as gross maintainable rent. Expln. (1) has defined the expression 'annual rent'. In the case of a property let out throughout the year ending on the valuation date, the annual rent means the actual rent received or receivable by the owner in respect of such year, In the present case, the learned CIT(A) has determined the annual rent at Rs. 10,48,169 under the provisions of Rules 3 to 5 of Schedule E which is much higher than the annual value assessed by the local authority. As per the certificate of Sterling Co-op. Housing Society, the proportionate value of the house is lower than Rs. 5,000 per month. Therefore, the annual valuation determined by the learned CIT(A) is higher than the municipal value. The AO has applied the provisions of Rule 8 of Schedule III without any basis. As we have mentioned above, Rule 8 sets out certain circumstances whereunder the provisions of Rule 3 shall have no application. One of the circumstances is that the AO is of the opinion that it is not practicable to apply the provisions of the said Rule 3 to such a case. But in the present case, it is practicable to apply the provisions of Rule 3 because the property was given on rent throughout the year, therefore, it was not difficult to find out the annual rent. The property is also assessed by the local authority. Therefore, both the values are available in the present case and one has to adopt the higher value out of the two for the purpose of determining the annual rent of the property. Therefore, the AO has erroneously resorted to the provisions of Rule 8 of Schedule III. In other words, the provisions of Rule 8 are to be applied where the provisions of r, 3 are not applicable. The AO has also wrongly taken into account the rent receivable in future for the determination of the value of gift. As per Expln. (1), the annual rent means the actual rent received or receivable by the owner in respect of such year. Therefore, the AO cannot travel beyond the relevant year under consideration when the actual figures of rent received are available. The jurisdictional High Court has also pointed out in the case of Mrs. Sbyla N. Patel (supra) that the AO has no discretion to go beyond the provisions of Section 6 of the GT Act which is very specific and lays down the manner in which the value of the gift is to be determined. The change was brought in the law w.e.f. 1st April, 1989. Before the amendment, the AO had ample discretion to decide the market value of the gift, but after April, 1989, there is no such discretion left with the AO. Now, he has to determine the value of the gift according to the provisions of Rule 3 to Rule 5 to Schedule III of WT Act as has been discussed in the aforesaid paragraphs unless the value of the gift cannot be determined under those rules and under such circumstances, the AO has to resort to the provisions of Rule 8 of Schedule III of WT Act. Under the circumstances, we do not find any infirmity with the order of the learned CIT(A) and the same is upheld.
8. In the result, the appeal is dismissed.