Income Tax Appellate Tribunal - Bangalore
G. Ramaiah Reddy vs Assistant Commissioner Of Wealth Tax on 20 October, 2000
Equivalent citations: (2001)70TTJ(BANG)28
ORDER
A. Kalyanasundharam, Senior Vice President:
These are appeals by the assessees and cross-appeals by the department. All the appeals involve a common issue, namely, valuation of the properties that the located at Nos. 15 & 17, Cunningham Road, Bangalore, and at Nandidurg Road. The appeals have, accordingly, been grouped together and are disposed of by this common order.
2. The two properties located at Cunningham Road and Nandidurg Road are stated to be owned by four co-owners. The assessing officer, however, had taken the co-owners as three in number. Initially, assessments were made by the assessing officer on some basis and, on appeal to the Commissioner of Wealth Tax (Appeals), the Commissioner of Wealth Tax (Appeals) remanded the issue back to the file of the assessing officer with a direction that the valuation of the two properties may be referred to the District Valuation Officer (hereinafter referred to as the DVO). In accordance with the directions of the Commissioner (Appeals), the assessing officer referred, to the DVO, for valuing the above two properties, for the valuation dates 31-3-1986, 31-3-1987 and 31-3-1988. The assessee had filed and approved valuer's report in regard to Cunningham Road Property No. 15 & 17 wherein the approved valuer had taken its value at Rs. 11,70,000. The approved valuer had mentioned the area as 45,256 sq.ft. and had enclosed a plan along with his report. The plan refers to properties 15, 16 & 17 of Cunningham Road and mentions the area of the full property at 58,324 sq.ft.
3. Consequent to the reference made by the assessing officer to the DVO, the property at Cunningham Road was inspected on 25-11-1992. In the report, it has been noted that the property was purchased in the year 1974 and that one of the properties was tenanted by NCC (A Govt. of India unit) and had vacated the premises on 31-7-1986. It is also noted that one small building was occupied by an ex-Member of Parliament. It has been further noted that the occupation of the small portion by the ex-MP does not come in the way of development of the property. The land area has been mentioned as 5,590 sq.mts.
4. Insofar as the built-up area of the old building is concerned, it has been mentioned that, at the time of inspection, the building that was under the occupation of NCC was not in existence. Because the plan, etc. of the dismantled building was not provided, the DVO had considered only the salvage value of the property. It is also mentioned that the old building had outlived its useful life because it was of single storeyed in brick and stone work.
5. The method followed by the DVO in valuation of the property has been mentioned as the properties are in a commercial area and consist of vast open land with a few old buildings under the occupation of the chowkidar and an ex MP. Because the buildings have outlived their utility life, considering the salvage value of the building and the location, the land and building method had been adopted. For applying the land and building method, comparable sale instances have been taken into account. The sale instances, as noted in para. 5.3 of the DVO's report, are reproduced below :
Sl. No. Property Land area Unit Land rate Reference
1.
78/1/8 Cunningham Rd 530 Sq. mts 1579 Doc No. 1150/86 879, dated 01-08-1986
2. 69/1 Cunningham Rd 248 Sq. mts.
1105Doc. No. 1448/86 87, dated 16-09-1986
3. 70/1 Conningham Rd 813 Sq. mts.
3411D.A. No. 12 (356)/2 dated 15-12-1988 The land rates adopted by the DVO are Rs. 1,950 per sq. mts. Rs. 2,250 per sq. mts. and Rs. 3,940 per sq. mts. For the three valuation dates viz. 31-3-1986, 31-3-1987 and 31-3-1988, respectively. The fair market value, accordingly, was determined at Rs. 98.28 lakhs, Rs. 113.42 lakhs and Rs. 198.49 lakhs, respectively, for the above three valuation dates. The DVO had observed, in his report under the heading "Objections and replies" that reference was made under section 16A of the Wealth Tax Act for valuing the property and that there was no direction for valuing the property with reference to Schedule III to the Wealth Tax Act. He, accordingly, observed that valuation has been made on the basis of reference and it is open to the assessing officer to decide about the applicability of Schedule III or otherwise. He also noted that the property was owned by co-owners and due allowance has been provided for the same.
6. The assessee had given a site plan which is at p. 50 of the paper book, in which it has been mentioned that the total area of the site is 60,165 sq. ft. and that the built-up area of the main building, out-houses, etc. is 15,190 sq. ft.
7. The objection of the assessees, primarily, is with reference to the assessing officer restricting the co-owners to three when it is known that four co-owners had purchased the properties in 1974. This objection of the assessee is correct which is evident from the fact that, in the case of one of the co-owners, Mr. Raghava Reddy, assessed by the Assistant Commissioner of Wealth Tax (Inv.) Cir. 5 (1), Bangalorea copy of the assessment order has been placed at pages 60 to 62it is clearly stated that there are four co-owners. Therefore, to this extent, the assessee must succeed and we direct the assessing officer to include 1/4th share only in the hands of the assessee.
8. The primary objection of the assessees with reference to the valuation is that the DVO had considered the cases located in Cunningham Road which are of smaller size. The plea was that value of land which is of smaller size cannot be compared with a value of the land which is very largein the present case, the size of the property is about 5,600 sq. mt. The other objection was that the sale instances noted were of August, 1986, September, 1986 and December, 1988 which dates are not proximate to any of the valuation dates 31-3-1986, 31-3-1987 and 31-3-1988. The other objection was that the adopting of a rate, which is so determined on an estimate relying on the rates of smaller size properties, was not justified and, in the alternative, it was very much on the higher side. The other objection was, as noted by the approved valuer, the rear portion of the land is inclining downwards and during rainy season it remains flooded. The submission was that the site which was located in a parallelogram shape, the main road being abutting the Cunningham Road, that portion alone would fetch a higher price. A common free passage of 21' was set apart to allow access to site No. 16 which lies on the rear side of both the sites 15 and 17. The area on the rear side of site No. 16 measuring 13078 sq.ft. is sloping down. There were, apparently, seven buildings including one prominent building covering 9,000 sq.ft. which was in the occupation of NCC till 31-7-1986. It is further stated that this property was shortly let out for business obligation till 1988 after which the assessees started using the same for their own purposes. The building was demolished in December, 1991, after obtaining the permission of the Corporation. Based on this, the plea was that the building existed till 31-3-1988, and considering the fact that it was let for all the three valuation dates, the proper method of valuation was rent capitalisation.
9. One ex-MP, Mr. F.M. Khan, was running INTUC office in the property at No. 16 and access to that was through properties at 15 and 17. The Ex-MP was also not paying any rent. One other small building was under the occupation of an army personnel and a Chowkidar both of whom were also not paying any rent. Based on the above facts, the submission of the assessee was that the valuation adopted by the DVO could not be taken as the correct valuation because it assumes non-existence of a building when the facts go to show otherwise, i.e. a building did exist on the relevant valuation dates. The plea was that these facts were brought to the notice of the Commissioner of Wealth Tax (Appeals) vide letter dated 10-7-1995, but, the Commissioner (Appeals) misled himself and adopted a totally different rate.
10. The submission made before the Commissioner (Appeals) was that the detailed plan for construction of a hotel premises, as was approved on 9-11-1989, showed existence of buildings on the land. A copy of the letter addressed to the Bangalore Corporation, dated 15-9-1991, intimating them about demolishing the existing structure was also provided to the Commissioner of Wealth Tax (Appeals). A copy of the order of the Spl. Dy. Commr., Urban Land Ceiling, dated 20-8-1992 was also furnished to lay emphasis on the fact that properties No. 15 and 17 were not a vacant site. It was further alleged that the assessing officer was fully aware of the fact that the old building did exist particularly the one that was in the occupation of the NCC which was used by the assessee for their own business purposes. In support of this plea, the assessees also placed reliance on the fact that, at the time of search, certain documents were seized which showed that the assessees had incurred expenditure in connection with demolition of the structure. The assessees insisted that the property that was rented out to NCC till 31-3-1986 must be valued on rent capitalisation method only. Further, the above property had been further let out and the income therefrom being assessed, should be assessed under rent capitalisation method only for the remaining two valuation dates also. The further plea was that rebate of 30 per cent should be allowed because the land had building and was not open land. Further claim of rebate on account of joint ownership was also made that the same should be allowed at 20 per cent. It was further shown to the Commissioner of Wealth Tax (Appeals) that the excess unbuilt area was 499 sq.mts. only. Even going by the area taken by the DVO as 5,590 sq.mts., the built-up area being 1,410 sq,mts., the specified area being 65 per cent of the total area, this would work out to 3,634 sq.mts. and comparing this specified area of 3,634 sq.mts. with the unbuilt area, the excess works out to 546 sq.mts. only. Because this is only 9.7 per cent, Schedule III was clearly attracted and the value of the property must be taken at 20 per cent capitalisation.
11. The Commissioner of Wealth Tax (Appeals), in para. 10.5 of his order, considering the plea that property at Nos. 15 and 17 was under occupation of the NCC till 31-7-1986, and thereafter let to someone for a short time, felt that there was some contradiction. He observed that even if the property remained vacant, the assessees are bound to show the income from property and further municipal assessments would continue even when the property is not let out. He, accordingly, came to the conclusion that the main building could be said to have been under occupation of NCC only till July, 1986. He noted that the approved valuer had committed an error of not bringing this fact in his report. The valuation report, as filed by the assessee of the approved valuer, is of September, 1986, but the date on which the valuation is made is 31-3-1983. Therefore, what transpired after the date of report could not be known to the Valuation Officer and, therefore, to this extent, the observation of the Commissioner of Wealth Tax (Appeals) may not be justified. The Commissioner of Wealth Tax (Appeals), considering the plea of the assessee for applicability to Schedule III and capitalising the rentals at receipt, observed that the buildings at Nos. 15, 16 and 17 occupied an area of 9,000 sq. ft. On this basis, he found the difference between the unbuilt area and specified area at 12,058 sq.ft. while the 20 per cent of the aggregate area has been worked out at 12,033 sq. ft. The Commissioner of Wealth Tax (Appeals) finally came to the conclusion that Schedule III is inapplicable.
12. The Commissioner of Wealth Tax (Appeals) further had proceeded with the submission of the rent capitalisation on the basis that the rent received being paltry, would not reflect the true value. In fact, this he had done because he was of the opinion that Schedule III is inapplicable. He also considered the portion that was occupied by the ex-MP and that the municipal tax levied was Rs. 262. Considering the seize of the building, he determined the land appurtenant to the land and building at 1,500 sq.ft. On this basis, he directed the assessing officer to adopt a value of Rs. 20,000 for the land and building of the rear portion of property at No. 16. He further directed to exclude 1,500 sq.ft. from the computation of land and building method.
13. The Commissioner of Wealth Tax (Appeals) considered the portion which was in the occupation of the Chowkidar and one army personnel. He came to the conclusion that it was not at all difficult to push the two persons out and demolish the building. On this basis, he upheld the land and building method.
14. He, thereafter considered the value of the land adopted by the DVO. In para. 13.4.1, at p. 16, he reproduced the submission of the assessee as to how the land value should be calculated. This being relevant is reproduced below :
"Property Date of sale Rate/sq. mt.
78/1/B 1-8-1986 Rs. 1,579 69/1 16-9-1986 Rs. 1,105 Average Rs. 1,342 Less for time league from 31-3-1987.5 per cent Rs. 100 Rs. 1,242 10 per cent for larger size Rs. 124 Balance Rs. 1,118 If this rate is applied, the property should have been valued at the following rate :
31-3-1986 Rs. 1, 118 per sq. mt.
31-3-1987 Add 15per cent Rs. 1,286 - do -
31-3-1988 Add 15per cent Rs. 1, 479 - do "
15. It was submitted that a property at No. 14, Cunningham Road was valued at Rs. 970 per sq. mt. For assessment year 1984-85 and, on this basis, giving an increase for inflation, for assessment year 1985-86, the value would work out to about Rs. 1,116 which compared with the value shown by the assessee and reproduced above. At para. 13.6.1, p. 17, the Commissioner of Wealth Tax (Appeals) made observation with the reference to the land rate which is also reproduced below :
"Coming back to the issue of belting method of valuation, the assessee has contended that the rate for the second belt can be at 20 per cent less than the first belt. The rate suggested for second belt (premises No. 16 consisting of 122'6" x 125'3" = 15,343 sq. ft.) in this manner is:
Valuation date I belt rate II belt rate 31-3-1986 Rs. 1, 118 per sq. mt.
Rs. 894 per sq. mt.
31-3-1987 (15 per cent more) Rs. 1,286 per sq. mt.
Rs, 1,029 per sq. mt.
31-3-1988 (15 per cent more) Rs. 1,479 pre sq. mt.
Rs. 1, 183 per sq. mt."
16. The Commissioner of Wealth Tax (Appeals), in paras. 13.7.2 and 13.7.3 made the following observations and determined the value :
13.7.2 However, the value of property in Bangalore has been increasing substantially over the years. The case cited by the Valuation Officer showing value as on 15-12-1988, as Rs. 3,411 per sq. mt. shows a substantial jump over that shown as on August and September, 1986. Being value declared for properties whose value is subject to scrutiny by appropriate authority this should be considered as more realistic than the other two cases cited. Considering the time-lag from 31-3-1988 and 15-12-1988, and also taking into fact that the property in consideration for valuation here is bigger in size (this aspect has been partly taken care of by belting method of valuation accepted by me), I would hold that the value of the properties as on 31-3-1988, can be taken at Rs. 2,000 per sq. mt. in the place of Rs. 3,940 per sq. mt. estimated by the Valuation Officer.
13.7.3. Thus, I would recommend the value to be worked out at the following rates :
I belt II belt (15,343 sq. ft.) 31-3-1986 Rs. 1, 118 per sq. mt.
894 per sq. mt.
31-3-1987 Rs. 1,286 per sq. mt.
1,029 per sq. mt.
31-3-1988 Rs. 2,000 per sq. mt.
1,600 per sq. mt.
The assessing officer is directed to exclude 2,500 sq. ft. from the total area of 60,165 sq. ft. being in possession of tenant who cannot be vacated and to consider this as belonging to property in I belt. The value of the property is to be taken at Rs. 20,000 as directed at sub-para 12.2. of this order. The Valuation Officer has added Rs. 20,000, Rs. 25,000 and Rs. 30,000 towards salvage value of existing old building, as on 31-3-1986, 31-3-1987 and 31-3-1988. As the building being outhouse in possession of tenant is only a small portion of the area covered by old building, I do not find it necessary to direct any further deduction from the salvage value of the building estimated by the Valuation Officer."
17. The contention of the assessees that 15 per cent should be given as deduction for joint ownership had been considered by the Commissioner of Wealth Tax (Appeals) and he was not impressed with the submissions.
18. The observations of the Commissioner of Wealth Tax (Appeals) in regard to valuation of Nandidurg Road property, as contained in paras 15, 16 and 16.2 are reproduced below :
" 15. The assessee objects to these valuation.
It has submitted a written submission dated 19-9-1995. It is contended that the Valuation Officer has not pointed out not even a single comparable. He has relied on a sale instance in Jayamahal Extension. On the other hand, the assessee can cite two sale instances of sale.
(a) 79/19,Nandidurg Road, Bangalore Document No. 1508/9-8-1982. Rate Rs. 721 per sq. mt.
(b) 77, Nandidurg Road, Bangalore, Document No. 2148/25-11-1982. Rate Rs. 700 per sq. mt.
Taking the average of the two at Rs. 710 per sq. mt. and adjusting for escalation by 7.5 per cent by 31-3-1983, the authorised representative works out the land rate at Rs. 763 per sq. mt. As on 31-3-1983. Increasing it by 15 per cent per year, the authorised representative contends that the value could be as under :
31-3-1984 :
Rs. 878 per sq. mt.
31-3-1985 :
Rs. 1,110 -do -
31-3-1986 :
Rs. 1, 162- do 31-3-1987 :
Rs. 1,336 -do -
31-3-1988 :
Rs. 1,536 -do -
16. I have considered this submission and find it fairly acceptable, except for two aspects.
(a) The value of vacant plots in upper class residential locality was escalating substantially and the- escalation was at a faster rate as time elapsed. I feel that escalation at 15 per cent over that as on 31-3-1986, may be justifiable to find the value as on 31-3-1987. The value as on 31-3-1988, can be considered to be at least 25 per cent above that as on 31-3-1987.
(b) The property in question is corner plot while there is nothing to show that the cases cited are of corner plots. An escalation of 10 per cent over the cases cited may be justifiable in consideration of this.
16.2. Taking into account these aspects, I would direct the assessing officer to adopt the value of this property as under :
Valuation date Value suggested by the authorised representative Value directed to be adopted.
31-3-1986 Rs. 1, 162 per sq. mt.
Rs. 1,278 per sq. mt.
31-3-1987 Rs. 1,336 - do-
Rs. 1,469 do -
31-3-1988 Rs. 1,536 - do Rs. 1,836 - do-"
19. The rival submissions on the above issues have been very carefully considered. Touching, initially, with reference to the applicability of Schedule III, we have observed earlier that the Commissioner of Wealth Tax (Appeals) had determined the difference between the unbuilt area and the aggregate area. The aggregate area as has been taken by the Commissioner of Wealth Tax (Appeals) is 60,165 sq. ft. and 20 per cent of this works out to 12,033 sq. ft. only. The Commissioner (Appeals) had taken the unbuilt area while taking 9,000 sq. ft. as the built-up area. This built-up area, as has been pointed out by the assessees, is only with reference to properties Nos. 15 and 17 and not with reference to the others. The assessee had pointed out that the built-up area, as per plan submitted at p. 50 of the paper book, is 15,190 sq. ft. If this figure is correct, then the unbuilt area would work out to about 45,000 sq.ft. The specified area of 65 per cent of 60,165 sq.ft. being 39,107 sq.ft., the difference between the unbuilt area of 45,000 sq.ft. and the specified area would approximately work out to 6,000 sq.ft. only. This figure is very much below the 20 per cent limit prescribed in Schedule III. On this basis we have to uphold the claim of the assessee that Schedule III would have to be applied in valuing the properties. The rent capitalisation at 12.5 times, as prescribed in Sch. III, would definitely be attracted for the valuation date 31-3-1986. On this basis, we direct the assessing officer to revalue the property, for the valuation date 31-3-1986, at 12.5 times of the net marketable rent taking the rent at Rs. 12,300 as received from NCC.
20. The property was vacated by NCC on 31-3-1986. Once the property is vacated and is in the occupation and possession of the assessee, though the assessee claims that it was let out-to this evidence have not been placed before the authorities belowit has to be concluded that the property was in the possession and occupation of the assessee only. Therefore, for the valuation dates 31-3-1987 and 31-3-1988, the property method of valuation would be only land and building method.
21. The land values referred to by the DVO are of smaller size plots is not in dispute. It is also not in dispute that there were no sale instances of lands situated in Cunningham Road which were nearabout the same size as that of the assessee's properties. The Commissioner of Wealth Tax (Appeals), in para 13. 4A.1, which has been reproduced by us earlier, has brought out the method of valuation as pointed out by the assessee. The Commissioner of Wealth Tax (Appeals) had only taken the value of the front portion and rear portion at different rates. This was, perhaps, done on the basis that the front portion of the land would fetch more price than the portion at the rear. To our mind, this approach by the Commissioner of Wealth Tax (Appeals) is quite reasonable. The Commissioner of Wealth Tax (Appeals) approximation is based on the values as given by the assessee and, accordingly, the values taken at Rs. 1,286 and Rs. 1,479, for the front portion, for the valuation dates 31-3-1987 and 31-3-1988, in our view, is quite reasonable and does not call for any interference. However, for the valuation dates 31-3-1988, the Commissioner of Wealth Tax (Appeals) adopted a rate of Rs. 2,000 per sq.ft. which, in our view, is quite excessive and that the value suggested by the assessee is reasonable. We, accordingly, adopt a rate of Rs. 1,479 plus inflation per cent per sq.ft. as the value for the front portion of the property for the above valuation date.
22. For the rear portion, the values suggested by the assessee are Rs. 1,029 and Rs. 1,183 per sq. ft. for the valuation dates 31-3-1987 and 31-3-1988, respectively. The Commissioner of Wealth Tax (Appeals) accepted the value, as above, as on 31-3-1987, but increased the value to Rs. 1,600 per sq.ft. as on 31-3-1988. In our view, the rate could be taken at Rs. 1,183 plus inflation per cent for 31-3-1988. We, accordingly, hold so.
23. As far as the rebate for joint ownership is concerned, the claim of the assessee at 15 per cent before the Commissioner (Appeals) and at 20 per cent before us, is not based on any rule of law. The courts have been consistently holding that for co-ownership, rebate of 10 per cent should be allowed and this has been so given by the Commissioner of Wealth Tax (Appeals). We, accordingly, uphold his order in this regard.
24. As far as the valuation of Nandidurg Road property is concerned, 15 per cent increase every year has been allowed which, to our mind, is reasonable and, accordingly, the values suggested by the assessee at Rs. 1,162, Rs. 1,336 and Rs 1,536, for the valuation dates 31-3-1986, 31-3-1987 and 31-3-1988, respectively are quite reasonable and we direct the same to be adopted.
25. Valuation of the Cunningham Road property was also made for valuation dates 31-3-1989, to 31-3-1993. The values adopted, on the land and building method, were Rs. 2,28 crores, Rs. 2,99 crores, Rs. 3.44 crores, Rs. 3.76 crores and Rs. 4.33 crores for the valuation dates 31-3-1989 to 31-3-1993, respectively. The basis of valuation as observed and applicable for the valuation date 31-3-1988 onwards would, more or less, be applicable for the valuation dates 31-3-1989 to 31-3-1993 also. The only feature is that the earlier building has been demolished. Therefore, the land itself has a huge value cannot be in dispute. What we would suggest is that the assessing officer may adopt, for the valuation dates 31-3-1989 onwards, the rate that is arrived at by taking into account the inflation in rates from 31-3-1988, onwards, that is to say, if the rate, as per price index, is, say Rs. 100 on 31-3-1988 and it is raising to Rs. 115 on 31-3-1989, the inflation is 15 per cent. Likewise, he would compare the price index for 31-3-1990, 31-3-1991, 31-3-1992 and 31-3-1993 and arrive at the percentage of increase with reference to valuation dates 31-3-1988.
26. Insofar as the Nandidurg Road property is concerned, similar method of enhancement may be done by applying the inflationary rate.
27. In the case of G. Ramaiah, for the assessment years 1986-87 to 1988-89, one other issue has been raised concerning status. This was not so insisted upon at the time of hearing and, accordingly, this ground is rejected.
28. The issue of reopening was also touched upon for the assessment year 1990-91 onwards. In this connection, we may observe that the reopening was prompted on the basis of direction of the Commissioner of Wealth Tax (Appeals) to refer the matter to the DVO for the earlier years. This is a good basis for reopening and we uphold the reopening.
29. For the assessment year 1993-94, one other issue that has been raised by the assessees is that the property in question is a commercial property and would have to be excluded for the purpose of valuation. Finance Act, 1992, had defined "assets" to include urban land. Therefore, the claim of the assessee is not at all tenable and is, accordingly, rejected.
30. All the appeals by the department touch upon the method of valuation. This issue is fully considered by us in the earlier paragraphs and the observations made above would equally appeal to the various issues raised by the department as well.
31. In the result, the appeals are allowed in part.
T.A. Bukte, J.M. :
I agree on the point of status and the shares. However, I felt that on the point of rates at Cunningham Road, which is a posh and fully commercial Road, no leniency should have been shown in adopting the rates. But after going through the report I have come to a conclusion that the department did not put much efforts in adopting the actual market value and in distributing the rates adopted by the assessee. Therefore, I need not interfere in showing leniency in adopting the lower rates.
OPEN