Income Tax Appellate Tribunal - Delhi
Prem Chand Goel vs Gift-Tax Officer on 13 April, 1988
Equivalent citations: [1989]29ITD145(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. These are cross-appeals by the asses-see and the revenue arising out of an assessment for gift-tax made on the assessee. We have heard the learned counsels for the parties and have perused the material placed before us.
2. The facts are that the assessee made a gift of a house No. B-3/ 13, Ashok Vihar, Phase-II, New Delhi on 19-5-83. The said house is built upon a plot of land measuring 450 sq. yards. It is a leasehold land from the Delhi Development Authority and admittedly according to the terms of the lease 50 per cent of the unearned increase in the price of the land has to be paid to the Delhi Development Authority before the DDA will permit a transfer of the leasehold rights. In the gift deed the valuation of the property was shown as Rs. 2 lakhs and stamp duty and registration charges were paid accordingly. The assessee filed a return declaring the value of the gift at Rs. 2 lakhs. The GTO referred the matter to the Departmental Valuation Officer, who determined the value of this property at Rs. 6,98,658. In doing so he determined the value of the building at Rs. 2,46,990. The house, inter alia, consisted of a main building measuring 201,01 sq. mts., 20 sq. mts. of temporary sheds with IC sheet roof and 34.94 sq. mts. of canopy. In addition there was a compound wall with a steel gate. The Valuation Officer determined the value of the land at Rs. 1,200 per sq. mt. This came to Rs. 4,51,668. The assessee thereafter filed two valuation reports before the WTO. One is a report dated 20-9-85 by one Mr. Balraj Taneja, who determined the value at Rs. 1,76,000 by adopting the rent capitalisation method. He worked on the basis of a standard rent although the property was in the self-occupation of the donor and possession was delivered to the donee at the time of the gift. Another report that was filed before the WTO was one by Sh. R. L. Kumar. This was the report dated 20th October, 19f5 by which the cost of construction of the building was determined at Rs. 1,14,868. The GTO adopted the value as determined by the Valuation Officer and made the assessment accordingly.
3. On appeal, the learned CGT (A) upheld the valuation as made by the Valuation, Officer and adopted by the WTO but she directed that so far as the value of the land was concerned, 25 per cent of the unearned increase be adjusted. In this manner she reduced the value of the property by Rs. 1,07,370.
4. Feeling aggrieved the assessee as well as the revenue have preferred the aforesaid appeals. In the assessee's appeal, the following grounds have been raised:
1. Learned CIT (A) has not erred in not allowing the valuation of property for gift-tax purposes in accordance with Rule 1BB of Wealth-tax Rules but has instead followed land and building method.
2. The authorities below have erred in not following the decision of Hon'ble Supreme Court in the case of Dr. Balbir Singh v. MCD [1985] 152 ITR 388.
3. The learned CIT (A) has erred in allowing 25 per cent reduction in unearned increase instead of 50 per cent in price of land.
4. The order of GTO is not a speaking order and as such is bad in law.
5. The valuation made is arbitrary and without any basis and is liable to be quashed.
5. In the revenue's appeal the only ground raised is as below:
On the facts and in the circumstances of the case, the CIT (A) erred in allowing- deduction on account of unearned increase even though DDA has not charged any such amount.
6. As is evident the question arising in these cross-appeals is about the valuation of the house property that was the subject-matter of the gift. We may dispose of the question about the unearned increase first. In the case of CWT v. P. N. Sikand [1977] 107 ITR 922, the Hon'ble Supreme Court has held that for the purposes of valuation of a property for wealth-tax purposes the amount of unearned increase payable to the lessor has to be adjusted to arrive at the fair market value of the property. In the case before us it is admitted on both sides that 50 per cent of the unearned increase has to be paid to the lessor before it permits the transfer of the leasehold rights. The Valuation Officer's report is silent on the question whether in adopting the rate of Rs. 1,200 per sq. mt. for the land, any adjustment in respect of the unearned increase has been taken into account. However, from the fact that the revenue is not challenging the CGT (A)'s order on that ground shows that it is admitted to the revenue that the Valuation Officer did not make any adjustment. The learned CGT (A) has directed adjustment of only 25 per cent of the unearned increase on the ground that the transferee has not paid any unearned increase and it is for this reason that in its appeal the revenue contends that even the direction for adjustment of 25 per cent of unearned increase is erroneous. We are of the view that the learned CGT(A) erred in granting adjustment of only 25 per cent of the unearned increase. The question whether in the particular transfer before us any unearned increase was demanded by the DDA was not relevant. What we have determined is the fair market value of the property on a notional sale and since the lease deed provides for the payment of unearned increase to the lessor adjustment has to be made in the light of the ruling of Hon'ble the Supreme Court. In certain transfers by way of gifts, etc., to near relatives the DDA or the lessor does not charge any unearned increase. Such a special transfer, therefore, will not determine the fair market value of the property. The payment of unearned increase is nothing but a sharing of the profit between the lessor and the lessee. When the lessee is gifting the property to another, there is no question of any profit to him and it is for this reason that the lessor does not ask for its share of the profit. We are, therefore, of the view that for determining the fair market value of the property by the land and building method, the amount of unearned increase payable to the lessor will have to be adjusted in fall irrespective of whether any amount is charged by the lessor or not. The CGT (A)'s directions on this point are, therefore, erroneous and so far as the revenue's appeal is concerned, it will have to be dismissed.
7. The important question, however, which was raised by the learned counsel for the assessee is about the mode of valuation of the property for gift-tax purposes. It has been contended by the assessee right from the beginning that the valuation as determined by the Valuation Officer cannot be adopted and the value should be arrived at in accordance with Rule 1BB of the Wealth-tax Rules. The learned counsel for the assessee contended before us that the value of the property should be determined for gift-tax purpose in the same manner by which it is determined for the purposes of wealth-tax. According to him, this was a residential property and for wealth-tax purposes the value if determined according to Rule 1BB would be less than Rs. 2 lakhs declared by the assessee. He referred to the report of the registered valuer Shri Balraj Taneja, who on the basis of the standard rent determined the value of the property at Rs. 1,21,700. Regarding the value as determined by the Valuation Officer it was contended that it was a mathematical report and in determining the value of the land the Valuation Officer had adopted a rate of Rs. 1,200 per sq. mt. by giving instances of some auction sales in respect of plots in Shalimar Bagh by the DDA. According to him, Shalimar Bagh was not a comparable locality and the rates of auction, sales could not be applied for determining market value of property subject to private sales. For, this reliance was placed on a judgment of Hon'ble the Punjab & Haryana High Court in Guran Dass v. CIT [1984] 148 ITR 770. It was also contended that the sale deed has been registered with the Registrar, who has accepted the value of the property at Rs. 2 lakhs and, therefore, the same value should be adopted for gift-tax purposes.'
8. The learned Departmental Representative, on the other hand, supported the value as determined by the Valuation Officer. According to him, Rule 1BB is not applicable to gift-tax proceedings and there is, therefore, no question of determining the value of the property according to that rule. It was also contended that the registration of the gift deed showing a valuation of Rs. 2 lakhs can act only as a piece of evidence and cannot be binding on the Gift-tax Officer.
9. A copy of the Valuation Officer's report has been placed by the assessee in the paper book. It would show that the Valuation Officer determined the cost of reproduction of the construction at Rs. 2,46,990. It is important to note that it was after this report that the assessee filed written submissions before the ITO. The assessee also filed a report by his own valuer Shri Balraj Taneja. In his report Shri Balraj Taneja has not disputed the cost of reproduction of the building as determined by the Valuation Officer. He determined the value of this building by adopting the rent capitalisation method and taking the standard rent as the basis. According to this method the value of the property came to Rs. 1,21,700 only. He also adopted another method according to which he took the cost of construction at Rs. 1,14,800 and added thereto the cost of the land at Rs. 61,200 after adjustment of the unearned increase.
For determining the value of the land the registered valuer took the rate of land as that prevailing in the year 1974 while what he was to determine was the value on the date of the gift, i.e., 19th May, 1983. In this way the value came to Rs. 1,76,000 and Shri Balraj Taneja reported the fair market value of the property at that amount. It would be apparent that the fair market value of the building determined by the registered valuer at Rs. 1,76,000 by adopting the land and building method was totally incorrect. The reason is that he adopted the value of the land as well as building as it was in the year 1974 and not the value as on the date of the gift.
10. So far as the value of the building as reported by the Valuation Officer at Rs. 2,46,990 we find that the assessee never objected to the same. At pages 1 to 3 of the paper book we have the assessee's submissions before the ITO. In these submissions the assessee did not challenge the correctness of the valuation of the building. What was urged was that the value should have been determined by applying the mandatory provisions of Rule 1BB and that the land and building method should not have been applied. Stress was also laid on the contention that the standard rent of the building should be the basis for determining the value of this property by rent capitalisation method. Therefore, so far as the buildings are concerned, the value as determined by the Valuation Officer was not disputed.
11. At the hearing before us, however, the learned counsel for the assessee contended that depreciation should have been allowed at a higher rate than 1.5 per cent allowed by the Valuation Officer. This contention, in our view, is untenable. It was not raised before the authorities below. The registered valuer has also estimated the life of the property as 60 years. 10 per cent is usually taken to be the salvage value of the building and, therefore, for a life of 60 years, the balance of 90 per cent is allowed as depreciation @ 1.5 per cent per year. The Valuation Officer has done the same and, therefore, there is no basis for the claim that a higher depreciation should have been allowed.
12. So far as the valuation of the land by the Valuation Officer is concerned, we are of the view that he has not correctly determined the same. He has referred to certain auction sales in Shalimar Bagh. There is nothing on record to show what are the terms of those auction, what is the nature of the rights conveyed and the Valuation Officer has not bothered to show how the rates of land in Shalimar Bagh can be used as exemplars for determining the value of lands in Ashok Vihar. He has nowhere stated that the two localities are identical in their advantages or disadvantages or that the terms of grant by auction were similar to those pertaining to the property in question. He has mentioned that 50 per cent of unearned increase is payable to the lessor but he has not bothered to find out what would be the exact amount payable to the DDA on that account. It is common knowledge in Delhi that the Land & Development Officer of the Govt. of India prescribes rates for various localities at which unearned increase will be calculated. It is according to those rates that unearned increase has to be paid to the lessor irrespective of the actual price charged. It was the duty of the Valuation Officer to obtain a copy of that circular and append the same to his report and take rates prescribed therein for Ashok Vihar into consideration for determining the value of the property.
13. Thus, so far as the determination of the value of this property by adopting the land and building method is concerned, we are of the view that neither the Valuation Officer nor the registered valuer has properly determined the value of the land. Therefore, if the property in question requires to be valued by the land and building method, the matter will have to go back to the WTO for redetermination of the value of the land afresh to which the value of the construction as reported by the Valuation Officer and as discussed above will have to be added to arrive at the fair market value of the property in question. As regards the argument of the learned counsel for the assessee though the value having been accepted by the Registrar for the purpose of stamp duty, the same should automatically be accepted in the gift-tax proceedings, we are of the view the registrar's action is not binding on the GTO. He has an independent statutory right of determining the fair market value of the property and his right to do so cannot be pre-empted by another officer. The action of the registrar in accepting the value as declared by the assessee is only one of the circumstances that could be taken into account and it cannot conclude the matter in favour of the assessee or against the revenue. In the case before us we have already mentioned how even the value of the building alone as determined by the Valuation Officer was more than the value as declared in the gift deed and also that the same was not disputed before the authorities below. This contention of the learned counsel for the assessee, therefore, cannot prevail.
14. We now take up the assessee's argument that the value of the property should have been determined according to Rule 1BB of the Wealth-tax Rules. It was not disputed before us that the house in question was a residential house and, therefore, for wealth-tax purposes the same would have to be valued according to Rule 1BB. It was also not disputed that valued in that manner the value of the property in question would be less than what has been declared by the assessee. In this connection reliance was placed on a judgment of the Hon'ble Bombay High Court in Jehangir Mahomedali Chagla v. M.V. Subrahmania, Addl. First ACED [1985] 155 ITR 637. In that case the question of the valuation of a flat for the purpose of estate duty was involved. Section 36(3) of the Estate Duty Act which came on the statute book w.e.f. 1-3-1981 was pressed into service on behalf of the accountable person. According to the revenue that section could not be availed of as the deceased Late Justice Chagla died on 9-2-1981, i.e., before the enactment of Section 36(3). The newly incorporated Sub-section (3) of Section 36 provided that in respect of one residential house belonging to the deceased the market value for the purpose of estate duty was for be the market value of such house as included in the net wealth of the deceased on the valuation date immediately preceding the date of his death. A single Judge of Hon'ble the Bombay High Court held that harmonious construction demands that an identical method should be employed while determining the value Under Section 36(1) of the Estate Duty Act even in cases where death occurred prior to March 1, 1981 and since for the wealth-tax assessment the value as determined in accordance with Rule 1BB was to be adopted, the same value has to be adopted for assessment to estate duty. The ruling is thus not directly to the point but we can adopt the principle laid down therein as an analogy. Under the Wealth-tax Act also wealth-tax is payable on the wealth, the fair market value of which is determined under Section 7 of the Act. Section 7(1) of the Wealth-tax Act reads as under:
Subject to any rules made in this behalf, the value of any asset other than cash, for the purposes of this Act, 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.
Similarly, under the Gift-tax Act, gift-tax is payable on the value of gifts and Section 6(1) of the Act reads as under:
The value of any property other than cash transferred by way of gift, shall, subject to the provisions of Sub-sections (2) and (3) be estimated to be the price which in the opinion of the Gift-tax Officer it would fetch if sold in the open market on the date on which the gift was made.
A perusal of the aforesaid provision would indicate that wealth-tax as well as gift-tax is payable on the fair market value of the asset and such fair market value has to be estimated to be the price which the property concerned would fetch if sold in the open market on the relevant date. Therefore, on principle the two provisions are identical. The only difference is that while Section 7 of the Wealth-tax Act is subject to rules no such restrictive words have been used in Section 6 of the Gift-tax Act. That, however, does not mean that settled principles of valuation of properties or rules framed under other statutes can be disregarded at will by the GTO. It is to be remembered that the Wealth-tax Act as well as the Gift-tax Act has to be administered by a single officer in respect of a particular assessee. It is also settled principle that there should be consistency in approach and anomalous situations must be avoided. We are of the view that it would be anomalous if the same property is valued at one figure for the purposes of wealth-tax and at an entirely different figure for the purposes of gift-tax. This would create unnecessary complications, uncertainty and duplicity of work. Therefore, although no rule like Rule 1BB has been enacted under the Gift-tax Act, a principle can safely be adopted that the value of a property should be the same for the purposes of wealth-tax and gift-tax and it is on the basis of this principle that we are of the view that the value of a property for the purpose of gift-tax should be the same as that for the purpose of wealth-tax. In the present case the asses-see had declared the value of the gift at Rs. 2 lakhs. We have already stated that the value of this property if determined for the purpose of wealth-tax would be lesser. Therefore, we are of the view that the value as declared by the assessee should have been accepted. We, therefore, allow the assessee's appeal and direct that the value of the gift be taken at Rs. 2 lakhs as declared by the assessee.
15. The assessee's appeal is allowed. The revenue's appeal is dismissed.