Bombay High Court
Fourth Wealth-Tax Officer vs Mrs. Doshibai N. Jeejibhoy. on 2 January, 1990
Equivalent citations: [1990]33ITD630(MUM)
ORDER
Garg, AM - These two appeals are by the revenue against the orders of the CWT (A) for the assessment years 1981-82 and 1982-83. Since they raise a common dispute regarding valuation of the property, they are being disposed of by this consolidated order for the sake of convenience.
2. The assessee was the owner of Arthur Road property. It was fully occupied by the tenants and there was no vacant land available. Its value in the wealth-tax returns was being declared on rent capitalisation method at Rs. 76,000 which was also stated to have been accepted by the WTO up to the assessment year 1980-81. While making the assessments of these two years, the WTO, however, noticed that the property was subject-matter of acquisition Officer, Bombay and BSD Municipal Corporation for a consideration of Rs. 26,35,390 and a solatium of Rs. 13,49,871 as evidenced by the Award dated 14-7-1983. He, therefore, considered the fair market value of the property at Rs. 39,85,561 in both the years under consideration.
3. The CWT (A) on going through the Award found that the possession of the property was taken from the assessee on 30th July, 1982 and that on the valuation dates, she was in possession and since the property was fully tenanted premises and the tenants were protected under the Bombay Rent Control Act, the proper method was rent capitalisation. A reference to the decision of the Supreme Court in the case of State of Kerala v. P. P. Hassan Koya AIR 1968 SC 1201, Calcutta High Court decision in the case of CED v. Radha Devi Jalan [1968] 67 ITR 761 (Cal.) and that of the Punjab & Haryana High Court in the case of Jaswant Rai V. CWT [1977] 107 ITR 477 at 481 was made.
4. The learned Departmental Representative, Sri Ashok Mansukhani, submitted that what one has to determine is the market value of the property on a particular valuation date. Though there are various methods prevalent for valuation of an immovable property but the best evidence of the market value is the price is at which the property was actually sold or acquired compulsorily. When the price fetched is actually known, one should not resort artificial method of determining the value of the property. The price received for this property was Rs. 39,85,561 and, therefore, the WTO was right in adopting the same, unless the assessee was in a position to show the down trend position in the market on the two valuation dates.
5. The learned counsel for the assessee, Sri Ajay Thakore, on the other hand, submitted that when the property was dully tenanted, the only method of determining its market value was rent capitalisation. He referred in this connection to the three decisions enumerated in the order of the CWT (A). He further submitted that the subsequent event of sale/acquisition would not influence the market on an earlier date of valuation. In any case, he submitted that in an acquisition, the State is in an advantageous position, vis-a-vis the tenant than an ordinary citizen, inasmuch as the State can evict the tenant without any difficulty and even without compensation as they remain no more protected under the Rent Control Act whereas the assessee could not have done so. The property sold with tenants in a free market would not fetch a larger price than the capitalised value of the rental income. Alternatively, he submitted that the consideration of the property was Rs. 21,95,419 and rest of the amount was solatium which has nothing to do with the property as such. It was given to the assessee for deprivation of the assessees right to hold the property and not in consideration of the transfer of the property.
6. We have heard the parties and considered their rival submissions. Valuation is an art, not an exact science and mathematical certainty is not demanded, nor indeed is it possible, said Viscount Simon in the case of Gold Coast Selection trust Ltd. v. Humphrey [1949] 17 ITR (Suppl.) 19(HL). That is presumably why section 7 of the Wealth-tax Act provides for the value to be an estimated price of the asset which in the opinion of the WTO it would fetch if sold in the open market on the valuation date. It is the price which a willing vendor might reasonably expect from a willing purchaser uninfluenced by the special needs of either. Problem of valuation of immovable property has been dealt with under the Land Acquisition Act, Wealth-tax Act and in various judicial decisions and we find very precise discussion on the point in the decision of the Calcutta High Court in the case of Debi Prosad Poddar v. CWT [1977] 109 ITR 760, at page 773, as under :
"(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 much 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 method, as mentioned in the circular 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, if there be any. Taking all these factors into consideration it is, therefore, necessary to determine which one of the various methods will be 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 the 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."
(7). In Smt. Tribeni Devi v. Collector AIR [1972] SC 1417, the supreme Court dealt with the matter as under :
"The compensation payable 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 as estimate judged 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, is not the only method. The rent which an owner was actually receiving at the relevant point of time or the rent which the neighbouring lands of similar nature are fetching can be taken into account by capitalising the rent which according to the prevailing rate of interest is 20 times the annual rent. But this also is not a conclusive method. This court had not in Special Land Acquisition Officer v. T. Adinarayana Setty (1959) Suppl. 1 SCR 404, AIR 1959 SC 429 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 ar : (i) opinion of expert : (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 lands 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 value, 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."
(8). In Rarukutty v. Special Tahsildar [1973] KLT 573, referred to in CIT v. P. I. George [1988] 171 ITR 620, the Full Bench of the Kerala High Court took the view that the market value of the land with building on it depends upon a variety of circumstances and that the method of capitalisation of income is "only a" method which may be resorted to in appropriate cases.
(9). In Special LAO v. P. Veerabhadarappa [1985] 154 IRA 190, the Supreme Court stated at page 195 that -
"the function of the court in awarding compensation under the Act is to ascertain the market value of the lands at the date of the notification under section 4(1) of the Act and the methods of valuation may be : (1) opinion of experts, (2) the prices paid within a reasonable time in bona fide transactions of purchase or sale of the lands acquired or of the lands adjacent to those acquired and possessing similar advantages, and (3) a number of years purchase of the actual or immediately prospective profits from the lands acquired. Normally, the method of capitalizing the actual or immediately prospective profits or the rent of a number of years purchase should not be resorted to if there is evidence of comparable sales or other evidence for computation of the market value. It can be resorted to only when no other method is available.
It is axiomatic that the best evidence to prove what a willing purchaser would pay for the land under acquisition would be the evidence of sales of comparable properties, proximate in time to the date of acquisition, similarly situate, and possessing the same or similar advantages and subject to the same or similar disadvantages. Market value is the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchase. Where definite material is not forthcoming either in the shape of sales of similar lands in the neighbourhood at or about the date of the notification under section 4(1) or otherwise, the court has no other alternative but to fall back on the method of valuation by capitalisation."
Their Lordships in this case noticed the Privy Council decision in the case of Vyricherla Narayana Gajapati Raju [1939] LR 66 IA 104, wherein it was held that it was not only the realised possibility but also the future possibilities that must be taken into consideration. A passage from "Law of Eminent Domain" (1953 edn.) by Alfrede D. Jahr was quoted by the Supreme Court thus :
"It is far sounder practice to avoid the use of rental value capitalisation, if better evidence of market value is available. In any event, the courts are inclined to give a greater weight to sales of similar properties in the market than to evidence of leasehold rentals."
10. The Delhi High Court in the case of Wenger & Co. v. DVO [1978] 115 ITR 648 states in connection with valuation that -
"It is one of settled principles of valuation that market value has to be ascertained by considering sales of similar properties in the same neighbourhood or similar environment. If there are no such instances of sales available then capitalisation of rent or making some sort of comparative evaluation of sales of other properties is an acceptable mode of valuation. A certain amount of guesswork would be there if no exactly similar instance of sale is available. In that case an estimate has to be made which need not necessarily be a mathematical calculation."
(11). The Karnataka High Court in the case of Smt. S. Neelaveni v. CWT [1980] 125 ITR 665 observed in this connection thus :
"There are several methods adopted in determining the market value of a particular residential house property at a particular time. The best evidence in regard to the market value would be the value of the property itself if it has been the subject of purchase near about the valuation date. The next best evidence would be the value fetched for a similar property in the vicinity at about the same time. In the absence of such evidence, the value may be determined by capitalising the rent which the property would fetch if let out or is fetching of already let out. Resort can also be made to an estimate by an the basis of the value of the land and building."
12. In the aforesaid circumstances, we are of the opinion that rent capitalisation is only method. It is not a conclusive method for ascertaining the value of a property on a given date and as held by the Supreme Court in the case of P. Veerabhadarappa (supra), normally the method of capitalising the actual or immediately prospective profits or the rent of a number of years purchase should not be resorted to if there is evidence of comparable sale or other evidence of marks value Rent capitalisation method can be resorted to only when no other method is available. When definite material is not forthcoming either in the shame of similar land in the neighbourhood at or about the valuation date, the court has no other alternative but to fall back on the method of valuation of capitalisation. In the present case, the property was acquired and the amount was received by the assessee as per the Award on 14-7-1983, a date which could not be doubted to be near about the two valuation dates, namely, 31-3-1981 and 31-3-1982. In any case, a due discount for the rise in the prices in the intervening period could be given. The best evidence to prove what a willing purchaser would pay for the period would be the evidence of the sale of a comparable property proximate to the time of the valuation date, similar situate and possessing the same or similar advantages and subject to same or similar disadvantages. When the property itself was subject to purchase/sale near about the valuation date, that would necessarily be given a preference over the sale of comparable properties and, in such circumstances, as held by the Karnataka High Court in the case of Smt. S. Neelaveni (supra), this would be the best evidence in regard to the market value of the property. When the best evidence, namely, the sale of the property itself is available, the value on the two valuation dates should have been based on such sale price, of course, after giving due discount for the intervening period. The CWT (A) was not justified in ignoring the price realised by the assessee on acquisition of the property on the ground that the same was after the valuation date. We may also usefully refer to the decision of the Bombay High Court on this point in the case of Dr. Keki Hormusji Gharda v. B. H. Raisinghani, WTO [1982] 135 ITR 386, wherein the issuance of reopening notice under section 17 of the Wealth-tax Act based on the sale price of the property soon after the next valuation date was held valid by observing that it was difficult to deviate and reject the contention of the WTO that one and the same property valued for assessment year 1976-77 at Rs. 1,15,000 or Rs. 1,17,793 could not have been suddenly valued by the assessee himself, at more than four times over at Rs. 5,05,000 for the very next assessment year without there having been a gross under-valuation in the previous year. This clearly shows that the sale of the property in the subsequent year or year would be a relevant consideration in valuing the property held by an assessee on an earlier valuation date.
13. It is true that the rent restriction legislations as contended by the learned counsel for the assessee might not apply to the premises in which the government is interested either as a tenant or as a landlord and when the government acquires the property, the fact that there were tenants in the property was irrelevant as the government is not restricted from removing such tenants but that would be an advantage to the government and not to the assessee. In determining the compensation, the government would not like to pass on the benefit of the right to remove the tenants to the owner of the property. Such a consideration would not be of relevance.
14. We, however, find some force in the alternate argument of the learned counsel for the assessee. As observed in the decision of the Kerala High Court in the case of P. J. George (supra), in fixing the market value or market price of a property or asset, the perspective of the proceeding will have to be borne in mind before applying the principle enunciated by courts in different contexts; that it would not be safe to wholly import the principles laid down by courts in ascertaining the market value in the context of one statue while determining the amount of compensation or market value under a different statute; and that the perspective and principles certainly call for a different approach. In this connection, reference was made to the Gujarat High Court decision in the case of CWT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 at 188 and 191 and also an Australian decision in the case of CSD v. Executor Trustee & Agency Co. of South Australia Ltd. 74 Common wealth Law Reports 358 wherein Dixon J. observed at page 373 as under :
"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 in the first it is to ascertain what money value is plainly contained in the asset so as to afford a 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".
15. In these circumstances, we agree with the learned counsel that the amount of solatium received by the assessee would not represent the market value of the asset. It was an amount paid for the deprivation of the right of the assessee to hold the property. It was paid to compensate her not for the transfer of the property but her personal rights. Considering all the facts and circumstances of the case, including the fact that in the present case the basis is the compensation on acquisition as against the actual sale, we are of the opinion that it would be fair and reasonable to estimate the market price of the property for the two years under consideration at Rs. 18 lacs and Rs. 20 lacs, respectively.
16. In the result, the two appeals are partly allowed.