High Court Of Madras
Rane (Madras) Ltd. vs. CIT
Sections 37(2A), 37(3A), 40(c), 40A(5), 55, 55A
Asst. Year 1984-85
R. Jayasimha Babu & K.P. Sivasubramaniam, JJ.
T.C. No. 858 of 1993
21st August, 2002
Counsel Appeared
P.P.S. Janardhanaraja, for the Applicant : T.C.A. Ramanujam, for the Respondent
ORDER
R. JAYASIMHA BABU, J. :
Four questions have been referred to us for our consideration, at the instance of the assessee. The assessment year is 1984-85.
The first question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rs. 75,706 being salary paid to the drivers should be taken into account for the purpose of computing the disallowance under s. 37(3A) for the asst. yr. 1984-85.
This question, it is submitted by the learned counsel for the parties, is covered by the law laid down in the case of CIT vs. Sholinger Textiles Ltd. (1999) 240 ITR 908 (Mad). Applying the law laid down therein, this question is required to be and is answered against the assessee and in favour of the Revenue.
The second question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the reimbursement of the medical expenses made to the director/divisional managers/secretary of the company should be taken into account for the purpose of computing disallowance under s. 40(c)/40A(5).
Counsel for the parties submit that similar question has already been considered in the case of Sundaram Industries Ltd. vs. CIT (1998) 147 CTR (Mad) 290 : (1999) 239 ITR 405 (Mad). Applying the law laid down therein, this question is required to be and is answered in favour of the Revenue and against the assessee.
The third question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rs. 42,345 out of the expenses incurred on the dealers conference, annual general meeting, providing food to the visitors was entertainment expenses under s. 37(2A) for the asst. yr. 1984-85.
By the very terms of s. 37(2A) entertainment expenditure includes expenditure on hospitality extended by the assessee to any person whether by way of provision of food or beverages or in any other manner whatsoever. The expenditure incurred on providing food and entertainment at the time of Annual General Meeting is clearly covered by that provision. The question is, therefore, required to be and is answered in favour of the Revenue and against the assessee.
The fourth question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the market value of the building as on 1st Jan., 1964, should be computed on the basis of the rent capitalization method for the purpose of s. 55 of the IT Act in preference to the estimated value submitted by the registered valuer.
The assessee, during the assessment year sold a building situated at Nos. 6 and 7, Pattulos Road, Madras, for a consideration of Rs. 7 lakhs. The assessee estimated the value of the building as on 1st Jan., 1964, at Rs. 4 lakhs and computed the capital gain at Rs. 3 lakhs. The assessee relied on the valuation made by a registered valuer who first calculated the value of the land and building separately and thereafter assuming a notional rent of Rs. 7,500 p.m. which was higher than the actual rent received, he worked out the value of the building on that basis by adopting the rent capitalisation method. The average of the two values so computed was Rs. 4 lakhs which the valuer certified as the value of the building as on 1st Jan., 1994. (sic-1964). The AO rejected that approach to valuation made by the registered valuer. He instead took the actual rent received by the assessee and by adopting the rent capitalisation method which is a method provided for in Sch. III to the WT Act, determined the value of the building as on 1st Jan., 1964, at Rs. 3,00,032 and computed the long-term capital gain at Rs. 3,99,968. The valuation so made by the AO was upheld by the CIT(A) as also by the Tribunal.
Counsel for the assessee contended that the AO should not have rejected the report given by the registered valuer and should have referred the matter to the valuation cell. Sec. 55A of the IT Act provides for reference to a Valuation Officer at the option of the AO in the cases referred to in sub-cls. (a) and (b) thereunder. Sub-cl. (a) deals with a situation where the AO is of the view that the valuation made by the registered valuer is less than the fair market value. Sub-cl. (b) deals with a situation where the AO is of the opinion that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in that behalf or where having regard to the nature of the asset and other relevant circumstances it is necessary to do so.
In this case, sub-cl. (a) of s. 55A has no application, as the value given by the registered valuer was higher than what the AO regarded as the fair market value. Sub-cl. (b) also is not attracted for the reason that the value claimed was higher than what in the view of the AO the value was and also having regard to the nature of the assets and the relevant circumstances, the AO did not consider it necessary to refer the matter to the Valuation Officer.
We cannot fault the AO for not having referred the matter to the Valuation Officer when he was under no obligation to do so. The nature of the asset and the relevant circumstances in this case did not require the reference to the Valuation Officer as the assessee had furnished the actual rent received and that data was sufficient to enable the officer to compute the market value by adopting the rent capitalisation method which method is provided for in Sch. III to the WT Act.
It was further submitted for the assessee that the AO should not have rejected the report of the registered valuer. As already noticed that report was based on a hybrid valuation by determining the value of the land and building first and separately computing the value of the building by the rent capitalisation method by adopting a notional rent, which was much higher than the actual rent received, and then averaging the two values. No material was placed before the Tribunal nor has any such material been placed before us to show that such a hybrid valuation made by the registered valuer is the correct method or the appropriate method. We cannot find fault with the AO for not adopting that method, especially, when the registered valuer had not taken the actual rent received but had taken the notional rent which was much more than the actual rent for computing the value on the basis of the rent capitalization method.
14. The adoption of the rent capitalization method by the AO cannot be regarded as an arbitrary choice. That method is one which is sanctioned by law in Sch. III of the WT Act. That method under that Act can be applied for determining the market value. We, therefore, answer the fourth question also in favour of the Revenue and against the assessee.
[Citation : 259 ITR 307]
