High Court Of Madras
George Oakes Ltd. vs. Commissioner Of Wealth Tax
Sections WT 2(e)(2)(iii), WT Sch. III, rr. 3, 8
Asst. Year 1984-85, 1985-86, 1987-88, 1988-89, 1990-91, 1991-92
R. Jayasimha Babu & S.R. Singharavelu, JJ.
Tax Case Nos. 259 to 265 of 1999 & Tax Case (Appeal) No. 169 of 2003
11th November, 2003
Counsel Appeared
P.P.S. Janarthana Raja, for the Assessee : Mrs. Pushya Sitaraman, for the Revenue
JUDGMENT
R. Jayasimha Babu, J. :
Three questions arise in this batch of references and appeals. The first two arise for the asst. yrs. 1984-85, 1985-86, 1987-88, 1988-89 and the third for the asst. yrs. 1988-89, 1990-91 and 199192. The three questions are :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee’s contention that the property at No. 17, Greams Road, Madras, should be valued on the basis of rent capitalisation method for determining the taxable wealth under the WT Act?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee’s contention that the property at Ooty should be valued on the basis of rent capitalisation method for determining the taxable wealth under the WT Act ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal should hold that applying the decision of the Supreme Court in the case of F.S. Ghandhi vs. CWT (1990) 84 CTR (SC) 35 : (1990) 184 ITR 34 (SC), that as the assessee was not occupying the land as a lessee under any lease agreement, the property is not exigible to wealth-tax?”
The undisputed facts are that the assessee is the owner of the building and land situated at No. 17, Greams Road, Madras. The building has been let out to a sister-concern from which the assessee has been receiving rent. The letting commenced some time in the year 1972 and during these years the tenant concerned, viz., M/s TAFE, was in occupation of the property.
The property has a large vacant area. The assessee claimed that as that was in excess of what was permissible under the provisions of the Urban Land Ceiling Act which was in force during these years, the vacant portion should be valued at the rate of which the land was to be compensated in terms of that Act. So far as the building was concerned, the claim was that it should be assessed on the basis of the rental method. Though the AO declined to carry out the valuation by the method proposed by the assessee, the CIT(A), on appeal, held that the vacant land which was quite substantial was required to be valued at the rate at which the compensation is provided for lands in terms of the Urban Land Ceiling Act. The property at No. 17, Greams Road, has an extent of 31 grounds and 1,820 sq. mt. The building with an area of about 1,394 sq. mt. is situated in an area of 8.75 grounds. In respect of that building and the ground on which it rests, the CIT(A) upheld the method adopted by the AO, viz., “land and building method”, for determining the market value. The Tribunal has affirmed the order of the CIT(A). It is contended for the assessee that having regard to what is provided in Sch. III the only permissible method of valuation was the “rental method” so far as th building is concerned, as it is undisputed that the building has in fact been leased out and that the assessee has been receiving rents. The fact that it is let out to a sister-concern would not on that score make the method of valuation set out in Sch. III of the Act inapplicable. Sch. III of the Act, it was submitted, though it was introduced w.e.f. 1st April, 1989, being a procedural provision, is applicable as the matters were pending before the authorities at the time the Schedule was introduced. Rule 3 of Sch. III sets out the manner in which an immovable property is to be valued. The valuation to be arrived is by multiplying the net maintainable rent by the figure 12.5. The manner in which the net maintainable rent is to be computed is set out in r. 4. It is the gross maintainable rent reduced by the amount of tax paid to the local authorities in respect of the property and the sum equal to 15 per cent of the gross maintainable rent. The manner of determining the gross maintainable rent is set out in r. 5. The Explanation below r. 5(ii) sets out as to what is meant by “annual rent”. Rent received or receivable is dealt with in r. 5, Expln. (2).
Learned senior counsel for the Revenue, while not disputing the fact that Sch. III is a procedural provision having regard to the decision of the Supreme Court in the case of CWT vs. Sharvan Kumar Swarup & Sons (1994) 122 CTR (SC) 380 : (1994) 210 ITR 886 (SC), the mode of valuation provided in this Schedule being one of the acceptable modes and the prescription by the legislature of that mode of valuation being a procedural prescription would apply to these assessment years as well submitted that having regard to r. 8 of Sch. III, r. 3 would not apply. Rule 8 in cl. (a) provides that where it is found by the AO with the previous approval of the Dy. CIT, that it is not practicable to apply the provisions of r. 3, that rule is not to be applied. There is, however, nothing in the order of the AO or the other authorities to show that it was not practicable to apply the rental method. The finding of the authorities on the other hand, is that there has been letting and that the assessee has been receiving rents, the identity of the lessee also being known. The only reason given by the authorities for not adopting the rental method is that in their view the rent received was nominal as the letting was to a sister-concern. The fact that in the view of the authority the rent received by the assessee is a nominal rent would not by itself render r. 3 inapplicable as it cannot be said that it becomes impracticable to apply r. 3 by reason of the view of the authority that the rent is nominal. The word “practical” does not take within its scope the opinion of the authority as to whether or not the building was capable of fetching a rent higher than the one that was actually received by the assessee. The practicality referred to therein is in the manner of application of what is already provided in the rule and does not refer to the advisability or otherwise of applying r. 3, in order to arrive at what the AO regards as the true market value of the property. Assessing the value of a property by adopting the rental method is an accepted mode of valuation. It was open to Parliament to prescribe that method as the method for determining the value for the purpose of the Act. It was equally open to Parliament to specify and limit the circumstances in which that rule was not required to be applied. If the exceptions to the rule do not take within their fold, the inadvisability of applying r. 3 on account of the amount of rent being regarded by the AO as being nominal, it would not be open to the AO to decline to adopt the rental method. The prescription made by Parliament binds the AO as much as it does the assessee. Sec. 3 of the Act provides for levy of wealth-tax in respect of the net wealth on the corresponding valuation date. For the purpose of determining that net wealth in respect of certain assets the mode of valuation of those assets is also provided for in the Act. The computation of wealth, therefore, has to be in accordance with the mode of valuation set out in the Act.
12. The mode of valuation set out in Sch. III does not provide for a situation where the rent actually received by the assessee is in the view of the AO, nominal. As long as the rent reported by the assessee is in fact the true and correct amount received by the assessee from its lessee and the letting is not make-believe but is genuine, it is the actual amount received on such letting which has to be taken note of and cannot be ignored on the sole ground that in the view of the AO it is nominal. The first two questions, therefore, are required to be and are answered in favour of the assessee and against the Revenue.
13. So far as the third question is concerned, the facts are that the assessee is a lessee of a property situated in Triplicane, Madras, in terms of a lease deed dt. 22nd May, 1968, the period of the lease being 21 years. That lease expired on 30th April, 1987. After the expiry of the lease, no fresh lease was entered into between the assessee and its lessor. On the other hand, the lessor asserted a right to retake possession and refused to recognise a right in the assessee to obtain renewal. That was followed by the lessor instituting a suit in C.S. No. 913 of 1989 on the original side of this Court for recovery of possession of the property. Though the assessee in that suit took the plea that it is entitled to renewal, as to whether it is entitled to renewal and, if so, on what terms is a matter which will be determined only when the suit is ultimately decided. The position of the assessee as of now is a precarious position and it is not possible to predict with certainty as to what the outcome of the suit will be.
14. The Supreme Court, in the case of F.S. Ghandhi vs. CWT (1990) 84 CTR (SC) 35 : (1990) 184 ITR 34 (SC), in a situation substantially similar to the one in which the assessee is placed, held that the continued possession of the property by the lessee after the expiry of the lease period, against the wishes of the lessor, was precarious and it could not be said that such a person had a vested interest in the land and would not fall within the scope of s. 2(e)(2)(iii) of the WT Act. The statutory provision applicable in this case also is s. 2(e)(2)(iii) which refers to interest in property vesting in the assessee for a period exceeding six years. In the absence of any renewal and in the face of the demand by the lessor for possession—a claim which has been followed up by instituting a suit for eviction—it cannot be said that the assessee has an interest in the property which has vested in it for a period exceeding six years.
15. The third question, therefore, also is required to be and is answered against the Revenue and in favour of the assessee. We must, however, make it clear that in the event of the assessee subsequently securing renewal, whether under the orders of the Court or otherwise, the assessee’s assessment to wealth-tax for the years subsequent to 1987 will be liable to be reopened so as to include the value of this asset as part of its wealth.
[Citation : 267 ITR 677]
