COMMISSIONER OF WEALTH TAX Vs. V C RAMACHANDRAN
LAWS(KAR)-1966-1-3
HIGH COURT OF KARNATAKA
Decided on January 27,1966

COMMISSIONER OF WEALTH-TAX, MYSORE Appellant
VERSUS
V.C. RAMACHANDRAN Respondents


Cited Judgements :-

COMMISSIONER OF WEALTH-TAX VS. RAM SARAN KAJRIWAL [LAWS(ALL)-1987-4-11] [REFERRED TO]
KRISHNA PRASAD C VS. COMMISSIONER OF WEALTH TAX [LAWS(KAR)-1969-12-3] [REFERRED TO]
SABITA MOHAN NAGPAL VS. COMMISSIONER OF WEALTH TAX [LAWS(RAJ)-1985-9-77] [REFERRED TO]
GOUTHAMCHAND GALADA AND GYANCHAND GALADA VS. COMMISSIONER OF WEALTH TAX [LAWS(MAD)-1972-2-24] [REFERRED TO]
SHANTI BHUSHAN (D) VS. STATE OF U.P. [LAWS(SC)-2023-4-95] [REFERRED TO]


JUDGEMENT

Hegde, J. - (1.)THIS is a reference under section 27(3) of the Wealth-tax Act, 1957, to be hereinafter referred to as the "Act". Two questions referred to this court for its opinion are : (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in ignoring the value of the land surrounding the buildings in valuing the properties Nos. 1 and 2 ?; l and (2) Whether an asset such as land acquires value only when there is an intention to sell ? The facts of the case are fully set out in the statement of the case submitted. Hence, we shall quote the same.
[The learned judge set out the statement of case which ran as follows :

The High Court of Mysore at Bangalore by their order dated 1st October, 1963, in Civil Petition No. 87 of 1963 have directed the Tribunal to submit the following two questions of law along with a statement of the case to the High Court. In compliance with the said order of the High Court, we submit the following two questions of law under section 27(3) of the Wealth-tax Act along with the agreed statement of the case :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in ignoring the value of the land surrounding the buildings in valuing the properties Nos. 1 and 2 ?; and

(ii) Whether an asset such as land acquires value only when there is an intention to sell ?"

(2.)FOR the assessment year 1959-60, the assessee, V. C. Ramachandran, sent his wealth-tax return on March 31, 1959, showing a total wealth of Rs. 3,41,106 comprised of immovable property of the value of Rs. 2,57,777 and movable property worth Rs. 83,329. The immovable properties consisted of four items, viz., :
(i) the house bearing door No. 6, Richmond Road, Bangalore;

(ii) house bearing door No. 3, Cunningham Road, Bangalore;

(iii) house bearing door No. 31, Chinnaswamy Mudaliar Road, Bangalore; and

(iv) house bearing door No. 33, Chinnaswamy Mudaliar Road, Bangalore.

The annual letting value of the first item was shown as Rs. 3,840, of the second item as Rs. 6,900, of the third item, as Rs. 1,080 and of the fourth item as Rs. 960. FOR the preceding year, i.e., 1958-59, item No. (i) had been valued at Rs. 1,50,000 and the other three properties had been valued at twenty times their annual letting value. FOR the year in question, the Wealth-tax Officer obtained details regarding the site area, the plinth area, etc., in respect of the properties and from an examination of these particulars, the walth-tax Officer was of the opinion that items Nos. (i) and (ii) had not been properly valued and that their value had to be considerably enhanced. With regard to item No. (i), viz., house bearing door No. 6, Richmond Road, the Wealth-tax Officer found that the area of the existing site was 65,615 sq. ft. and calculating the value of this site at Rs. 2.25 nP. Per sq. ft., he valued the site at Rs. 1,48,500. He valued the building at Rs. 50,000 and valued the total property at Rs. 1,98,000. With regard to item No. (ii), house bearing door No. 3, Cunningham Road, he found that the area of the site was 1,56,565 sq. ft., and that this property consisted of a large number of stables and other buildings apart from the main building. In the circumstances, he adopted a reduced rate of Rs. 1.50 per sq. ft. and valued the site of Rs. 2,34,500. He put the value of the building at Rs. 65,000. He, therefore, valued the entire property comprising this item at Rs. 3,00,000. With regard to items Nos. (iii) and (iv), he valued them together at Rs. 38,350. The value of the total immovable properties of the assessee was thus fixed at Rs. 5,36,850, and tax was levied on that basis. Copy of the Wealth-tax Officer's order is annexure "A" and forms part of the case.

The assessee went up on appeal before the Appellate Assistant Commissioner of Wealth-tax, B-Range, Bangalore. The following contentions on behalf of the assessee were urged before the Appellate Assistant Commissioner; viz. :

(i) there were no justification for valuing items (i) and (ii) on the basis of the value of the site and the construction cost of the building whereas the other two items, viz., items (iii) and (iv) were valued on the basis of twenty times the net annual letting value;

(ii) the proper method of valuing the properties is that based on twenty times the net annual letting value; and (iii) even though the properties may have laege compounds, they could not be connverted into house sites without damaging the main building.

The Appellate Assistant Commissioner held that item No. (ii), viz., No. 3 Cunningham Road Property, should be valued on the basis of twenty times the net annual letting value and that item No. (i), viz., No. 6 Richmond Road, should be valued on the basis of twenty times the net annual letting value plus the appurtenant site at the rate of Rs. 3 per sq. ft. copy of the Appellate Assistant Commissioner's order is annexure 'B'and forms part of the case.

(3.)AGAINST this order of the Appellate Assistant Commissioner, the department preferred an appeal before the Tribunal. The department's contentions before the Tribunal were :
(i) that the 'return' from any asset was not a safe guide to determine the value of the asset; and

(ii) that the potential value of the building should also be taken into account in arriving at the value of the building.

On the other hand, it was contended on behalf of the assessee that in view of the fact that in the locality in which these properties were situated, plots could not be easily sold; the potential value could not be taken as the basis of evaluation. It was further contended that the value of Rs. 3 per sq. ft. fixed by the Appellate Assistant Commissioner for the vacant space included in the Richmond Road property was not justified because the value of Rs. 3 per sq. ft. was special in the circumstances of the case as the Maharani of Travancore who had a bungalow in front of this plot wanted to buy it at a fancy price.

The Tribunal held that it is only when there is an intention to sell that the property acquires a potential value, but till then, everything was only static and that, therefore, the only basis for ascertaining the value of the property was the rent recoverable and that the land surrounding the bungalow, which was not productive, could not be nationally valued just for the sake of wealth-tax. The Tribunal further held that even the value of Rs. 3 per sq. ft. fixed by the Appellate Assistant Commissioner was 'special'. The Tribunal, therefore, dismissed the appeal preferred by the department. The order of the Tribunal is annexed herewith as annexure 'C' and forms part of the case.

[After setting out the statement of case, the learned judge proceeded.]

The valuation of all assets other than cash for the purpose of determining wealth-tax has to be made on the basis of section 7(1) of the "Act", which says :

"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."



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