Bhagwati, J. - (1.) This appeal raises a rather difficult but interesting question of law relating to valuation for the purpose of the Wealth Tax Act, 1957 of leasehold interest in land, when there is a covenant in the lease that the lessee shall not be entitled to assign the leasehold interest without obtaining the prior approval in writing of the lessor and the lessor shall be entitled to claim and recover from the lessee a certain specified proportion of the unearned increase in the value of the land at the time of the assignment.
(2.) The controversy in this appeal relates to the assessment year 1968-69, the relevant valuation date being 31st December, 1967. The assessee is assessed to wealth tax as an individual. His net wealth on the valuation date included a property situate on plot No. 12, Block No. 39, Kautilya Marg. Chanakyapuri. The property consisted of leasehold interest in the land together with a house built upon it. The land belonged to the President of India and it was leased by the President of India to one Vashesharan Devi on the terms and conditions set out in an agreement of lease dated 30th December. 1954 and the leasehold interest was acquired from Vashesharan Devi by the assessee. The premium for the grant of the lease was Rs. 24,400/- and the annual rent was fixed at Rupees 610/-, subject to certain variations. The terms and conditions of the lease are a little important and, so far material, they may be reproduced as follows: "13. The lessee shall before any assignment or transfer of the said premises hereby demised or any part thereof obtain from the lessor or such officer or body as the lessor may authorise in this behalf approval in writing of the said assignment or transfer and all such assignees and transferees and the heirs of the lessee shall be bound by all the covenants and conditions herein contained and be answerable in all respect therefor: Provided also that the lessor be entitled to claim and recover a portion of the unearned increase (i.e. the difference between the premium already paid and current market value) in the value of land at the time of transfer (whether such transfer is of an entire site or only a part thereof), the amount to be recovered being 50 per cent of the unearned increase. The lessor shall have a pre-emptive right to the property after deducting 50 per cent of the unearned (torn) said." The assessee constructed a large building on the land and the question arose as to how the leasehold interest of the assessee in the land together with the building should be valued. This property had been valued in the past assessment years at Rs. 6,00,000/- and the assessee had accepted this valuation and not challenged it. But in the assessment for the assessment year 1968-69 the assessee valued this property in its return of net wealth at Rs. 4,52,000/- on the basis of a certificate obtained from M/s. Anand Apte and Jhabvala, Architects who are approved valuers recognised by the Department. The Architects estimated the value of the property at Rs. 5,82,268/- and from this figure, they deducted a sum of Rs. 1,30,000/- representing 50 per cent of the unearned increase in the value of the land, which under the terms and conditions of the lease belonged to the lessor and arrived at the value of Rs. 4,52,000/-. The Wealth Tax Officer did not accept the estimate of the valuation made by the Architects and taking the annual rent of Rs. 1,30,000/- fetched by the property as the basis, computed the net annual rent at Rs. 82,956/- and arrived at the figure of Rupees 8,29,560/- as the value of the property by applying the multiple of ten to the annual rental value of Rs. 82,956/-. The Wealth Tax Officer rejected the claim of the assessee to deduct from the value of the property 50 per cent of the unearned increase in the value of the land on the ground that this claim was based "merely on hypothetical presumptions" but reduced the value of the property from Rs. 8,29,960/- to Rs. 6,00,000/-, since that was the figure accepted by the Revenue in the past assessment years. The assessee challenged the valuation made by the Wealth Tax Officer in an appeal preferred before the Appellate Assistant Commissioner, but the appeal was unsuccessful as the Appellate Assistant Commissioner took the same view as the Wealth Tax Officer. The Tribunal also, in further appeal, affirmed the same view holding that "the fact that the assessee might have to pay 50 per cent of the unearned increase to the lessor does not affect the valuation of the property under S. 7 of the Wealth Tax Act" and the words used in that section "make it clear that the estimate which should be made by the Wealth Tax Officer is of the gross price" and hence no part of the unearned increase was deductible in computing the value of the property for the purpose of the Wealth Tax Act. The Tribunal also upheld the rental method of valuation of the property and finding that the valuation of Rs. 6,00,000/- adopted by the Wealth Tax Officer was even less than eight times the annual rental value of Rs. 82,956/-, the Tribunal declined to interfere with the valuation made by the Wealth Tax Officer.
(3.) The assessee thereupon applied to the Tribunal for making a reference to the High Court and on the application of the assessee, the following question of law was referred by the Tribunal for the opinion of the High Court: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in taking the view that 50% of the unearned increase payable to the lessor of the land formed part of, and was not deductible out of, the valuation of the property for the purposes of Wealth-tax Act - The High Court took the view that the liability to pay 50 per cent of the unearned increase in the value of the land to the lessor at the time of the assignment was a disadvantage attached to the leasehold interest in the land and hence its value was liable to be deducted from the value of the property in arriving at the net wealth of the assessee and on this view, it answered the question in the negative in favour of the assessee. This led to the filing of the present appeal by the Revenue after obtaining a certificate of fitness from the High Court.;