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TMI Blog1993 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... for division of the said property into eight parts and consequently, the first wife & her two sons received 3/8th share and the second wife & her four sons received 5/8th share in the said property. On the death of the first wife, her two sons became entitled to half share in the 3/8th share in the said property. The family continued to occupy major portion of the property till about 1979, while a part of the outhouse was let out. 3. On21-5-1979, SMK & JMK agreed with M/s Ansal Properties & Industries Pvt. Ltd. (after this called Ansals) for construction of a multistorey building after demolishing the existing structure. By means of this agreement, Ansals were to incur all the cost on construction of the building and provide SMK & JMK with 52.5% of the saleable space as consideration. On12-3-1982, SMK & JMK formed a partnership firm M/s Shiv Kapoor Joginder Kapoor (after this called SKJK) and contributed their 3/8th share in the property as their capital by valuing it at Rs. 30 lakhs & crediting to their respective capital accounts with Rs. 15 lakhs each. In this firm, they admitted two minors, Vishal & Kartik. SMK and JMK each had 38% share in the profits/losses of the firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the injunction was vacated in March 1986. 6. Ansals while awaiting the approval from L & DO, had started the construction of the multi-storey building and the building was completed in 1987. Ansals had provided the breakup of the cost of construction as incurred by it for the various accounting years ended on April of each year, along with the area so constructed and this is reproduced below for the sake of convenience: Accounting Year Cost 30th April (Rs. Lakhs) 1983 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3and31-3-1984at Rs. 80.89 lakhs and at Rs. 85.32 lakhs, respectively, after allowing deduction at 50% from the gross value, based on the abovestated considerations. 8. The Assessing Officer (after this referred to AO), was not satisfied with the valuation and therefore referred the valuation under section 16A of the Act, directing him to determine the value of the property as a whole, for both the valuation dates31-3-1983and31-3-1984. The Valuation Officer (after this called VO), vide his report dated 24-3-1988, determined the net value of the property for the valuation two dates at Rs. 1959.63 lakhs and Rs. 2109.68 lakhs respectively. The VO had inspected the property on25-1-1988. The VO issued a notice dated29-2-1988, suggesting the value determined by him, showing therein, the method of valuation adopted by him, the rates adopted in the valuation concerning the sale instances, the total area allowed for, the type of structure, the permissible FAR and called for the objections of the appellant. The calculations, assumptions for the basement and the ground floor, as made part of the said notice is brought out below for the sake of convenience. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the property, add 10% (approx.) Portions Rate Rate as on as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; sq. ft. Rs. lacs ft. 1. 1106 Ashoka, 24, 1560 15.00 962 21-10-1983 Barakhamba Road 2. 1.06 to 109 No. 3 1717 19.75 1150 26-11-1983 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 60 11 Locality & situation @ 5% - 173 155 for sale 2 & 3 Adjusted Rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment to31-3-1984 Adjustment Factor on S.No. 1 on S. No. 2 ------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or he determined the rate as the sum of the rates of the fourth & the thirteenth floor and from the figure so arrived at, he reduced 10%. He then applied the rates of each of the floor to the covered area and calculated the value of each of the floors and summed up the value so calculated and arrived the total value of the property for the two valuation dates. 10. The objections as raised by the assessee are reproduced hereunder. The primary objection was that, the AO should not have referred for the valuation of the entire property, but, should have limited it to the share in the property and therefore, the valuation was bad in law. The second objection was that, valuing the property that is under construction on the two valuation dates was palpably wrong, because it is based on the assumption that, the property on the relevant valuation dates was ready for occupation & capable of being used; sale rates of nearby buildings have been considered, that was irrelevant. The next grievance was that, the value adopted should show the real value and not the potential value. The other objection was that, value should have been limited to the extent of the construction only by taking the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the flats, before & during the construction, & considering the rates of booking, the increase in price has been rightly considered; (j) consideration of the entire building for the valuation has been made from which, the share of the assessee could be worked out; and that, (k) the value as determined by him is proper. 12. The WTO, adopted the VO's valuation and calculated the share of 3/8th. He then calculated the interest of the assessee in the firm of 38% and included the value at Rs. 146.61 lakhs and Rs. 156.61 lakhs (adopting the value as on31-3-1983and adding to it Rs. 10 lakhs for appreciation & additions to the property) for the valuation dates31-3-1983&31-3-1984, respectively. The assessee filed his appeal against the order of the WTO before the CIT(A). 13. The CIT (A), considered the objections to the valuation and passed a detailed order in the appeal of the partner JMK. He after considering the report of the VO, observed that, adopting of the rates of other properties was improper. He observed that, when, there is no material to suggest that, the rates of booking was not actual & fair, the actual booking rates alone are relevant for the valuation. He observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusions of the CIT(A), the former objecting to the basis, etc., and the latter, for not retaining the value adopted by the WTO. The Counsel for the assessee Shri C.S. Agarwal made extensive arguments on principles of valuation, method to be adopted. The department was represented by their representatives' Smt. Anuja Sarangi & Shri Sandeep Tandon. The Distt. V.O. Shri J.J. Lal also made extensive arguments supporting the valuation made by him. Before, we go on to consider the arguments of either parties, we shall briefly bring about the provisions of the Wealth-tax Act, on the 'asset', 'principles of valuation' with reference to the decisions of the Supreme Court of India. 16. 'Asset' has been defined in section 2(e) of the Act, to include property of every description, movable or immovable and excludes animals, right to annuity, any interest in property that is available for not exceeding six years. The term 'property' includes all objects or rights which are susceptible of ownership. The term 'net wealth' as defined in section 2(m) of the Act means the aggregate value of the assets wherever located as reduced by the aggregate value of the debts owed by the assessee on the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court decision would not be applicable to the facts of the case. It was also submitted that, the Karnataka High Court decision was inapplicable because, it was with reference to a property meant for self-occupation. In our view, there is considerable merit in the argument advanced by the DR. The agreement with Ansals state that, they had undertaken to bear the total cost of construction, i.e., the appellants are not required to contribute anything toward the cost of construction and make available to the appellants, saleable space. Ansals with the view to go on with the construction, invited several buyers for buying the space to be built-up and entered into agreements with them, for and on behalf of themselves and the appellants and had received the booking amounts, the instalments as agreed upon. The rate at which the flats were sold to the buyers, might in the ultimate analysis, result in a profit or loss, when compared to the cost of construction, but, in the instant case, since the appellants are not required to contribute toward the cost of construction, but, have the right to sell the space figured out as his share, i.e., 3/8th of 52.5% (i.e., for SKJK), which is a market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de according to the recognised and accepted principles of valuation, without laying any importance to the ultimate value determined. In case the WTO does not follow the principles but, chooses to adopt his own method, that is not recognised as proper method of valuation, then, the value adopted by him being against the principles of law, may have to be quashed. 19. The counsel Shri Agarwal contended that, the buyers who had contracted to buy at the initial booking rates, are bound by those rates and similarly, the buyers who had joined later, are bound by the rates that was prevalent at the time of their contract and so on. He contended that, it is nobody's case that, all the flats were booked together. He contended that, saleable space means that space for which buyers are invited to buy, which allows them the use of pathways, drive ways, staircases, lifts, and other common passages and therefore, the rate of booking which is for specific space only, the valuation should be made of that space only. He contended that, the basement areas have been excluded by the AVO, because, they are meant for drive ways, pathways, sub-station, housing of the lift, car parking etc., which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that, basement has no value is also rejected because car parking area is as much a saleable space as any other space. It could either be sold along with the flats or separately or may be retained for being leased to the flat owners. 20. The counsel had contended that, the rate of booking of the said building alone is relevant and not the rates at which flats in other buildings are sold. The DVO supported his report that, the rates of other buildings give the near true value. The DR contended that, value of the flat has to be determined concerning the sale instances of similar flats. In our view, the CIT(A) was justified to hold that, the rates at which the flats were booked was only relevant, because it is an agreed price between the builder, the assessee and the buyers and the parties are bound by that contract. CIT (A) had further observed that there is no material on record that would suggest that, the rates of booking are not the real rates. Even before us, the learned departmental representative and the learned DVO could not place any material showing that, the rates of booking are not the true rates. We therefore hold that, the rates at which the flats were booked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable on various dates in real money terms would be lower, there would be loss and other factors, including the conversion charges of Rs. 107.71 lakhs payable to L & DO. He contended that, the CIT (A), should not have restricted the element of deduction to the instalments, but to the factors such as payment to L & DO and so on. He also contended that, the Andhra Pradesh High Court had recognised giving deduction of 10% from the value of the property, for each of the co-owner, which must also be allowed. The DVO Sh. Lal submitted that, since, the purpose is to determine the true market value, the rates prevalent for multi-storey buildings in the same locality are necessary to be considered. The DR contended that, though CIT (A) had rejected the claim of the appellant for deduction at 50% of the gross value, his direction to allow deduction considering the deferred payment, interest element is not called for, because, the deferred payments are related to the progress on construction. In K. U. Srinivasa Rao's case, the AP High Court had considered the issue of 50% of kist & interest receivable, and had observed that, it is as much an asset, but, deferment of payment would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the compensation, at a future date, being itself as 'asset', within the meaning of the Wealth-tax Act, has to be valued for the purposes of assessment. The mode of payment of compensation, however, not being uniform in all the States, certain problems arise, in estimating as on a particular valuation date, the market value of the right, to receive compensation at a future date. The following instructions are issued in this connection: Where the compensation is payable in cash, it would be payable either: (a) in one instalment, after a specified number of years, or (b) in equated instalments over regular Intervals of time. The valuation of the right to receive compensation in cash, a lump sum, after a specified number of years would not present any appreciable difficulty. The value in such cases, could be taken as the present value, as on the valuation date when it be comes payable calculated at an interest rate of 4 per cent. For making these calculations, the table giving the present value of Re. 1 per annum over a period of 25 years, available in the Annex. to Circular No. 6 (WT) of 1959 (Annex to Clarification 2 to Sl. No. 815, p. 1888 post) could be used. Where the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; .94260 7 .81309 3 .91514 8 .78941 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he composition, i.e., the flats or space that has not been booked as on the valuation dates, March 1983 & 1984 also do not pose any problem, because, they would fall into the fourth of the category, i.e., the remainder of the instalments. The fourth composition of instalments payable after each of the valuation dates,31-3-1983and31-3-1984, could be conveniently discounted in a similar manner to that suggested in the above circular. The aggregate of the amounts on the above basis, have to be allowed reduction for commercialisation charges payable to L & DO, which is embedded in the basic contract itself, element of interest etc. The claim of deduction for co-ownership is untenable, because, it got extinguished with the demolition of the old building. The appellant, having been provided with earmarked space in the building that is capable of being sold without the intervention of others, the element of co-ownership no longer exists. Since, there does not exist any co-ownership, this claim is rejected. The concept of taking of 50% of the value arrived at based on the rates of booking, as suggested by AVO, in our view, is improper. This is because, it discounts even the instalments alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. 7. The flat space available for sale (other than that specified in item 5 above), but, there had been no booking, as on the valuation dates March 1983 and 1984, should be valued at the rates proximate to the respective valuation dates, because, it is at these rates that, the buyers would be offered the flats. 8. The instalments that are payable after the valuation dates and thus, outstanding as on the valuation dates and the specified period over which it would be paid should be listed. The outstanding instalment may be taken at 50% of the total of the outstanding amounts, which would reflect the near present value of the instalments. For the purpose of this calculation, the unsold flats are also to be treated as instalments outstanding and the above procedure of valuation should be applied. 9. The defaults of instalments that was due before the valuation dates, related to the dates of recovery, and be given a deduction of 10% if outstanding for less than 6 months, 15% if not paid within a year and 20% if remaining unpaid for more than 2 years. 10. The values as arrived in steps 2 through 9, should be aggregated, which would be the gross value. 11. The value as in step 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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