TMI Blog1993 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 258.96 1987 573.92 (includes Rs. 107.71 lakhs paid to L DO) 7. The assessee, filed his return of wealth by placing reliance on the approved valuers report dated14-11-1985, obtained for the valuation dates31-3-1983and31-3-1984. The approved valuer (after this called AVO) took into consideration the following, (a) the land being leasehold; (b) the space that would fall to the share of the appellant; (c) the three basement areas, which included space earmarked for car parking, as not so saleable; (d) the booking rates of some flats in 1979, 1982; (e) rates adopted was not the booking rate alone, but, for some of the floors, the rates were adopted on enquiries from local dealers of Connaught Place areas; and (f) the payments for the flat space was not be made in one lump sum, but, by way of instalments spread over few years. AVO determined the net value of the property as on31-3-1983and31-3-1984at 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 sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 450 500 than top basement) Calculations of built-up area per sq. ft. as on31-3-1983for ground floor - Following sale instances have been considered for built-up commercial area: Sl. Property Area in Cost in Rate sq. Date No. 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 Bhikaji Cama Place 3. 31-140 No. 3 Bhikaji 3643 37.71 1035 15-9-1983 Cama Place Adjustment to31-3-1983 (1) (2) (3) Adjustment Factor 962 + 1150 + 1035 + For Each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02, determined the rates of the first floor to the thirteenth floor. For the mezzanine floor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en rightly considered in the valuation; (i) since huge amounts were collected for the booking 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements. 15. The assessee and the revenue department have filed their appeals objecting to the 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of that right and not the value of the building as such and therefore, the Madras High 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the WTO and, therefore, he must while valuing the asset, must ensure that, its valuation is made 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers, and therefore, they have some value, which must have to be included. The contention of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of construction and not at once and considering the element of inflation in price, the amount 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation is not actually received by the erstwhile holder prior to the valuation date, the right to receive 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 Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. Persons who receive bond in lieu of their estates should be dealt with considerately." The above circular of the CBDT suggests that, the amounts that are payable in instalments over a specified period, its present value is the real market value for the valuation date and not the face value. It also suggests that, the amounts recoverable may be taken at 40% of its face value and then reduced by the interest rate. In the instant case, as on the valuation dates, the buyers of flats had paid some amount and are to pay the balance in instalments over the period of construction. This, the first composition of the value of the right, i.e., the amount already received from the buyers, do not pose any difficulty. The second of the composition, i.e., the defaults committed by the buyers in payment of the instalments also, do not pose any difficulty. The third of the 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,31-3-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee, for its own use, is to be treated as unavailable for sale to outsiders, but, as self-occupied. Since, the assessee is to be provided with space and Ansals are to bear the cost of construction, the value of this space, under normal circumstances, would have been limited to the cost as would be incurred by Ansals. However, since, the assessee is not entitled to the entire building but, a part only, and determining the cost for part of the building would pose difficulty and further, the cost of construction of the floors also would not be uniform, therefore, considering the period after which the space would be ready for occupation, it would only be reasonable to adopt the initial booking rate and apply it to the flat space so retained and then, a deduction at 50% be allowed, to approximate to the present value as is in the case of initially booked flats. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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