9911796707
TMI Blog1977 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Rs. 610 subject to certain variations The terms and conditions of the lease are a little important and, so tar as 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 respects therefor. Provided also that the lessor shall be entitled to claim and recover a portion of the unearned increase (i.e., the difference between the premium already paid and current ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d increase to the lessor does not affect the valuation of the property under section 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain exceptions which are not material for our purpose. What is, therefore, necessary for the purpose of determining the net wealth of the assessee is, first to compute the aggregate value of all assets belonging to the assessee in accordance with the provisions of the Act and then to deduct from it the aggregate value of all the debts, and the resultant which is obtained would be the net wealth assessable to tax. Section 7, sub-section (1), lays down the mode of determination of the value of an asset for the purposes of the Act and it says that, subject to any rules made in this behalf, the value of any asset other than cash "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". Now, plainly, one of the assets belonging to the assessee in the present case was the leasehold interest in the land together with the building upon it and for the purpose of computing the net wealth of the assessee, it was necessary to determine the value of this asset. The question which must, therefore, be asked in terms of section 7(1) is : what would be the price which this asset would fetch if sold in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. This indeed was not disputed on behalf of the revenue. The covenant in clause, (13) is, therefore, clearly a covenant running with the land and it would bind whosoever is the holder of the leasehold interest for the time being. It is a constituent part of the rights and liabilities and advantages and disadvantages which go to make up the leasehold interest and it is an incident which is in the nature of burden on the leasehold interest. Plainly and indisputably it has the effect of depressing the value which the leasehold interest would fetch if it were free from this burden or disadvantage. Therefore, when the leasehold interest in the land has to be valued, this burden or disadvantage attaching to the leasehold interest must be duly discounted in estimating the price which the leasehold interest would fetch. To value the leasehold interest on the basis that this burden or disadvantage were to be ignored would be to value an asset different in content and quality from that actually owned by the assessee. This was the principle applied by the judicial Committee in Corrie v. MacDermott [1914] AC 1056 (PC), an appeal from Australia, where the question arose as to how certain land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and, to that extent, the interest of the lessee would stand reduced. The interest of the lessee would be the leasehold interest minus that "something". What goes to augment the interest of the lessor would correspondingly reduce the interest of the lessee and it cannot be taxed as the wealth of both the lessor and the lessee. It would be includible in the net wealth of the lessor and hence it cannot at the same time form part of the wealth of the lessee and must be subtracted in determining the nature and extent of the interest of the lessee. That takes us to the question as to how the leasehold interest of the assessee with the burden or limitation attaching under clause (13) of the lease deed should be valued. It is clear from the language of section 7, sub-section (1), that what the revenue is required to do for the purpose of determining the value of an asset is to assume that the asset which is to be valued is being sold in the open market and to fix its value for the purpose of wealth-tax upon that hypothesis. Now, whenever the value of an asset has to be determined on the basis of a hypothetical sale, the court has necessarily to embark upon speculations which may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and not diversion of a part of the price by paramount title and hence the whole of the price must be taken as the measure of the wealth of the assessee. But this contention is, in our opinion, not well-founded and cannot be sustained. The true test for determining whether a payment made by an assessee out of an amount received by him is an application of part of the amount which belongs to him or it is payment of an amount which is diverted before it reaches the assessee so that at the time of receipt, it belongs to the payee and not to the assessee, has been explained by Hidayatullah J. in Commissioner of Income-tax v. Sitaldas Tirathdas [1961] 41 ITR 367, 374 (SC) in the following words : In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the price would represent the net realisable worth of the asset in the hands of the assessee and what is paid out by the assessee would be merely a disbursement made after the price reaches the assessee as his own property. That was the position in Pandit Lakshmi Kant Jha v. Commissioner of Wealth-tax [1973] 90 ITR 97 (SC), where the question arose whether the expenditure in connection with brokerage, commission or other expenses which would be liable to be incurred by the assessee in effectuating a sale would be deductible from the market value of the shares in determining their value for the purpose of assessment to wealth-tax. This court held that in computing the value of the shares, the assessee is not entitled to deduction of brokerage and commission from the valuation of the shares as given in the stock exchange quotations or quotations furnished by well-known brokers. It was pointed but by this court that (page 103) : " It is not ...... the amount which the vendor would receive after deduction of those expenses, but the price which the asset would fetch when sold in the open market which would constitute the value of the asset for the purposes of section 7(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
