TMI Blog1977 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of the unearned increase in the value of the land at the time of the assignment. 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 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 au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date" other than debts falling within certain specified categories. The word "asset" used in section 2(m) is of the widest signification and under section 2(e), it includes property of every description, movable or immovable, barring certain 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bound by all the covenants contained in the lease deed and these would indisputably include the covenant in clause (13). Clause (13) would equally bind the assignee and if the assignee in his turn wants to assign his leasehold interest in the land, he would have to obtain the prior approval in writing of the lessor to such assignment and the lessor would be entitled to claim 50 per cent. of the unearned increase in the value of the land. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is sought to be assessed to wealth-tax. The right to 50 per cent. of the unearned increase on assignment of the leasehold interest would certainly add to the value which the reversion would otherwise fetch in the open market. Now, once it is granted that under the lease deed the lessor has a bundle of rights, which includes "something" more than the reversion, that "something" would necessarily be subtracted from the interest of the lessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee on behalf of the lessor. What is received by the assessee on his own account is only the price, less 50 per cent. of the unearned increase in the value of the land and that represents the net realisable worth of the asset in the hands of the assessee. The revenue contended that payment of 50 per cent. of the unearned increase in the value of the land to the lessor is really an instance of application of the price received by the assessee 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is the price less 50 per cent. of the unearned increase in the value of the land. It is difficult to see how 50 per cent. of the unearned increase in the value of the land which belongs to the lessor can be regarded as part of the wealth of the assessee. The position would undoubtedly be different where a payment is made by an assessee which is an application of a part of the price received by him. Where such is the case, the whole 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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