TMI Blog1970 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... In the return filed by the assessee for the assessment year 1962-63, the assessee had declared loss under the head "capital gains" of Rs. 6,390 on the sale of properties Nos. 14 and 14/1, Arif Road, and 221, Russa Road. In the computation adopted by the assessee, the valuation of these properties as on January 1, 1954, was claimed to be Rs. 79,200 and Rs. 3,06,000 respectively. These computations were based on the respective valuation reports of Messrs. Talbot Co. We shall have occasion to deal with the report in some detail at a later stage. The property at 14 and 14/1, Arif Road, was sold away on October 30, 1961, for Rs. 1,05,000. The property at 221, Russa Road, was sold on April 11, 1961, for a sum of Rs. 3,00,000. Dealing with the contention of the assessee with regard to the capital loss on the sale of the aforesaid properties, viz., 14 and 14/1, Arif Road, and 221, Russa Road, the Income-tax Officer in paragraph 5 of the order of assessment for the assessment year 1962-63 observed as follows : " The assessee has declared capital loss of Rs. 6,390 on the sale of properties Nos. 14 and 14/-1, Arif Road, and 221, Russa Road. In the computation adopted by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report of the valuer. There is no material on record to suggest how the valuer's report is incomplete. In my opinion, the valuer's report gives all the details necessary and, as such, I will accept the report of the valuer. The value taken by the Income-tax Officer on the basis of the wealth-tax assessments is erroneous inasmuch as the wealth-tax assessments have been made on the basis of the global valuation and on the basis of the book cost of these properties. In the result, I hold that the capital gains or loss should be computed after taking into consideration the value of the properties as on January 1, 1954, at Rs. 79,000 and Rs. 3,06,000, respectively. The Income-tax Officer will revalue the capital profit or loss by adopting this figure." We may point out at this stage that the Appellate Assistant Commissioner appears to be under a misapprehension as to what is meant by "global valuation" in the Wealth-tax Act, 1957. The relevant provision in the Wealth-tax Act, 1957, with regard to the valuation of assets is section 7 which, in so far as is material for the point under consideration, may be set out hereunder : "7. (1) The value of any asset, other than cash, for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global valuation" an expression which is not to be found in the statute, it is of the essence of this kind of "global valuation" that the determination of the net value of the assets of the business is to be made as a whole. This is apparent from the crucial expression used in section 7(2)(a) of the Wealth-tax Act, 1957, which provides : "...... the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business......" Therefore, unless the net value of all the assets of a company in its business has been determined as a whole by the Wealth-tax Officer, it would, in our view, not be correct to say that it is a case of "global valuation". It is clear from the order of the Income-tax Officer in the instant reference that the assessee in the wealth-tax assessments for the assessment years 1957-58, 1958-59 and 1959-60 had declared the net value of Arif Road property and the Russa Road property separately and had declared the individual net value of the different assets. It is further apparent from the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 2,500 in 1952-53 in Bhangur Colony, behind Bhangur Hospital. Bhangur Hospital is situate in the north of the present property. The assumption that the land value could be taken at Rs. 3,500 per cottah as on January 1, 1954, is not necessarily correct. On the other hand, it is well known that during the period there was considerable increase in the land values. Assuming the sale in the previous year has taken place at the normal market rates, we would hold that the valuation of the same property in January 1, 1954, will not be more an 75 per cent. thereof. Consequently, we would estimate the capital gains of this property at Rs. 75,000 only as against the Appellate Assistant Commissioner's determination that there was a loss of Rs. 6,000 in respect of the property." It is in this state of facts that the present question has come up before us for consideration. It will be appropriate at this stage to notice the relevant provisions of the Act bearing on the question of computation of capital gains. Section 45 of the Act which deals with "capital gains" provides, inter alia, as follows: " (1) Any profits or gains arising from the transfer of a capital asset effected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital asset- (i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee; . . . " Therefore, the cost of acquisition of a capital asset is either the actual cost of acquisition of the asset to the assessee or its fair market value as on the 1st January, 1954. In terms of the provisions of section 55(2) of the Act, the assessee has a choice of deciding which of the two alternatives is to be taken as the "cost of acquisition" of the capital asset. Needless to say, the assessee would choose the figure which is higher as it would thereby reduce the amount of capital gains which would be liable to income-tax. It is to be further noticed that section 55(2)(i) of the Act brings in the concept of the "fair market value" of the assets as on a date mentioned therein, i.e., the 1st January, 1954. What is the "fair market value" of an asset? The "fair market value" has been defined in section 2(22A) of the Act as follows: " 'Fair market value', in relation to a capital asset, means (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenure and therefore the property has been valued as freehold or held at a nominal rent. The " commentary " and the " valuation certificate " which are to be found in the concluding portion of the report are material for our purposes and are set out herein below: "Commentary.-It is situated in one of the best parts of Tollygunge being just opposite to Tollygunge Club Ltd. and behind this property there is a good development for middle class people and there is a demand for small plots of land in this area for residential purposes. Valuation Certificate.--In our opinion, the value of this property as on 1st January, 1954, in the hands of a substantial owner able and willing to wait for realisation was Rs. 3,06,000 (Rupees three lakhs and six thousand only)." Appended to the report is a document which is headed " Details of valuation ". This appendix to the report starts by saying that the land value is based on the following sale transactions : (a) Sale dated May 9, 1949, of C.S. Plot No. 364 in Monza Arakhpur, having an area of about 4 cottahs at the rate of Rs. 1,600 per cottah. It is stated that this plot is situated on a narrow lane of Prince Anwar Shah Road and is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the price which is to be paid in the hypothetical open market by the hypothetical buyer. Such a hypothetical buyer would, however, be one who is interested in the enjoyment of the property in praesenti as on the relevant date, which is in this case January 1, 1954, and a fair return on the investment which he would be making. The valuation report, however, mentions a value to an owner who, in terms of the words used in the report, is able and willing to wait for realization". This would ex hypothesis predicate that there is no immediate return on the investment in this property. No period is indicated in the report for which this "able and willing buyer" is to wait until he sees "the colour of the money" which would represent his realisation. It seems to us that the report also presupposes that such a "willing and able owner" would have to spend further amounts for improving the property before he can realise anything out of it. This would be all the more so because in the " commentary " part of the report, which we have quoted above, the valuation appears to be on the basis that there is a good development for middle class people in the locality and there is a demand for "small ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1894. As will appear from section 23 of the Land Acquisition Act, 1894, the considerations which are germane in determining compensation in respect of the property under that Act are quite different from the concept of a " fair market value " on the relevant date under the Income-tax Act. For instance, under section 23 of the Land Acquisition Act, 1894, the first consideration is the market value of the land at the date of the publication of the notification under section 4(1) of that Act. The actual acquisition in terms of taking possession is naturally subsequent to that date. To the market Value of the land has to be added, in terms of the scheme of section 23 of the Land Acquisition Act, 1894, the amounts of damage which are sustained by the persons who are interested in the land and the manner of computation of such damage is indicated in the section. There is a further and a rather important addition of 15% to the market value, an amount which is known as solatium, i.e., a compensation awarded to the owner by reason of the compulsory nature of the acquisition. It will thus be seen that the value for the purpose of compensation under the Land Acquisition Act is not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is the value estimated for the front belt of the property in the instant case does not appear to have any cogent or understandable basis or foundation. It has been characterized by Mr. Basu for the revenue as a " wild guess " and we are inclined to agree with that contention. Although Rs. 3,500 per cottah is not the value for the entire property but, as has been pointed out by learned counsel on behalf of the revenue, it covers a large area of 55.56 cottahs which is the front belt of a depth of 100 feet. This guess and the arbitrary jump from Rs. 2,500 per cottah, which is the highest figure in terms of actual sales to Rs. 3,500 per cottah for the property in question stamps the report with another serious infirmity. Coming to the question of adopting the " belting method " it is to be noticed that there is no indication of the depth of the second and the third belt. It will be appropriate at this stage to notice certain observations in the well-known treatise of Principles and Practice of Valuation, fourth edition, by J. A. Parks. At pages 103-4 of the book the following observations appear: " This first item in 'belting' is to decide what shall be the depth of the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicated when it is kept in mind that this is not a piece of property which was actually let out at the date of the valuation but which, in terms of the report, has to be put in a state where it can be let out and thereby fetch a rent. The absence of these considerations and the necessary materials is another infirmity of the report in question. Another infirmity of the report and which was strongly commented upon by Mr. Basu for the revenue is that there is no clear indication of any basis of the valuation arrived at by the valuer. It is stated in the " commentary " portion of the report that the property is situated in one of the best parts of Tollygunge and is opposite to Tollygunge Club Ltd., and there is a good development for middle-class people and a demand for small plots. This, in our view, is not enough to arrive at the specific computations of the value of the land per cottah as has been done in the present case. In our view Mr. Basu is right in his comment, that is not a " valuer's valuation ". Another aspect of the valuation report in the present case which was strongly commented upon by Mr. Basu appearing for the revenue may also be noticed. According to the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Court of Appeal in England in the case of Forest Side Properties (Chingford) Ltd. v. Pearce. The appeal came up from a decision of Danckwerts, J. given in the Chancery Division. Both the judgments of Danckwerts J. and the Court of Appeal are reported in the same volume. Reliance was first placed on a portion of the judgment of Danckwerts J. where an extract from the report of the Commissioners, who heard the income-tax appeal in question, has been set out. Danckwerts J. observes as follows at page 672 of the report: " Then the Commissioners, unfortunately, say : 'From our specialised knowledge we were aware that flats or maisonettes at that time were not a good selling proposition locally. We accordingly found that the intention expressed in the minute, to hold the properties as an investment, was put on record with the taxation position in mind and was not intended to obtain when circumstances changed. " With reference to the above portion of the Commissioners' report, Danckwerts J. goes on to observe as follows: "Those statements have been severely criticised, and I have been referred to an Irish case, Regina v. Justices of Co. Antrim, in which a very famous law lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is a matter of fact for him whether in the evidence, plus his local knowledge, there is evidence on which he could find that it was the state of the labour market in Durham which causes the man to be unemployed.' From that I conclude that it is legitimate for a local tribunal to avail itself of the Tribunal's own knowledge of employment conditions in the locality. But the question here is whether what is stated in the paragraph have read does not, or may not, involve something else. It was suggested that this specialised knowledge might be of this nature: that one or other of the Commissioners might have been himself, during the period now some years past, concerned or engaged in business which gave him particular knowledge about the property with which we are concerned; and that knowledge could not fairly be called local knowledge, that is, knowledge generally in the possession of persons in the locality, or, at least, of persons who were intelligently concerned in the relevant local affairs. If the right conclusion is that some such special knowledge was implicit in this sentence, I am bound to say that I should feel that, in the interests of justice it would not be right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or individual knowledge it would be taking into account something which is not admissible. In the facts of the instant case the Tribunal has, as already noticed, found that it is well known that during the period from 1954 to 1962 there was considerable increase in land values. This in our view is clearly a matter of local knowledge which the members of the Tribunal derived as persons having been in the locality, which is Calcutta in the instant case, or having an intelligent, concern with the local affairs to adopt the formulation of Lord Evershed M.R. there is nothing to suggest that either of the members of the Tribunal, Mr. Srinivasan or Mr. Tewari, had any individual personal knowledge or specialised knowledge about land values in view of their personal association with this particular aspect of the matter. As such on the authority of the decision in the case of Forest Side Properties (Chingford) Ltd. v. Pearce we are of the opinion that the Tribunal was fully justified in importing this local knowledge with regard only to the question of rise in prices of land between 1954 and 1962 in their finding as they have done. We shall now turn to the next aspect of this controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me risk appreciably and substantially beyond the ordinary normal risk which ordinary people run. I have to ask myself whether, having regard to the known conditions of traffic in London, with large numbers of motor-cars and motor buses about the streets, a matter of which the court can of course take judicial notice, there was any appreciable extra danger incurred by this boy when he was sent on a bicycle through the streets of London once a day on an average. In my opinion that question must be answered in the affirmative, assuming for the moment, as I do, that the question can be dealt with and by this court, and is not one for the learned county court judge, a matter I will deal with later. " This decision is clearly an authority for the proposition that an English court can take judicial notice of the crowded condition of London streets in view of the large number of motor-cars and buses plying thereon. In a decision of this court in the case of Ram Tarak Singha v. Salgram Singha Pal J., at page 155 of the report, made the following observations : " The learned subordinate judge in this case has taken judicial notice of the notorious fact of the world economic depression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to hotels do not like having their nights disturbed; that venereal disease may lie dormant for a long. time ; that gestation ordinarily lasts for particular periods, but not what are the limits for extraordinary periods of gestation; that television was a common feature of domestic life and almost entirely for recreational purposes. " Having regard to the long list of various facts which the English courts have taken judicial notice of as mentioned above and also having regard to the decisions which we have discussed above, we are of the opinion that this court can take judicial notice of the fact that there has been a steady rise in prices of land between 1954 and 1961, the period with which we are concerned in the instant case as a "notorious fact". Mr. Mitra for the asssessee contended that the valuation report of Messrs. Talbot Co. was the valuation of an expert or at least a man of skill having, considerable experience in the particular field. The Tribunal, according to Mr. Mitra, was in error in ignoring the report of Talbot Co. or, at least, in not assigning to it proper probative value. It was further submitted that the Tribunal has not really recorded any evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material before the Tribunal and it acted on mere speculation. As we have already noticed, the Income-tax Officer in the course of the assessmeant primarily relied on the assessee's own valuation with regard to the Russa Road property in the wealth-tax assessment. The valuation shown by the assessee in the wealth-tax proceedings was accepted by the Wealth-tax Officer for the assessment years 1957-58, 1958-59 and 1959-60. This was, therefore, a sort of admitted valuation in the wealth-tax proceedings in so far as this property is concerned. The Income-tax Officer took this value for the respective assessment years in the wealth-tax proceedings for which they were shown and after making the necessary adjustments, having regard to the rise in the valuation of real properties between January 1, 1954, and December 31, 1956, he estimated the value of the Russa Road property as on January 1, 1954, at Rs. 1,60,000. This significant admission by the assessee in the wealth-tax proceedings and the valuation arrived at by the Income-tax Officer for the relevant date after making necessary adjustments were before the Income-tax Appellate Tribunal as a piece of evidence. It is true that the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r market value" of the Arif Road property was made by Messrs. Talbot Co. and was accepted by the Income-tax Appellate Tribunal in that case. This fact of the property fetching 25 per cent. in excess of its fair market value as on 1st January, 1954, on its sale in October, 1961, was taken by the Tribunal to afford a proof of the fact of the rise in prices of landed properties in Calcutta as also an index of the measure of such rise. The Tribunal adopted the same yardstick as to the measure of the index of the rise of the price of Russa Road property as between 1954 and 1961. In our view the Tribunal was entitled to rely on this piece of evidence of the sale of the Arif Road property in coming to its conclusion. Needless to say, it would be almost impossible to find out properties which will be exactly identical in all its characteristics in order to make comparison of land value. But then all valuation is necessarily an estimate. It would be more so when the fair market value has to be determined on a particular date mentioned in the statute having regard to a hypothetical buyer, a hypothetical seller and a hypothetical market. Bearing this in mind, it will not be correct to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee however, laid stress on the expression "specially skilled" in section 45 of the Indian Evidence Act and submitted that a valuer being a person of special skill and experience, his opinion should have the same evidentiary value as the opinion of an "expert" under section 45 of the Indian Evidence Act. In this connection Mr. Mitra sought to rely on an old English decision of the Chancery Court in the case of the Attorney-General v. Edward Cross. In that case certain leases of charity estates had been valued by the surveyors appointed by the Corporation of Exeter. The question arose whether it can be said that the leases had been under-valued. Dealing with this question, Sir William Grant, Master of the Rolls, at page 541 of the report, observed as follows : "As to the second point in this case, viz., the allegation that the estates have been let for an insufficient consideration, I have always understood that leases of charity estates might be set aside on the mere ground of under-value. But it must be an under-value satisfactorily proved and considerable in amount. It is not enough to show that a little more might have been got for the estate than has been act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this branch of the income-tax law, the controversy between fact and law is assuming strange qualities. Since a reference to the High Court lies only on a question of law, the Tribunal is the final fact-finding authority as will be clear from the provisions of section 254 of the Income-tax Act, 1961, which applies to this case. Agitation of facts being barred, and agitation of law being necessarily limited, the present tendency appears to be to convert questions of fact into law. A glance at the question makes it apparent in this present reference. The main point of the question asked in this reference is: Whether there was a valid and legal basis for the Tribunal's conclusion that the capital gains arising out of the sale of 221, Russa Road, Calcutta, would be Rs. 75,000 instead of a loss of Rs. 6,000, as claimed by the assessee. Valuation ordinarily is a question of fact. It does not mean that it can never be a question of law. The question here is whether it is so or not. By no test it is really a question of law in the facts and circumstances of this case. But, as I have said, the modern tendency is to convert many questions of fact into questions of law. The attempt here is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t question of law. Much of the subtler legal attempts to separate fact from law is therefore a pursuit after the impossible and naturally the doctrine developed of mixed question of law and fact. That is a strange mixture. Whether that mixture is a mechanical mixture or a chemical compound has been debated in some of the cases on authorities. The better view is to treat it almost in the nature of a chemical compound in the sense that fact and law are inseparable. Naturally to separate the inseparable produces many difficulties. It certainly has produced one in the present income-tax reference. The question shows that the assessee says, rely on the valuation report to establish the assessee's claim for loss of Rs. 6,000. Equally, the Tribunal says, rely on the valuation report to prove the rise of 75 per cent. in the prices and get another estimate equally arising from the valuer's report. There is, therefore, no question of law but of fact in the ultimate analysis in this reference. I would not, therefore, interfere in the advisory jurisdiction with the decision of the Tribunal in this case. One way of boring the hole in the otherwise impregnable boat of facts is to suggest in ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pert or not, depends fundamentally on two basic facts, viz. :-(1) the reasons given by the valuer, and (2) whether he has been able to stand the test of cross-examination. The test of cross eamination is not available here because the Evidence Act in its rigidity does not apply to these proceedings. It was only a report of a valuer considered by the Income-tax Officer as being produced by the assessee. The valuer never came to give evidence nor was he subjected to any cross-examination. To find, therefore, the weight or truth or the correctness or even reasonableness of such an opinion, the method of cross-examination was not available. That is one handicap in this case. The other handicap is the reasons. My learned brother has shown by a close scrutiny of the report that the valuer in this report has valued it with conditions and assumptions which are not legal to determine the capital gain within the meaning of sections 45, 48 and 50 of the Income-tax Act read with the fair market value concept stated in section 45 of the Income-tax Act. At best, therefore, the report of Talbot Co., the valuer in this case, is an unverified estimate which suffers from many self-contradictions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o something serviceable for those who employ you and adequately remunerate you. It is very natural, and it is so effectual, that we constantly see persons, instead of considering themselves witnesses, rather consider themselves as the paid agents of the person who employs them ...... Suppose a person wants to sell a house, and as he wants a very high value put upon it, he sends to ten valuers, and out of these he selects the three who have put the highest value on the house. The purchaser wants a very low value, and selects out of a number of valuers three of the lowest. Each set of valuers values high or low, according to the requirements of the person who employs them. I have known the same sort of thing done even as regards medical evidence. The consequence is, you do not get fair professional opinion, but an exceptional opinion by evidence selected in this way." The third point is about judicial notice. The criticism of the Tribunal's decision is that the Tribunal had no evidence about the rise in prices in land values in Calcutta. The further submission is that rise in prices is not a subject-matter of judicial notice. The reason behind this argument is that the judge should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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