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TMI Blog1974 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee returned its value at Rs. 4,52,000 on the basis of a certificate from Messrs. Anand Apte Jhabwala, architect and approved valuer of New Delhi. The value of the property was estimated at Rs. 5,82,268 from which a sum of Rs. 1,30,000 was deducted as 50% of the unearned increase in the value of land which was required under the terms of the agreement of lease, to be paid to the lessor (the President of India), at the time of the transfer of the lessee's interest. The Wealth-tax Officer did not accept the assessee's valuation. He estimated the value of the property at Rs. 8,29,560 on rental basis to which the assessee's objection was that the building being very large, it could attract only a limited number of interested tenants. The Wealth-tax Officer, however, determined the value of Rs. 6 lakhs as in the past ; and rejected the claim for deduction of 50% of the unearned increase as " based merely on hypothetical presumptions ". The Appellate Assistant Commissioner of Wealth-tax in appeal was of the view that the fact that the assessee might have to pay a sum of Rs. 1,30,000 to the lessor did not affect the valuation of the property under section 7 of the Wealth-tax Act. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld fetch if sold in the open market on the valuation date. " The law thus provides a fictional approach by which an hypothetical sale in the open market of the asset in question is assumed on the valuation date. In this case, the price which the asset in question would so fetch on the valuation date was estimated to be Rs. 6 lakhs. This asset consists of the leasehold interest of the assessee in the property which is subject to the terms and conditions of the agreement for lease dated December 30, 1954, executed between the President of India as the lessor and one Smt. Vashesharan Devi from whom the assessee acquired the property, as the lessee. The restrictions, disadvantages and other hazards stipulated in the said agreement are attached to the assessee's interest and form part of his asset. Clauses IX, X and XIX of the said agreement of lease, which are relevant for this purpose, read as follows: "IX. The said intended lessee shall not prior to obtaining a lease from the President under clause XIV hereof, without the consent of the Chief Commissioner signified by writing, directly or indirectly assign, transfer or otherwise part with any interest he may have in the piece of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the value, which the Wealth-tax Officer is required to estimate, in order to arrive at the figure of net wealth of the assessee. Mr. R. H. Dhebar, the learned counsel for the revenue, on the other hand, contended that the price which the asset would fetch when sold in the open market cannot be interpreted to mean the price which it would fetch to the assessee. It is the price which a willing buyer would be prepared to pay, which will determine the price of the asset, it will fetch when sold in the open market. It reply to the alternative argument, Mr. Dhebar contended that the question of any debt owed by the assessee does not arise, as he does not incur any liability in this case. The liability arises when there is an actual sale. In the case of hypothetical sale, there arises no liability towards the lessor. He accordingly submitted that the view taken by the Tribunal was correct. The learned counsel on both sides referred to certain English decisions in cases dealing with valuation for the purposes of estate duty in England. The language of section 7(5) of the Finance Act, 1894, which levied estate duty in the United Kingdom was in pari materia with the language of section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion upon the sale. " The Lord Chancellor then treated section 7(5) as merely a statutory direction as to the method by which the value of such property was to be ascertained. In complying with that direction, he considered it necessary to make the assumptions which the statute directed, viz., sale in an open market. But in doing that he was careful to again observe: "This is not to ignore the limitations attached to the share." Reversing the judgment of the Court of Appeal, that of the trial judge was restored and the value fixed by him was upheld. This view was reaffirmed by the House of Lords in Lynall v. Inland Revenue Commissioners. The House of Lords observed that Crossman's case was rightly decided in that section 7(5) of the Finance Act, 1894, was merely a machinery for estimating value and that, accordingly, the value of the shares for the purpose of estate duty was to be estimated at the price which they would fetch in the open market on the terms that the purchaser should be entitled to be registered and to be regarded as the holder of the shares, and should take and hold them subject to the provisions of the articles of association including those relating to the aliena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale cannot be contemplated. The lessor has even an overriding right to pre-emption at a price after deducting this amount. A breach of this condition will entail a forfeiture of the lease and give a right of re-entry to the lessor. It is a restriction or limitation attached to the rights of the assessee and determines the nature and character of property which is to be valued for the purpose of levying wealth-tax. The case of Pandit Lakshmi Kant Jha, therefore, has no relevance for our present purposes. It is thus obvious that the argument which appealed to the Tribunal, that the lessor's right to recover 50% of the unearned increase at the time of sale, was not worthy of consideration, as being irrelevant, was not sound. Mr. Dhebar contended that, apart from this disadvantage, the assessee enjoyed some benefits and advantages, too, under the agreement of lease. The only advantage under the said agreement is to hold and enjoy the property which can be measured by the rent the assessee would be able to recover. The annual letting value of the property, therefore is the advantage attached to the property. But this has been taken due note of by of the Wealth-tax Officer when he dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation date. In order to ascertain the amount by which the aggregate value of the assets on the valuation date is in excess of the aggregate value of the debts owed by the assessee on that date, which would be " net wealth ", as defined in section 2(m), this 50% of the unearned increase has to be deducted as debt owed by the assessee on the valuation date out of the value which has been determined without considering this condition as an important limitation attached to the property. In short, this 50% of the unearned increase in the value of land payable to the lessor, has to be deducted from the valuation whether it is taken as a limitation or restriction attached to the property in question, affecting its value to that extent or as a debt owed by the assessee on the valuation date. The Tribunal was not justified in taking the view that it formed part of and was not deductible out of the valuation of the property for the purposes of wealth-tax. The question referred to us, therefore, has to be and is answered in the negative, that is, in favour of the assessee and against the revenue. In the peculiar circumstances of the case, however, we propose to make no order as to costs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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