TMI Blog1985 (6) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... e cross-objections relates to the valuation of a property known as 'Lentin Court'. For the assessment years under appeal, the assessee had returned the value of this property at Rs. 3,74,000. The WTO, however, fixed the value of the property at Rs. 22,00,000 for the assessment year 1977-78 and Rs. 25,00,000 for the assessment year 1978-79. On appeal, the Commissioner (Appeals) reduced the value of the property to Rs. 16,42,000 for each of these two years. 3. The property under question had a chequered history. The assessee is an individual. In 1934, the trustees of the Bombay Port Trust leased out a piece of land, plot No. 26, measuring 1,641 sq. yards on a 99 years' lease to one Phirozeshow Cawasji Lentin and his wife. These people constructed the building on the premises named 'Lentin Court' in the same year. On 29-10-1935, the trustees of the Bombay Port Trust and Mr. and Mrs. Phirozeshow Cawasji Lentin demised the said property to one Rao Saheb Surve for a period of 99 years at specified figures of rent. Rao Saheb Surve sub-leased the property, the plot with the building, to one Shri Otto King for a period of 10 years from 1-1-1938 at a rent of Rs. 2,000 per month. Otto King ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase of the business of his wife. Pursuant to the above proposal, one of the flats was sold to Mr. and Mrs. Daruwala. An agreement for the sale was entered into with them and a sum of Rs. 1,00,000 was also recovered. Since Mrs. Shivdevi Shelly was the tenant of the property, her proposed sale of the business to her husband would have resulted in the surrender of her tenancy rights in the building, thus, facilitating the sale of the flats by the assessee to different parties. 7. It, however, turned out that the assessee could not purchase the Lentin Court Guest House business from his wife. The further plans of selling out the flats in the building on ownership basis also fizzled out. The flat given in possession to Daruwala, however, remained in his possession but the full payments, etc., anticipated in pursuance of the sale agreement to him were not received. In the meanwhile, Mrs. Shivdevi Shelly, the assessee's wife, died on 21-10-1968. Under her will, her entire movable and immovable properties including the business of Lentin Court Hotel, namely, the Guest House, were bequeathed to her only daughter Prameela and her three children in four equal shares. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that there was an appreciation in the value of the immovable properties from year to year, he enhanced the value to the abovementioned figures for these two years. It required to be mentioned that the valuation of this property was in dispute before the Tribunal for the assessment years 1972-73 to 1974-75 wherein the Commissioner (Appeals) had fixed the value of this property for the purpose of wealth-tax assessment of the assessee at Rs. 16,42,000. The department has challenged this valuation adopted by the Commissioner (Appeals) in these appeals. In the cross-objections, the valuation of Rs. 16,42,000 is challenged and it is claimed that the valuation should be made on the basis of the property being a residential property subject to the rent control regulations. 9. The learned counsel for the department has pointed out that apart from the valuation of this property being considered for several earlier years both at the assessment and appellate stages, there was a valuation made by a departmental Valuation Officer on 14-3-1985. Even this put the valuation of this property at Rs. 19,69,000 and Rs. 21,23,000 for the two years, respectively. The valuation adopted by the WTO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resort to rule 1BB of the Wealth-tax Rules, 1957 ('the Rules'), it is pointed out that a hotel was run in the building. It could not, therefore, be called a residential building. According to the learned Counsel, the case of J.V. Desai v. CIT [1985] 20 Taxman 179 of the Andhra Pradesh High Court was clearly distinguishable. The present assessee purchased a building where already a hotel was being run. He cannot, therefore, claim the property to be residential. 12. The learned counsel for the assessee has pointed out that there was a clearcut distinction between the landlord of a property and the tenant. Even when the same person holds these two capacities on behalf of two different persons, a tenancy does not revert to the landlord but keeps up its independent existence. Even though in the present case, the assessee was the executor of the will of late Mrs. Shelly, his position was purely that of a representative. Stress is laid in this connection on the obligations of the assessee under the probate issued by the High Court on 30-7-1970. The assessee was only the owner of a property which fetched for him as in the earlier years a rent of Rs. 2,000 per month which, according to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son the value returned by the assessee, he has necessarily to refer the matter to an expert of equal competence. According to the learned counsel, the expression 'may' used in section 16A should be regarded as mandatory meaning 'shall'. Adopting this correct method of valuation, namely, the rental capitalisation method, the value returned by the assessee should be regarded as the proper value of this property. 15. The only issue in this appeal is the valuation of the property known as 'Lentin Court' for the purpose of its inclusion in the net wealth of the assessee. The facts detailed above help us to identify the legal nature of the property belonging to the assessee. In our view, the departmental authorities seem to have misconstrued the nature of the property actually held by the assessee. The assessee in this case is only the landlord of a property which has been rented out to a tenant and the tenancy is subject to the Rent Control restrictions. The history of the case referred to above covering a period from 1934 onwards indicates that different streams of succession relate to the landlord as well as the tenant. The streams are different and do not coalesce at any point of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad would devolve on them as well. As statutory tenants, they are, therefore, as much protected by the tenancy laws as the mother herself was or the partnership prior to her or Otto King before that was. The clear fact, therefore, is that the property owned by the assessee even during the previous year relevant to the year under appeal is a rented premises controlled by the Rent Control Acts. The mere fact that the beneficiaries under the will are her relatives does not, in any case, release the assessee from his obligations under the Rent Control Act. 16. The learned counsel for the assessee pointed out before us that as soon as the grand-children of the assessee became major they have formed partnership having nothing to do with the assessee to carry on the business. This fact was adduced as an argument to show that their mere relation with the landlord in the present case did not release the landlord from his obligations under the Rent Control Act. In our view, while this fact does further support the assessee's case, even if no partnership was formed, the fact that the real owners of the tenancy and the business were beneficiaries under the will would have enabled them to exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the land and the building separately and adding up the values was also held to be improper in such cases because they would ignore the impact of the Rent Control Act on the value of the land and the building. 18. In Corporation of Calcutta v. Smt. Padma Devi AIR 1962 SC 151, the Supreme Court held that in determining the value of a property, regard must be had to the provisions of law which control the fixation of rent. In T.V. Radhakrishna Chettiar v. Province of Madras [1948] 2 MLJ 159, a Division Bench of the Madras High Court laid down that the proper method of valuation to be adopted in the case of a compulsory acquisition relating to a house and ground situated in a municipality and fetching regular income is to assess the value on the basis of capitalisation of the net annual income. In Rajasekhara v. Chairman, City Improvement Trust Board AIR 1957 Mys. 20, a similar decision was given. In CWT v. V.C. Ramachandran [1966] 60 ITR 103 their Lordships of the Mysore High Court held that in the case of buildings with compounds in a city, which buildings are in the possession of tenants, and the tenants cannot be either evicted or the rent payable by them enhanced except in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of valuation, cannot be adopted as such for a subsequent year. Apart from this, for the assessment years 1972-73 to 1974-75, the decisions relating to the rent capitalisation method as the proper method were not brought to the notice of or considered by the Tribunal. In the subsequent years' decision, the learned representative for the assessee, inter alia, urged the adoption of rule 1BB method of valuation for this property---which he has repeated before us. It would appear that the proper distinction between the property let out by the assessee and the use to which the lessee, another entity, put it was not emphasized. The learned counsel has referred to two decisions---one of the Andhra Pradesh High Court and another, a binding decision of the Bombay High Court not considered earlier. We, therefore, have to arrive at the value of this asset afresh. 21. In the Andhra Pradesh High Court case in J.V. Desai's case, the High Court clearly held that the nature of a building, residential or otherwise, depends on the person owning it. The mere fact that a residential building has been let out to a person who, with agreement or otherwise, uses it for a non-residential purpose would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also held "It was faintly contended that the rental method has no validity in determining the valuation of self-occupied residential house. The submission is not correct because the valuation of such house can be determined by capitalising the rent which such house would fetch if let out". This binding decision of the Bombay High Court does support a mandatory valuation under rule 1BB for residential buildings. We have held that in the earlier decision of the Tribunal the point made out by the assessee's learned counsel that the assessee as landlord was owning a residential building which he leased out was misunderstood as the letting out involved user by them of the premises in their guest house business of the tenants. We do not desire to pronounce any decision as to whether a guest house where people regularly reside from day to day or from week to week would be a residential building since even that is used only for residence and not as a factory, office, etc. We have no doubt that the assessee as a landlord has let out his building though, to a businessman, only as a residential building. 23. In view of the above decision, it is not necessary to go into the question of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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