TMI Blog1993 (9) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1984-85. In the wealth-tax returns the assessee disclosed the value of the property at Rs. 5,13,044. The value is based on the rental capitalisation method. The rent has been taken by the assessee on the basis of the Delhi Rent Control Act. It is called the "standard rent" under the said Act. The standard rent has been arrived at Rs. 46,174 in respect of the total area of 39307 sq.ft. in accordance with the principles prescribed by the Delhi Rent Control Act. Applying 9% rate of capitalisation the assessee adopted a multiplier of 100/9. The computation of the standard rent was not disputed by the WTO. However, he took the view that the actual rent from the property should be taken as the basis for valuing the property on rent capitalisation method. He had no quarrel with the assessee regarding the fact that the rent capitalisation method was the proper method. He noticed that the assessee received gross rent of Rs. 14.66 lakhs for the assessment year 1984-85, Rs. 15.05 lakhs for the assessment year 1985-86 and Rs. 15.58 lakhs for the assessment year 1986-87. Taking the figures of gross rent as the basis and after deducting the municipal taxes, 1/6th for repairs, insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the property held by the assessee is a commercial property having been let out to tenants who are using the property as their office. The question, therefore, is whether we can ignore the actual rent received by the assessee and estimate the market value of the property by taking the standard rent under the Delhi Rent Control Act as the basis. In Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 the Supreme Court held that the provisions of section 7(1) of the WT Act do not contemplate an actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market. In Lynall, In re [1970] 75 ITR 564 the Court of Appeal in England held that though the hypothetical sale should be built upon a foundation of reality as far as possible, it is even more important that it should not defeat the intention of the section by laying undue emphasis or undue concern for reality in what is essentially a hypothetical situation. These decisions lay down the principle that what is contemplated under section 7(1) of the WT Act is essentially a hypothetical situation. If that is so, the hypothetical rent alone can be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapoor's case and stated that the standard rent arrived at on the basis of the principles laid down in the Rent Control Act was the upper limit of the rent which the landlord may expect to receive from a hypothetical tenant. The basis of the aforesaid judgments is that one cannot expect to get more than what the law allows. The law prescribes that the standard rent is the upper limit and, therefore, a hypothetical landlord letting out his property to a hypothetical tenant can expect to receive not more than the standard rent. This hypothetical situation has to be worked into the provisions of section 7(1) of the WT Act when it comes to the question of estimating the market value of the property as on the valuation date on the hypothesis that the property is sold in the open market on that date. The realities of the situation have no place in such a hypothetical sale as held by the decisions cited in the earlier part of our order. 9. We cannot accept as correct the submission of the ld. D. R. that the ratio of the above Supreme Court decisions is not applicable since the Legislature had amended the provisions of the Income-tax Act with effect from 1-4-1976 and also because rule 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re different the principles laid down by the High Court are clearly applicable to the present case. 11. The judgment of the Delhi High Court in CWT v. Sheila Kaushish [1989] 180 ITR 362 can also be said to support the assessee's case indirectly, though rendered in the context of section 27(3) of the WT Act. 12. For the aforesaid reasons we are of the view that the WTO was not justified in adopting the actual rent received by the assessee as the basis for estimating the value of the property on the basis of the rent capitalisation method. The CIT (Appeals) was equally in error in upholding the WTO's view. We vacate their orders on this point and direct the WTO to estimate the value of the property on the basis of the standard rent determined in accordance with the principles of the Delhi Rent Control Act. As already stated, the assessee had filed the working of the standard rent as per the said Act before the WTO. The same has not been questioned. The WTO will have to therefore value the property taking that figure as the basis. 13. Grounds 2 and 3 in all the appeals are to the effect that the WTO should have referred the matter to the Valuation Officer under section 16A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised by way of additional ground does not involve any investigation into the facts because the CIT (Appeals) has recorded a clear finding in paragraph 4 of his common order that the property is situated on a plot taken on perpetual lease. 16. The contention that the building is exempt as having been used in the assessee's business cannot be straightaway accepted, though the ground raised by way of additional ground may be admitted having regard to the judgment of the Supreme Court in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 and the Full Bench of the Bombay High Court in Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351. In the judgment of the Supreme Court, the decision cited by the ld. D.R. namely Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 has been referred to and explained. The assessee has stated in the Statement of Facts filed before the first appellate authority that the building is used by the tenants for office purposes. In the additional ground however it is contended that the building is used by the assessee for the purposes of its business. Though the additional ground is admitted the factual position remains to be verified. Only i ..... 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