1996 (8) TMI 64 - HC - Wealth-tax

Court rules against adding reversionary value to rental property valuation, citing double-counting issue.

The court held that the reversionary value of the land cannot be added to the valuation of the let-out property determined by the rent capitalization ... Reversionary Value Issues Involved:1. Whether the reversionary value of land was correctly added to the valuation of let-out property arrived at by the rent capitalisation method.2. Whether the property let out to a firm should be considered self-occupied or rented for valuation purposes.Issue-Wise Detailed Analysis:1. Reversionary Value of Land:The primary issue was whether the Tribunal was right in holding that the reversionary value of land had been correctly added to the valuation of let-out property arrived at by the rent capitalisation method. The Tribunal had determined the property value using the rent capitalisation method and added the reversionary value of the land, assuming that landlords would regain possession of the land once the structures fell.The assessees contended that adding the reversionary value of the land to the valuation arrived at by the rent capitalisation method was incorrect. They argued that when the valuation is determined using the rent capitalisation method, the value of both the land and the building is considered, and adding the reversionary value would amount to double-counting the land value. They relied on decisions from the Calcutta High Court (CIT v. Smt. Ashima Sinha [1979] 116 ITR 26 and CIT v. Anup Kumar Kapoor [1980] 125 ITR 684), the Allahabad High Court (CWT v. Ram Saran Kajriwal [1987] 168 ITR 485), and the Bombay High Court (CW v. Smt. Urmila L. Pittie [1995] 215 ITR 356).The court agreed with the assessees, stating that properties under rent control laws have a controlled value, not a commercial value. The court held that adding the reversionary value of the land to the valuation determined by rent capitalisation would result in double-counting. The court cited Smt. Ashima Sinha's case, which emphasized that the effective value of a property under statutory control is its controlled value, not an imaginary commercial value. The court also noted that the Supreme Court had dismissed special leave petitions against similar judgments from other High Courts.2. Self-Occupied vs. Rented Property:The second issue was whether the property let out to a firm, of which the assessees were partners, should be considered self-occupied or rented for valuation purposes. The Valuation Officer had treated this property as self-occupied and valued it using the land and building method, while the assessees argued it should be valued based on rent capitalisation.The Appellate Assistant Commissioner agreed with the assessees that the property could not be considered self-occupied but disagreed on the rent amount, determining a fair rent of Rs. 1,500 per month instead of the Rs. 100 per month claimed by the assessees. The Tribunal upheld this decision, finding no error in adopting the higher rent for valuation purposes.Conclusion:The court concluded that the reversionary value of the land could not be added to the valuation of the let-out property determined by the rent capitalisation method. This decision was based on the principle that such an addition would result in double-counting the land value. The court answered the question in the negative, in favor of the assessees and against the Revenue, with no costs awarded.