Estate duty valuation of tenanted property must reflect controlled rent and statutory tenancy restrictions, not speculative market assumptions.

For estate duty valuation of tenanted property, the principal value must reflect the open-market price subject to the legal restrictions affecting the premises. Where rent control law governs the building, the landlord cannot assume a notional higher rent or a speculative market divorced from statutory ceilings and tenancy incidents; controlled fair rent is the proper basis for assessing what a willing buyer would pay. On those facts, the land-and-building method was treated as unsuitable because the property was tenanted and income was statutorily regulated, and the Tribunal's rental valuation was upheld in favour of the assessee.

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Issues: Whether, for estimating the principal value of tenanted property under section 36(1) of the Estate Duty Act, 1953, the valuation should be based on the rent actually recoverable under rent restriction law and the tenancy conditions, or on a notional higher rent or land-and-building valuation.

Analysis: The principal value under section 36(1) is the price the property would fetch in the open market at the time of death, but the open market must be understood subject to legal restrictions affecting the property. Where rent control legislation governs the premises, the landlord cannot ignore the statutory ceiling on rent or the limited incidents of tenancy in assessing what a willing buyer would pay. The fair rental basis, not an unreal rent or a speculative market unaffected by statutory restraints, is therefore the proper starting point. The land-and-building method was also found unsuitable on the facts because the property was tenanted and income was controlled by statute, and the earlier valuation adopted by the departmental authorities was treated as rough and unsupported.

Conclusion: The Tribunal correctly adopted the rental basis founded on controlled rent and tenancy realities; the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: In valuing property for estate duty, the open-market price must be determined with reference to the legal restrictions actually affecting the property, and where rent control law governs a tenanted building, valuation by capitalising controlled fair rent is the appropriate method.

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