1993 (10) TMI 14 - HC - Wealth-tax

Court affirms rent capitalization method for property valuation, stresses interest rate impact

The court upheld the use of the rent capitalization method for valuing rented properties and emphasized considering the prevailing rate of interest for ... Let Out, Wealth Tax Issues:1. Valuation of property using rent capitalization method2. Determination of multiplier for valuing a propertyValuation of property using rent capitalization method:The case involved the valuation of a property under the Wealth-tax Act, where the assessee's half share in a property was in question. The Wealth-tax Officer adopted the value based on the valuation fixed by the Valuation Officer using the land-cum-building method. The Appellate Assistant Commissioner, however, calculated the value of the rented portion using the rent capitalization method and the self-occupied portion using the land-cum-building method. The Tribunal upheld this approach, stating that for rented properties, the rent capitalization method is appropriate. The court agreed with this view, citing the decision in Sabita Mohan Nagpal v. CWT [1986] 160 ITR 751, emphasizing that the valuation should be based on the rental basis for properties occupied by tenants.Determination of multiplier for valuing a property:The dispute also involved the multiplier to be applied for valuing a property under the rent capitalization method. The Valuation Officer suggested a multiplier based on a 5.5% rate of interest, while the Appellate Assistant Commissioner used an 8% rate of interest and a multiplier of 12.5%. The Tribunal considered the prevailing rate of interest on gilt-edged securities and upheld the multiplier of 12.50 applied by the Appellate Assistant Commissioner. The court referred to the decision in Special Land Acquisition Officer v. P. Veerabhadarappa [1985] 154 ITR 190, emphasizing the need to consider the yield on investments as a basis for determining the multiplier. The court concluded that the Tribunal was justified in applying the multiplier of 12.50 for valuing the property, ruling in favor of the assessee against the Revenue.In conclusion, the judgment addressed the issues of valuation of property using the rent capitalization method and the determination of the multiplier for property valuation. The court upheld the use of the rent capitalization method for rented properties and emphasized the importance of considering the prevailing rate of interest on investments for determining the multiplier. The decision favored the assessee, ruling against the Revenue.