Leasehold valuation for wealth-tax allowed deduction of lessor's profit share, even without an actual sale.

A lease covenant requiring the lessee to pay the lessor 75% of the profit on sale of the plot operated as a restriction on the assessee's interest and reduced the asset's real value on the valuation date for wealth-tax purposes. That contingent profit-sharing obligation had to be deducted even though no sale occurred in the relevant year, because valuation had to reflect the net worth of the leasehold interest as held by the assessee. Applying the Supreme Court's principle on comparable profit-sharing covenants, the deductible amount was the lessor's share of the difference between purchase price and assumed sale price, and the issue was answered in favour of the assessee.

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Issues: Whether, in valuing a leasehold plot for wealth-tax purposes, the amount representing 75% of the increase in value payable to the lessor on sale of the plot had to be deducted from the assessee's net wealth, even though no sale occurred during the relevant year.

Analysis: The lease covenant entitled the Nagar Mahapalika to 75% of the profit on sale of the plot if the assessee sold it before construction. The restriction operated as a limitation on the assessee's interest in the property and, on the valuation date, affected the real value of the asset in the assessee's hands. The principle laid down by the Supreme Court in the comparable profit-sharing covenant case applied directly, because the lessor's share was required to be excluded even when sale was only assumed for valuation purposes.

Conclusion: The amount representing 75% of the difference between purchase price and sale price was deductible in valuing the asset, and the question was answered in favour of the assessee.

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