Rent capitalisation must use genuine lease rent, not tenant business profits, for valuing let-out property.

For valuation of let-out immovable property, genuine and accepted lease rent is the proper basis for the rent capitalisation method, and a tenant's business profits cannot be substituted for the rental value of the property itself. The tenants' income depends on their own equipment, expenditure, renovations and business effort, so a DVO cannot replace disclosed lease rent with business-account figures. The commentary also notes that where an appellate authority remands issues such as the character of land and exemption claims for fresh examination, no interference is called for because those matters remain undecided on merits.

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Issues: (i) Whether the cinema properties had to be valued by accepting the assessee's actual lease rent and applying the rent capitalisation method, or by adopting the figures taken from the tenants' business accounts and the DVO's higher valuation; (ii) whether the direction to re-examine the character of the Bage-Firdosh land and the claimed exemptions under section 5 required interference.

Issue (i): Whether the cinema properties had to be valued by accepting the assessee's actual lease rent and applying the rent capitalisation method, or by adopting the figures taken from the tenants' business accounts and the DVO's higher valuation.

Analysis: The lease agreements were found to be genuine and the rent disclosed by the assessee had already been accepted in income-tax assessments. The value to be determined was that of the buildings let out, not the business profits of the tenant firms. The tenants' profits depended on their own equipment, expenditure, renovations and business efforts, and could not be treated as the income the properties themselves were capable of fetching. The DVO's approach of substituting the tenants' business income and branding the lease rent as collusive was rejected. At the same time, the assessee's own valuation was not accepted in full, as some upward adjustment was considered justified in view of rising property values and the later valuation dates.

Conclusion: The rent capitalisation method based on the agreed lease rent was held applicable, the DVO's method was rejected, and the properties were directed to be valued by applying a 12.5 times multiplier to the net rental income.

Issue (ii): Whether the direction to re-examine the character of the Bage-Firdosh land and the claimed exemptions under section 5 required interference.

Analysis: The appellate authority had not finally decided the nature of the land or the exemption claims on merits, but had sent the matters back for reconsideration by the assessing authority. Since the issues were left for fresh decision, there was no infirmity in that course.

Conclusion: No interference was called for with the remand and the direction to re-examine the exemption issues was sustained.

Final Conclusion: The valuation dispute was resolved substantially in favour of the assessee by rejecting the DVO's approach, while the remaining issues were left for fresh consideration by the assessing authority.

Ratio Decidendi: For valuation of let-out immovable property, the agreed and genuine lease rent is the proper basis for rent capitalisation, and the tenant's business profits cannot be substituted for the property's rental value.

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