Commercial property valuation by rent capitalisation depends on prudent investor yield, with an 8.5x multiplier applied.

For estate duty valuation of a wholly let-out commercial property comprising godowns, the proper method was capitalisation of net rent. The valuation had to reflect the fair yield a prudent investor would expect on the date of death, and the special rules or valuation guidance relied on by one side did not displace that practical assessment. Comparable material was relevant only as a guide to a fair range of yield. On that basis, the appropriate multiplier was 8.5 times rather than 12 times.

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Issues: Whether, for valuing a wholly let out commercial property comprising godowns for estate duty purposes, the proper multiplier for capitalising net rent was 8.5 times or 12 times.

Analysis: The property was wholly let out and was to be treated as a commercial property. On that footing, valuation had to proceed by capitalisation of net rent, and the question of applying rule 1BB of the Wealth-tax Rules, 1957 or the Special Bench view relied upon by one member did not arise. The appropriate multiplier had to reflect the yield a prudent investor would expect from the property on the date of death. The comparable judicial material cited only indicated a fair range of yield, and the surrounding investment returns and the commercial character of the property supported a lower multiplier.

Conclusion: The proper multiplier was 8.5 times, in favour of the assessee.

Ratio Decidendi: Where a wholly let out commercial property is valued by capitalising net rent for estate duty purposes, the multiplier must be fixed by reference to the fair yield expected by a prudent investor, and comparable valuation guides cannot displace that practical assessment.

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