Leased property valuation follows the yield method where possession remains with the tenant and vacant land is not freehold

Property valuation for tax purposes must reflect the asset's actual legal and possessory character. Where a property has been leased to the same tenant, the tenant remains in occupation after expiry of the lease, and sub-tenants are also in possession, the vacant portion cannot be treated as land in the owner's unfettered possession unless there is evidence that it has reverted free of leasehold rights. In such circumstances, the yield method based on rental value is the appropriate basis for valuing the entire property, including the disputed vacant strip, rather than fair market value as an open plot. The assessee's valuation was therefore accepted and the addition on the vacant portion was not sustained.

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Issues: Whether the value of the property, including the vacant portion marked as Z, was required to be determined on the yield basis as a leased property or on the basis of fair market value as an open plot.

Analysis: The property had been leased to the same tenant, which continued in possession even after expiry of the lease, and the sub-tenants were found to be in occupation of the premises. The Court accepted that the tenant was entitled to the protection flowing from tenancy law and that there was no evidence that the vacant portion had reverted to the assessee free from the tenant's leasehold rights. In these circumstances, the vacant strip could not be treated as land in the assessee's unfettered possession. The correct method of valuation for the entire property, including the disputed vacant portion, was the yield method based on rental value, and the valuation adopted by the assessee was therefore acceptable.

Conclusion: The addition made on account of the vacant portion could not be sustained, and the assessee succeeded on valuation.

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