N.K. GOPALAN v. WEALTH-TAX OFFICER
[Citation -1984-LL-0629-1]

Citation 1984-LL-0629-1
Appellant Name N.K. GOPALAN
Respondent Name WEALTH-TAX OFFICER
Court ITAT
Relevant Act Wealth-tax
Date of Order 29/06/1984
Assessment Year 1977-78 , 1978-79
Judgment View Judgment
Keyword Tags rent capitalisation method • land and building method • wealth-tax assessment • departmental valuer • method of valuation • immovable property • registered valuer • valuation officer • valuation report • approved valuer • wealth-tax act • valuation date • market value • actual cost • real estate • total cost • net wealth
Bot Summary: The assessee had declared the value of this property at Rs. 5,16,500 and Rs. 5,05,032, respectively, for these two years on the basis of the report of a registered valuer, who had estimated its market value in December 1976 at Rs. 5,28,000 by averaging the products of the land and building and rent capitalisation methods. The WTO, while accepting the value of the super structure as declared by the assessee on the basis of the registered valuer's report enhanced the value of the land on which the property is situated by Rs. 21,888. With reference to these factors and submissions, it was contended that the value estimated in respect of this property by the WTO on the basis of the registered valuer's certificate for the assessment years 1977-78 and 1978-79 was quite fair and reasonable and the same did not require upward revision as considered by the Commissioner. With reference to the above requirements of the section, the learned representative submitted that the primary requirement for assuming jurisdiction under section 25(2), namely, that the order passed by the WTO should be erroneous is absent in this case, inasmuch as the WTO had accepted the value returned in respect of this property based on the registered valuer's certificate, who in turn arrived at the value on the basis of one of the well known methods of valuation, namely, averaging the values arrived at with reference to the land and building method and rent capitalisation method. In any case, he submitted that there was a spurt in the value of properties after 31-3-1978 and the same cannot be adopted as a measure for determining the value of the property as on the respective valuation dates under consideration. As mentioned on behalf of the appellant, the value of the property was declared on the basis of the registered valuer's report, according to which, the value was determined by averaging the values of the property with reference to land and building and rent capitalisation methods. The best evidence in regard to the market value would be the value of the property itself if it has been subject of purchase near about the valuation date.


These two appeals relating to assessment years 1977-78 and 1978-79 by assessee arise out of combined order of Commissioner under section 25(2) of Wealth-tax Act, 1957 ('the Act') setting aside assessments made for these two years and directing WTO to redo same after 'duly revaluing building at No. 15, Kalasipalayam, Bangalore, after giving due opportunity to assessee'. facts in this regard are briefly as follows. 2. wealth-tax assessments for both these years were completed on 30-1-1981 computing net wealth at Rs. 4,02,070 for 1977-78 and Rs. 4,42,996 for 1978-79. One of assets included in net wealth in both these years was immovable property at No. 15, Kalasipalayam, Bangalore. assessee had declared value of this property at Rs. 5,16,500 and Rs. 5,05,032, respectively, for these two years on basis of report of registered valuer, who had estimated its market value in December 1976 at Rs. 5,28,000 by averaging products of land and building and rent capitalisation methods. WTO, while accepting value of super structure as declared by assessee on basis of registered valuer's report, however, enhanced value of land on which property is situated by Rs. 21,888. He, thus, determined value of building at Rs. 5,38,388 for 1977-78 and Rs. 5,54,388 for 1978-79. assessee did not object to enhancement effected by WTO in value of site. 3. It would appear that very same property was sold by assessee in October 1979 for Rs. 9 lakhs. On reference made to departmental Valuation Officer under section 16A(5) of Act, market value of property as on 31-3-1979 was estimated by him at Rs. 10,29,000. With reference to these data Commissioner came to conclusion that there was undervaluation of this property in assessments made for these two years. He, therefore, considered assessments made by WTO for these two years as erroneous insofar as they were prejudicial to interests of revenue within meaning of sub-section (2) of section 25 and issued notice to assessee on 21-12-1982 to show cause why assessments should not be set aside with view to enabling WTO to adopt market value in respect of property in question while redoing assessments in this behalf. 4. During course of these proceedings, it was submitted before Commissioner that construction of building extended over period 1968 to 1977 involving total cost of Rs. 4,48,359 as at 31-3-1977 inclusive of cost of site, fittings, furnitures, etc. It was submitted that as against actual cost as mentioned above, registered valuer had estimated value of building as on 31-3-1977 at Rs. 5,25,000. reference was also made to value of gold per gram that prevailed on relevant valuation dates as guideline in this regard and it was argued that steep rise in value of real estate took place only during period 1978-79. As regards market value of Rs. 10,29,000 adopted in wealth-tax assessment for 1979-80 on basis of order of departmental Valuation Officer under section 16A(5), it was submitted that same had subsequently been reduced by AAC in appeal to Rs. 8,82,000. With reference to these factors and submissions, it was contended that value estimated in respect of this property by WTO on basis of registered valuer's certificate for assessment years 1977-78 and 1978-79 was quite fair and reasonable and, therefore, same did not require upward revision as considered by Commissioner. 5. Commissioner did not accept above submissions. According to him, property was partly let out and partly used for assessee's own business as on 31-3-1977 and it was fully let out as on 31-3-1978. He was of opinion that value of property on basis of rent capitalisation method as on relevant valuation dates would be much higher than value adopted by WTO. He did not consider that trend set by fluctuations in gold value could be accepted as correct guide for determining value of real estate. He, therefore, came to conclusion that market value of building adopted by WTO in above assessments was very low and, accordingly, set aside same and directed WTO to redo assessments after duly revaluing said building after taking above factors into account. assessee is in appeal before us against orders of Commissioner. 6. On behalf of appellant following submissions were made by learned representative, Shri H.N. Khincha. Primarily Commissioner was w r o n g in assuming jurisdiction under section 25 and setting aside assessments. Section 25(2) of 1957 Act corresponding to section 263 of Income-tax Act, 1961 ('the 1961 Act') confers on Commissioner power of revision if he considers that order passed by WTO is erroneous insofar as it is prejudicial to interests of revenue. According to representative, section requires that two conditions should be satisfied in order to entitle Commissioner to set aside order passed by WTO. Such conditions are: (1) that order proposed to be revised is erroneous and (2) that such order has resulted in prejudice to interests of revenue. satisfaction of these two conditions is essential for setting aside order proposed to be revised. With reference to above requirements of section, learned representative submitted that primary requirement for assuming jurisdiction under section 25(2), namely, that order passed by WTO should be erroneous is absent in this case, inasmuch as WTO had accepted value returned in respect of this property based on registered valuer's certificate, who in turn arrived at value on basis of one of well known methods of valuation, namely, averaging values arrived at with reference to land and building method and rent capitalisation method. In this connection, he drew our attention to judgment of Karnataka High Court in Smt. S. Neelaveni v. CWT [1980] 125 ITR 665, wherein it was held by Hon'ble Karnataka High Court that 'it is usual to value properties by more than one method so as to cross-check and adopt average'. He, therefore, submitted that method of averaging values arrived at on basis of land and building and rent capitalisation methods is one of conventionally accepted methods for arriving at market value of property when there is great disparity between value arrived at by different methods and Court had also given its seal of approval for such method. He, therefore, contended that registered valuer estimated value of property at Rs. 5,25,000 by averaging values arrived at on basis of land and building and rent capitalisation methods, and since WTO had only accepted same, it cannot be said that WTO had committed error in doing so, particularly when such method of valuation had also approval of Karnataka High Court in above-mentioned decision. He, therefore, submitted that there was no error apparent in action of WTO in this behalf so as to entitle Commissioner to assume jurisdiction under section 25(2). He also submitted that facts that very same property was sold in October 1979 for Rs. 9 lakhs and departmental valuer had valued property as at 31-3-1979 at Rs. 10,29,000 on basis of reference made to him under section 16A(5) are totally extraneous to issue, inasmuch as these events took place subsequent to valuation date and, therefore, they cannot form part of record of proceedings of WTO at time he passed orders, and by same token they cannot be taken into consideration by Commissioner for purpose of invoking his jurisdiction under section 25(2). In this connection, he relied on decision of Calcutta High Court in Ganga Properties v. ITO [1979] 118 ITR 447. 7. On behalf of revenue following submissions were made by learned departmental representative, Shri M. Mani. assessments were completed on 30-1-1981. property in question was sold for Rs. 9 lakhs in October 1979. Normally speaking, this information should have been available to WTO and in any case, same would form part of record of proceedings. Since very same property had been sold for Rs. 9 lakhs within short time of valuation dates for much higher figure than adopted by WTO in wealth-tax assessments, Commissioner had prima facie case to reopen proceedings under section 25 and direct WTO to redo assessments in light of these facts as also fact that departmental Valuation Officer had valued very same property as on 31-3-1979 at Rs. 10,29,000 on basis of reference made to him under section 16A(5). He also submitted that Commissioner had not suggested any definite figure of valuation in this behalf, and since he had only set aside assessments to consider matter of valuation afresh in light of these factors, there was no violence done to requirements of section 25. 8. In reply, representative of assessee submitted that sale of property in October 1979 did not form part of record of proceedings, and in any event, there was difference of one and half years between this date and last of valuation dates. He also brought to our notice that as regards valuation adopted for assessment year 1979-80 on basis of departmental valuer's report, same had been reduced on appeal to Rs. 8,82,000. In any case, he submitted that there was spurt in value of 8,82,000. In any case, he submitted that there was spurt in value of properties after 31-3-1978 and, therefore, same cannot be adopted as measure for determining value of property as on respective valuation dates under consideration. 9. We have carefully considered submissions made in this behalf on either side as also given our considered thought to various decisions cited in this behalf. We agree with submission made on behalf of appellant that primary requirements for assumption of jurisdiction by Commissioner under section 25(2) are absent in this case. As mentioned on behalf of appellant, value of property was declared on basis of registered valuer's report, according to which, value was determined by averaging values of property with reference to land and building and rent capitalisation methods. This method has been accepted as one of well recognised methods of valuation in vogue and same also had approval of Karnataka High Court in case of Smt. S. Neelaveni. In fact, following passage appearing in this decision is quite revealing in this context: " . . . There are several methods adopted in determining market value o f particular property at particular time. best evidence in regard to market value would be value of property itself if it has been subject of purchase near about valuation date. next best evidence would be value fetched for similar property in vicinity at about same time. In absence of such evidence resort is made to determine value by capitalising rent which property would fetch if let out or is fetching if already let out. Resort is also made to estimate by expert on basis of value of land and building. It is usual to value properties by more than one method so as to crosscheck and adopt average. This is resorted to when there is great disparity between valuation arrived at by different methods. " value ascertained by averaging products of these methods has in turn been accepted by WTO while completing assessments. It cannot, therefore, be said that WTO committed error in accepting value returned by assessee in this behalf. Events which have happened subsequently cannot also render assessments made as erroneous, inasmuch as WTO could not have anticipated sale of property, or for that matter valuation placed upon same by approved valuer. In any case, materials relating to sale of property as also valuation report of approved valuer came into existence after respective valuation dates and, therefore, they cannot form part of record of proceedings of WTO at time he passed order. In this connection following excerpts in headnote of decision in Ganga Properties' case are quite relevant: " Therefore, materials which were not in existence at time assessment was made and came into existence afterwards cannot form part of record of proceedings of ITO at time he passed order and cannot be taken into consideration by Commissioner for purpose of invoking his jurisdiction under section 263(1), for he 'is not acting as appellate authority but exercises only revisional jurisdiction. " provisions of section 25(2) of 1957 Act are in pari materia with section 263 of 1961 Act and, therefore, observations of High Court relating to section 263 are equally applicable to this section. In any case, sale of property for Rs. 9 lakhs has absolutely no relevance as it took place in October 1979, nearly one and half years after last of valuation dates, and same cannot furnish good measure for determining market value of property as on relevant valuation dates under consideration. What has to be decided while considering propriety or correctness of proceeding under section 25(2) is whether Commissioner had rightly assumed jurisdiction under that provision with reference to facts and circumstances existing as on date of assessment. Considered in light of above- mentioned decisions and facts and circumstances obtaining in this case, we are of opinion that WTO's action in accepting registered valuer's report while completing wealth-tax assessments cannot be considered to be erroneous. We are, therefore, unable to sustain order of Commissioner under section 25(2). Accordingly, we cancel same. 10. In result, appeals are allowed. *** N.K. GOPALAN v. WEALTH-TAX OFFICER
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