SMT. VIMLA DEVI SOGANI v. GIFT TAX OFFICER
[Citation -1986-LL-0829-6]

Citation 1986-LL-0829-6
Appellant Name SMT. VIMLA DEVI SOGANI
Respondent Name GIFT TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 29/08/1986
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags rent capitalisation method • land and building method • private limited company • transfer of ownership • valuation of property • transfer of property • annual letting value • method of valuation • immovable property • levy of stamp duty • vacant possession • wealth-tax act • valuation date • sale instance • market price • market value • actual sale • estate duty • real sale • gift-tax
Bot Summary: As far as the departmental representative Mr. Koolwal was concerned, his contention was based on the findings of the authorities below and further he only added that the stamp duty is levied in respect of a transfer of property from one to another and it is calculated with reference to the value of the property shown in the instrument of transfer. In case of a property which is let out but, sold on a particular date immediately following the valuation date, the WTO would have only done the proper thing of taking the actual sale value of the property on the basis that it could indicate the value on the valuation date. In normal circumstances when a property is sold by means of sale agreement, the value shown in the instrument of transfer duly registered would reflect the real market value of the property. The Registrar of Properties has to evaluate the properties for purposes of levy of stamp duty and he has to ensure that the stamp duty, which is legitimately due on the transfer of the property is fully recovered. If the instant case had been a case of a sale then the value which has been so shown in the instrument of transfer and accepted to be so by the Registrar of Properties for purposes of levy of stamp duty would have reflected the true market value of the properties We see no reason why this property value the true market value of the properties We see no reason why this property value should be by-passed in favour of the capitalised value shown by the assessee, as already spelt out earlier, the direct evidence is the value which a purchase would have paid which is so reflected in the instrument of purchase deed and registered as such by the stamp authorities is the proper value to be adopted in the instant case for levy of gift tax. The difference in price between a vacant property and a tenanted property is usually that quantum which the landlord might have to incur on his tenant for vacating the property. We have already made out observation to the fact that the value on the basis of which stamp duty has been levied on the property is an indicator of a market value of a property which stamp duty has been leived on the property is an indicator of a market value of a property which is by and large accepted to be depicting the true market value of the property, except in cases where there is evidence to the effect that the buyer has paid more than what was shown in the instrument of transfer.


In this appeal by assessee, only issue involved is about value of house properly, which is subject-matter of gift whether should be taken as Rs. 44,000 which is value arrived at on basis of capitalisation of net rental received on property or at Rs. 1,75,000 which is taken to be value on which stamp duty has been charged and paid for by assessee or transfer of property in favour of donee. ld. counsel for assessee , Mr. L.C. Patni contended very seriously that since assessee was assessed to Wealth-tax Act in respect of same property at same value in earlier assessment year and GT Act being analogous to Wealth-tax Act, same value should be adopted for gift-tax purposes. He also contended that property being let out, accepted method of valuation for Wealth-tax Act being capitalisation of net rental, which indicates reasonable market value should be taken to be market value even for gift tax purpose. His contention was based on fact that property was tenanted for several years with same tenant continuing even after gift and transfer of property in favour of donee. He also contended that no prudent buyer would pay for property anything more than amount at which it was assessed for wealth tax purposes knowing fully well that property cannot be vacated and his income cannot be increased at all. He filed copy of Board s circular dt. 26th March, 1968 where Board had given directions to effect that value at which property should be considered for Estate Duty purposes should be same as was assessed for ET purposes, as there could be very little variation between last valuation date and date of death. According to Mr. Patni, this circular would equally hold good even for gift-tax purposes. He placed reliance on AIR 1968 SC 1201, (1968) 67 ITR 761 (Cal), (1966) 60 ITR 103 (Mys), (1982)26 CTR (Cal) 310: (1982) 137 ITR 483 (Cal), (1980) 14 CTR (SC) 366: (1980) 122 ITR 38 (SC) and (1985) 45 CTR (Bom) 180: (1985) 155 ITR 637 (Bom). His contention that value adopted for levy of stamp duty is not relevant was on ground that stamp duty is levied on basis of norms under stamp duty Act, which norms are not applicable as far as gift tax proceedings are concerned and they do not represent market value of property. He further contended that stamp duty so paid was on basis of Registrar of Properties indicating stamp duty charges and for levy of stamp duty they have evaluated property. According to him, therefore, whatever may be value on which stamp duty is paid it has not relevance at all for valuation of property for levy of gift-tax. As far as departmental representative Mr. Koolwal was concerned, his contention was based on findings of authorities below and further he only added that stamp duty is levied in respect of transfer of property from one to another and it is calculated with reference to value of property shown in instrument of transfer. Further, Registrar has certain basis for arriving at particular value. It is duty of Registrar to ensure that stamp duty is leviable on value of property correctly and he can enforce prosecution in case he is of view that value shown is less for sole purpose of avoiding tax. He, therefore, contended that value as was taken by Registrar of Properties on basis of which stamp duty was collected should be adopted as value of property for gift-tax purposes. We have given very careful considerations to rival contentions. manner of valuation of gifts of property has been provided for in s. 6(1) and (3) of GT Act. sections are reproduced for ready reference. Sec. 6(1): value of any property other than cash transferred by way of gift, shall subject to provisions of Sub-sec. 2 and 3 be estimated to be price which in opinion of GTO, it would fetch if sold in open market on which gift was made. Sec. 6(3): Where value of any property cannot be estimated under Sub-s. 1 because it is not saleable in open market value shall be determined in prescribed manner. Reading two sections reproduced above, it gives impression that properties which are capable of being sold in open market value shall be arrived at on hypothetical basis of ready buyer and ready seller. rules that are prescribed are r. 10 and r. 11, which would apply to only such situations where property is not saleable in open market or in respect of properties which are covered by means of gift, which is not revocable for specified period. Therefore. one thing that is patently clear is that in present situation sub-cl. (1) of s. 6 is only applicable. provisions of s. 6(1) of GT Act and that contained in s. 7(1) of WT Act appear to be on same line. Under both Act, emphasis is on existence of open market and open market price is merely measure of value. Normally under both Acts accepted method of valuation of property is readily available sale instances in locality in which property is situated. In absence of that indicator, other methods of valuation are followed namely, land and building method, rent capitalisation method and like. In case of property which is let out but, sold on particular date immediately following valuation date, WTO would have only done proper thing of taking actual sale value of property on basis that it could indicate value on valuation date. other evidence which could be taken into account is value which similar property in vicinity fetched near-about valuation date. In absence of two direct evidences available next probable method which is followed in case of properties which are let out, is to adopt capitalisation of rent. In instant case, we have value taken by Registrar of Properties o n basis of which stamp duty has been levied. In normal circumstances when property is sold by means of sale agreement, value shown in instrument of transfer duly registered would reflect real market value of property. So transferred . Registrar of Properties has to evaluate properties for purposes of levy of stamp duty and he has to ensure that stamp duty, which is legitimately due on transfer of property is fully recovered. Registrar has been empowered to reject value, which has been shown in instrument of deed and take another value for purposes of recovery of stamp duty, whenever he is of view that lower value has been indicated in instrument of transfer, which is not real market value, according to him, and has been so specified, with view to avoid stamp duty. If instant case had been case of sale then value which has been so shown in instrument of transfer and accepted to be so by Registrar of Properties for purposes of levy of stamp duty would have reflected true market value of properties We see no reason why this property value true market value of properties We see no reason why this property value should be by-passed in favour of capitalised value shown by assessee, as already spelt out earlier, direct evidence is value which purchase would have paid which is so reflected in instrument of purchase deed and registered as such by stamp authorities is proper value to be adopted in instant case for levy of gift tax. Perhaps realising that assessee may be made to pay gift-tax on property so gifted on which he had also to pay stamp duty charges, legislatures have provided for in section 18A of GT Act to give credit for stamp duty so paid on property. argument that donor if he had to sell property he would have at best expected to realise Rs. 44,000 only, is totally fallacious argument which has no basis and which could not be accepted by any prudent person. There is no doubt that some element of truth in that in case of tenanted property, value would be lower comparatively to property which could be given vacant possession of. There are several pointers, which are considered by seller as well as by buyer. It could be primer location of property, possible further expansion, possibility of vacating tenant and several others. difference in price between vacant property and tenanted property is usually that quantum which landlord might have to incur on his tenant for vacating property. buyer, who buys property which is tenanted takes this factor into account and, therefore, he pays lower price then he would have otherwise paid had seller would have given to him property in vacant possession. These salient considerations have to be necessarily considered but to say that they should not be applied to present case is not at all proper but rather is in nature of asking us to close our eyes to real situation. In case relied on by assessee of V. C. Ramanchandran (1966) 60 I T R 103 (Mys) (supra) rather supports our view, as their Lordships have observed "the view that immovable property acquires market value if there is intention to sell on part of owner is not correct". In that case, issue was valuation of property under Wealth-tax Act and their Lordships were not considering sale instance or transfer as existing in present case. said case, therefore, cannot be applied to present situation. In case of Sudesh Chandra Talwar (1982) 137 ITR 483 (Cal) (supra), their Lordships of Calcutta High Court were considering value of property for WT purpose. Their Lordships made very pertinent observation and that is "in determining value of property another factor that has to be borne in mind is that such method should be preferred which has more objective reliable date than mere subjective opinions" even though their Lordships ultimately held that in case of let out property, proper basis would be rent capitalisation. said case would have no application in present situation before us when property changes hands from one to another. In case of Smt. Kusum D. Mahadevia (1980) 122 ITR 38 (SC) (supra) their Lordships of Supreme Court were considering valuation of unquoted shares and that too of private limited company . Even this case would not apply to present situation for reason that that case was in relation to valuation under s. 6, sub-cl. (iii), which provides for valuation in accordance with prescribed manner because it is not saleable in open market. In present case, there is no such restriction or any condition which prevents sale of property in open market. We have already made observation that in present case before us, sub-cl. (I) of s. 6 is only applicable which talks of value which property would fetch if sold in open market. Bombay High Court in case of Jehangir Mahomedali Chagla & Anr. (1985) 155 ITR 637 (Bom) were considering valuation of property for estate duty purposes. This case would have also no applicability to present situation. as it does not take into account transfer of ownership from one to another. In case of Radha Devi Jalan (1968) 67 ITR 761 (Cal) (supra), it was matter under consideration for levy of estate duty, which also would not apply for reason that it does not taken into account change in hands of ownership. One thing that is commonly realised by Courts is that rent capitalisation method would become applicable only when real sale instance is available, and when real sale instance is available it is necessity to be taken into account. We have already made out observation to fact that value on basis of which stamp duty has been levied on property is indicator of market value of property which stamp duty has been leived on property is indicator of market value of property which is by and large accepted to be depicting true market value of property, except in cases where there is evidence to effect that buyer has paid more than what was shown in instrument of transfer. Legislatures realising predicament of assessee that he is doubly being taxed for making gift have provided relief measure in s. 18A by which he is allowed deduction of amount equal to stamp duty o paid or 1/2 of gift tax payable which ever is less. We are, therefore, of view that there is absolutely no merit in appeal of assessee and we, therefore, dismiss same. H.S. AHLUWALIA, J.M. I agree with ultimate conclusion arrived at by my ld. brother and I would like to add that acceptance by Courts in income tax and related to proceedings of fantastically low values which are wholly different from real values has resulted in large scale evasion of law and creation of black money. It is matter of common knowledge that houses are never available on so- called standard rents or letting value mentioned in Municipal records, result is that Municipal Committee/Corporations do not realise proper tax nor is annual letting value of self-occupied properties ever properly taxed. various authorities given down at highest levels are misused to get fantastic decisions. I wish Courts to go behind apparent values which are being adopted for technical reasons and find out real market values for purpose of taxation laws as has been done in this case. Then only can IT law serve its real purpose. *** SMT. VIMLA DEVI SOGANI v. GIFT TAX OFFICER
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