G. SANTHANAM, A.M. These are appeals by co-owners or some godowns at Rajahmundry and as identical issues are raised in these appeals, common order is passed for sake of convenience. 2. appellants in their individual capacity of in status of HUF are co- owners of some godowns, bearing No. 340/2B at Rajahymundry. There are four godowns at Rulampeta Panchayat, Rajahmundry. District Valuation Officer in his report stated that it is not possible to separate godows assessee-wise. godowns were constructed as per specifications provided by Food Corporation of India (FCI) pursuant to agreement for construction of godowns entered into between some of assessees and representative of FCI, Hyderabad and u p o n construction these godowns were leased out to FCI under lease agreement dt. 31st Dec., 1977 for period of five years. There are two lease agreements, one between Sri Naraindas Mulchand and FCI and another between Mrs. Neelu Naraindas and Sri Ramchand Mulchand of one part and FCI of other part. terms of lease agreements are identical and lease is for period of five years at rent of 47 paise per s. ft. per month. cl. 3 of agreement provided that lessee will have option to extent lease for further period of one year on same terms and conditions. open space adjoining godowns did not carry rent and cl. 4 of agreement provided that lessor shall, during term of tenancy, keep godowns fit in all respects for storage of food-grains and there are various other conditions in l e s e agreement for providing facilities such as access to godown, tidy maintenance of godowns, provision of electricity fittings for godowns and near about place and for providing necessary facilities to watch and ward staff employed by lessee. Further municipal or local taxes relating to lands of godowns will have to be paid by lessor, etc. construction of godows was started in 1977 and completed in Nov., 1977. first valuation date for purposes of wealth tax fell on 31st Aug., 1978. names of co- owners and their share in cost of construction as well as value declared for wealth tax purposes together with their respective shares are as follows: Share in "Name of co-owner cost as per assessee Rs. Sri Naraindas Mulchand HUF 7,21,359 Rs. Sri Naraindas Mulchand Indl. 7,21,358 Rs. Smt. Neelu Naraindas 7,63,340 Rs. Sri Ramchand Mulchand HUF 3,81,670 Rs. Sri Ramchand Mulchand Indl. 3,81,670 Rs. . 29,69,397 Naraindas Mulchand : Godown . . N.M. Individual 1/2 . N.M. HUF 1/2 . Neelu Naraindas & Ramchand 1/2 . Mulchand Godown Neelu Naraindas R.M. HUF 1/4 . R.M. Indl. 1/4 . Rs. Cost of construction . 29,69,397 Rs. Cost of land . 1,25,528 Rs. Interest capitalised . 98,952 Rs. . . 31,93,877" WTO referred matter to District Valuation Officer who determined value of all these four godowns at Rs. 71.11 lakhs for valuation dt. 30th Oct., 1978, 21st Oct., 1979 and 7th Nov., 1980. WTO adopted valuation as given by District Valuation Officer. assessees carried matter in appeal to AAC of WT who dismissed appeals. 3. Before us, Sri D.M. Harish, ld. counsel for assessees, submitted that godowns were constructed according to specifications given by FCI. lease was only for period of five years with option for lessee to extend it by another year. If FCI abandons project, or switches over to some other person, or changes its venue of operations, assessees would be left high and dry and there would be no prospect of receiving same rent. Therefore, rent capitalisation method assuming maintainable rent for 48 years as adopted by District Valuation Officer is unrealistic being arbitrary,. He also submitted that expected rate of return at 9per cent which is return available on gift-edged securities on basis of which capitalisation factor was fixed at 10.65 is unreal especially when prospective investor has got more profitable avenues of investment which are equally safe such as in case of deposits with nationalised banks and Unit Trust of India etc. He further submitted that godowns were of, recent construction and first valuation date being very close to date of completion of construction, value as declared by assessee on basis of land and building method should be adopted. It was his plea that when lease agreement itself is for limited period of five years with opinion to extend it by another year, District Valuation Officer should not have computed maintainable rent for period of 48 years. It was his submission that when land and building method is also approved method for purpose of ascertaining market value, in view of fact that completion of construction was very near to valuation date, cost of construction itself should be accepted as revealing market value of property as on valuation date. In this context, he invited our attention to decision of Tribunal, Hyderabad Bench 'B', in WTA No. 531/Hyd/1983, in which it was observed ; '' rent capitalisation method is only one of methods and value thrown up by any particular method has to be tested with values resulting from other valuation methods. In view of very proximate date when construction was completed and investment including market value of land having been less than Rs.10 lakhs, it cannot be said that merely because capitalisation of rent in abstract yielded value of about Rs. 20 lakhs. That value alone should be adopted when similar investment could have been required for about half value, market value could represent capitalised yield method." He also relied on following decisions: (1) Special Land Acquisition Officer, Devangera vs. P. Veerabhadrappa and Ors. (1984) 42 CTR (SC) 357 : (1985) 154 ITR 190 (SC). (2) Smt. S. Neelaveni vs. CWT (1980) 125 ITR 665 (Kar). (3) K. Bhoomianna and Anr. vs. CED (1978) 115 ITR 703 (Kar). 4 . Without prejudice to foregoing submissions, Sri Harish submitted that when IT Act itself allowed collection charged upto 6per cent authorities below took only 3per cent of receipts which is inadequate. District Valuation Officer had only taken into account Panchayat taxes which is only 1per cent of rent and he had not considered fact that that godowns are situate very near municipal limits. Rajahmundry is growing town and municipal limits will be extended in near future and, therefore, municipal tax which is 25per cent of rent should be taken into account while computing rent received. In addition, he submitted that in arriving at annual value, District Valuation Officer had not allowed even 1/6th of rent towards repairs and maintenance, and as per terms of lease agreement, repairs and maintenance are responsibility of assessee. As storage of food grains is involved, godowns have to kept in constant repair. There is also another aspect to problem viz., there are many co-owners and proper discount, any between 10per cent and 15per cent should have been given in ascertaining fractional interest in reality. This is important factor in context of hypothetical sale. 5 . Sri. C.V. Padmanabhan, ld. Senior departmental Representative, submitted that cost of construction has no relevance for ascertaining fair market value. For highly developed commercial properties which are let out, rent capitalisation method is only reasonable method that has to be adopted. As value of land and buildings would appreciate in future, and as investment in land and buildings is always looked upon as safer investment, rate of return should be same is available on gift-edged securities which are safer mode of investment. Therefore, capitalisation rate adopted by District Valuation Officer was quite proper. He relied on following decisions: 1. CWT vs. V.C. Ramachandran (1966) 60 ITR 103 (Mys) 2. CED vs. Radha Devi Jalan (1968) 67 ITR 761 (Cal) He also submitted that as co-owners are members of joint family, n o discount need be given for undivided interest. As godowns were constructed solely propelled by profit motive for getting high rents, these properties are commercial assets and, therefore, land and building method of valuation would not be barometer for market value of such properties. 6. We have heard rival submissions and perused materials on record. market value of four godowns for purposes of wealth tax as on 30th June, 1978 in case Sri Naraindas Mulchand (Individual) and as on 31st Oct., 1978 in case of other appellants, is in dispute before us. District Valuation Officer has determined market value of godowns at Rs. 71.11 lakhs. case of appellants is that construction of godown was completed by about November, 1977 and therefore, cost of construction which was at current market price reflected true market value. Alternately, valuation of godowns by land and building method reflected true market value. They also object to valuation of property on rental method and also to computation of maintainable rent by District Valuation Officer in that he had: (a) adopted 9per cent rate of interest as reasonable return on investments: (b) overlooked effect of fractional interest in properties as properties are under co-ownership; (c) given only meagre allowance of 3per cent towards collect on charges; and (d) allowed only negligible amounts towards repairs and maintenance of these properties by overlooking fact that IT Act itself allows 1/6th of annual letting Value as being for repairs. 7. valuation of properties especially land, buildings in this case godowns poses complex problem. For purposes of wealth-tax, we have to ascertain market value of properties as on valuation date. Sec. 7(1) of Act which prescribes method of ascertaining market value reads as follows: "Subject to any rules made in this behalf value of any asset, other than cash, for purpose of this Act, shall be estimated to be price which in opinion of WTO it would fetch if sold in open market on valuation date". From this it would be clear that market value of property would represent price which willing buyer is prepared to pay to willing seller in hypothetical market. Therefore, we reject argument of Sri Harish that cost of construction should be taken as market value of properties in spite of proximate dates. However, this is not to deny that cost of construction also may be one of several facts influencing market value. 8. Undoubtedly, godowns are commercial assets and they were leased out to FCI for period of five years with option to extend same by another year. Godowns fetch high rents. Therefore, valuation by land and building method may not be revealing market value of properties concerned. 9 . This takes us to rental value method. In fact, this method was adopted by District Valuation Officer. But, he has taken return on investment at 9per cent. This is considered by assessee to be too low. Supreme Court in Special Land Acquisition Officer, Davangere, vs. P. Veerabhadrappa and Ors. (1984) 42 CTR (SC) 357 : (1985) 154 ITR 190 (SC) observed that it would be unrealistic to adhere to traditional view of capitalised value being linked to gilt-edged securities when investment in fixed deposits with nationalised banks, National Savings Certificates, Unit Trusts and other forms of Government securities and even in share market in shape of blue chips command much greater return. Though these observations of Supreme Court are in relation to land acquisition proceedings, they are equally valid for purposes of valuation. District Valuation Officer had taken rate of interest obtaining on gilt-edged securities. But, with nationalisation of banks and with launching of Unit Trust of India, prospective investors have better and safer modes of investment. Therefore, return on gilt-edged securities need not necessarily by decisive factor in adopting proper multiplier for capitalisation of rent. Their Lordships of Gujarat High Court in CIT vs. Smt. Vimlaben Bhagwandas Patel (1979) 13 CTR (Guj) 27 : (1979) 118 ITR 134 (Guj) extracted passage from Lean and Coodall in book Aspects of Land Economics (1966) as follows: "With exceptions level of yields in real property market tends tends to follow level of yields in investment market and relative yields in real property market often follow yields of their closest substitutes in investment market". It is noticed from said judgment that Lawrence and Rees in their book Modern Methods of Valuation of Land, Houses and Building and Ralph Turkey in h i s book. Economics of Real Property endorsed same view. Their Lordship observed as follows: "A purchaser of property has to rely on rely on borrowing from housing finance agencies or banker or Life Insurance Corporation. lending rate of such institutions vary from 13 to as much as 14 or 15 per cent. return o n gilt-edged securities like 3per cent conversion loan or other Government securities works out between 5 to 644per cent. prime money rates for advance by banks are between 14 to 15per cent. net average yield of preference dividend is between 12 to 13per cent as indicated in report of Reserve Bank of India. rate of capitalisation should, therefore, be not unreal n d must have regard to commercial rate of return after taking into consideration various constraints and insecurities in property market". Their Lordship also noticed that s. 11(1) of Urban Land (Ceiling and Regulations) Act, 1976 prescribed payment of amount of compensation for vacant land acquired under s. 10(3) by State Government to interested person in income bearing land at rate equal to 8-1/3rd times net average annual income actually derived from such land during period of five consecutive years immediately preceding date of publication of notification under s. 10(1). In other words, necessity of compensating interest of "income bearing" land by amount of eight and one-third times net average annual income so as provide return of 12per cent per annum is recognised and incorporated as relevant principle in statute enacted for purposes of acquiring excess land and compensating them by Union Government. Therefore, their Lordships concluded. "In our opinion, therefore, just, reasonable and appropriate rate of capitalisation would be eight and one-third times net average annual income which would give yield of 12per cent per annual on investment of capital in property." 10. Roshan Nanavati, author of Theory and Practice of Valuation, 1968 edition, page 83, suggested rate of interest for guidance from 7.2per cent to 8per cent. But that was in year 1968 when Government securities themselves fetched 4.2per cent to 5.2per cent. We are concerned with much later assessment year, and there are more attractive and equally safe securities in addition to and apart from gilt-edged securities that compete with each other to hypnotise prospective investor. Therefore, we are inclined to take view that rate of return assumed by District Valuation Officer on basis of gilt-edged securites at 9per cent is certainly less attractive preposition so far as modern investor is concerned. 12per cent rate of interest would be modest expectation of return on investment for any prospective investor, faced with equally safe and attractive venues of investment such as Unit Trust and deposits with nationalised banks, not to speak of investment in blue chips of limited companies. capitalisation rate is, therefore, fixed at 8.33 times rental value. 11. Another grievance of assessee is that District Valuation Officer had only taken actual expenditure on repairs and maintenance which would invariably be low in view of recent construction of godowns. When maintainable rent is estimated for 48 years, it stands to reason that reasonable allowance must be made for repairs and maintenance. In fact, as per terms of lease, lessor has to maintain properties in constant repair on account of fact that godowns are utilised by FCI for storage of essential grains. IT Act allowed 1/6th of annual value for repairs and that may be taken as valid allowance for repairs. 12. Sri Harish submitted that District Valuation Officer had allowed only 3per cent towards collection charges and more should be allowed on this account. We are unable to uphold his contention. There are only four godowns fetching high income and District Valuation Officer has allowed 3per cent of rent as collection charges. No evidence has been produced before us to show that actual expenditure on collection of rent is much more than what has been allowed. Therefore, we reject his contention. 1 3 . Another contention of Sri Harish is that proper discount should be allowed for fractional interest. In his Treatise on Valuation of property Vol. 2 page 707, ld. author Bonbright recommends 10per cent discount where there is twin revision and 15per cent discount in case of triple division. Sri Harish relies on this recommendation. Sri Padmanabhen, for Department, contends that, after all, co-owners are members of HUF and, therefore, there could not be any discount for fractional interest in reality. In our view, when there are co- owners, be they two or more, and when property itself cannot be itemised assessee-wise as found by District Valuation Officer, there is substance in claim of Sri Harish that there should be appropriate discount for fractional interest in reality. As, however, co-owners are members of joint family, such discount need not be on high side. In our view 5per cent discount on capitalised value of properties would take care of fractional interest in reality. 14. Having held that there are at least two known methods of valuation for properties of this kind, it should be our endeavour to ascertain market value as on valuation date. Sri Harish submits that if two interpretations are possible, one which is favourable to taxpayer should be adopted and on parity of reasoning, he argues, that if two different methods of valuation are possible, Revenue should accept valuation that is more favourable to assessee. He has supported this view of matter by decision of Punjab and Haryana High Court, in Jaswant Rai vs. CWT (1977) 107 ITR 477 (P&H). with great respect to Punjab and Harayana High Court, we are inclined to follow view of Karnataka High Court in V.C. Ramachandran vs. CWT (1980) 126 ITR 157 (Kar) that this principle of interpretation of statutes cannot be imported and appeal to valuation of property for wealth tax purposes in given case which is question of fact. In case cited supra, Karnataka High Court held that two well-known methods of ascertaining market value of building or which have come into existence are (a) rental method and (b) land and building method. Sometimes, average of two valuation is also adopted depending upon facts and circumstances of given case. Hyderabad Bench 'B' of Tribunal in W.T.A. No. 531/Hyd/1913 has in fact approved of averaging of value arrived at by these different methods. As it is, in case before us, there will be great disparity of valuation of godowns by adopting these two methods independently. Therefore, average of values is considered to be reasonable on account of fact that lease can at best be only for period of 6 years and assessee have to depend entirely on FCI which holds monoploy of godowns and, therefore, assessee may not any chance of getting higher rents in future. Even if higher rents are realised in future beyond 6 year term, same would be more than offset by fall in money values caused by inflation. 4Therefore, we set aside orders of AAC of WT and direct WTO to take average of values by giving effect to out findings in paras 10, and 13 above. 1 5 . cases relied on by Sri Padmanabhan (1966) 60 ITR 103 (Mys) 1 5 . cases relied on by Sri Padmanabhan (1966) 60 ITR 103 (Mys) (supra) and (1968) 67 ITR 761 (Cal) (supra) dealt with properties which fall within purview of provisions of Rent Control Act which is not case before us. 16 . In result, appeals are partly allowed. *** NARAINDAS MULCHAND (HUF) v. WEALTH-TAX OFFICER