KRISHNA PRASAD C Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THIS is a reference under s. 27(1) of the WT Act, 1957, hereinafter referred to as the Act. The following three questions of law have been referred by the Tribunal, Madras Bench, for our opinion.

(2.) THE answer to the 3rd question is covered by our decision in O. Krishna Parsad vs. CIT (1970) 75 ITR 526 (Mys) [ITRC No. 7 of 1968] . Following the said decision, the said question has to be answered against the assessee and in favour of the Revenue. THErefore, what remains to be answered are questions Nos. 1 and 2 only. Question No. 1 as recast by us relates to the valuation of the property which has been leased to Jayanthilal Thakoor under a lease deed dt. 31st May, 1957. Question No. 2 relates to the valuation of the property covered by a lease to the Indian Bank under a registered deed dt. 24th Sept. 1953. THE WTO valued the property leased to the Indian Bank in which the assessee has a moiety of interest at Rs. 1,59,777; the AAC reduced that valuation to Rs. 1,50,000 and that value has been upheld by the Tribunal. THE property covered by the lease to Jayanthilal Thakoor was valued by the WTO at Rs. 1,49,500. THE AAC has reduced the valuation to Rs. 1,45,500 and that value has been upheld by the Tribunal. THE property leased to Jayanthilal Thakoor was a vacant site when it was leased on 31st May, 1957. Under the terms of the lease, the lessee agreed to pay rent at the rate of Rs. 250 per month for the first 10 years, Rs. 450 per month for the next 10 years and Rs. 650 per month for the remaining 10 years of the lease. THE lease deed gave an option to the lessee to renew the lease after the expiry of 30 years for a further period of 10 years. Under the terms of the lease, the lessee agreed to surrender the building constructed by him on the site to the lessor without claiming any compensation. After the execution of the lease, the lessee, Jayanthilal Thakoor, constructed a theatre on the land which is now called as the "Alankar THEatre". THE WTO and the appellate authorities valued the building of the "Alankar THEatre" as on the date of the valuation, viz., 31st March, 1963, at Rs. 4,75,000. Since the assessee and his divided brothers would get the building only on the expiry of the lease, the Tribunal valued the said right at Rs. 1.09,905 computing the same as per Parks Table by taking the interest yield at 5 per cent. In addition to the value of the said right the Tribunal valued the land on which the building is situated at Rs. 90 per square yard and on the said basis the value of the land was computed at Rs. 1,10,368. THE Tribunal further added to the valuation of the land and the right to the building, the value of the right of the lessor to get rent for the remaining term of the lease and that amount was fixed at Rs. 71,475. Sri K. Srinivasan, the learned counsel for the assessee, did not dispute the correctness of the value of the site on which the "Alankar THEatre" has been built. His submission was that on the valuation date the right of the assessee to recover the building on the expiry of the term of the lease cannot be valued at Rs. 1,09,905 which was the valuation made on the basis that the value of the building on the expiry of the term of the lease would be Rs. 4,75,000. THE error into which the WTO and the appellate authorities under the Act have fallen to forget that the valuation of Rs. 4,75,000 is the valuation of the building on 31st March, 1963, and not the valuation on the expiry of the term of the lease. On the date of the valuation, six years of the term of the lease had expired and the remaining term was 24 years. To that has to be added another 10 years because under the terms of the lease the lessee has the option to renew the lease for a further term of 10 years. THE value of the building, 34 years after the valuation date when the lessor would be entitled to its possession, has to be determined by allowing depreciation for the building. For a first class building the IT authorities allow depreciation at the rate of 2 1/2 per cent per annum. THE written down value of the building works out at Rs. 2,00,271 as on 1st April, 1997. If the value of the building on 1st April, 1997, when the assessee becomes entitled to recover possession of the building is Rs. 2,00,271, then the value of that right on 31st March, 1963, would be Rs. 38,121 applying the Parks Table and taking the interest yield at 5 per cent. THE authorities under the Act, having valued the land at Rs. 1,10,318, they were not entitled to value the benefits of the future rents when the rent is payable for the land leased to the lessee. THE value of the right to collect rent for the remaining period of the lease has to be deleted altogether. THE value of the property covered by the lease in favour of Jayanthilal Thakoor on a proper valuation comes to Rs. 38,123 plus Rs. 1,10,318 equal to Rs. 1,48,441. THE value of the interest of the assessee in the property leased to Jayanthilal Thakoor on the valuation date comes to Rs. 74,219. Question No. 1, therefore, has to be answered in favour of the assessee and against the Revenue. We hold that the said property should have been valued in the manner we have done.