P N SIKAND Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE question that has been referred to us under S. 27 of the WT Act, 1957, is :

(2.) THE assessee was assessed to wealth -tax as individual for the asst. year 1968 -69. The relevant valuation date is 31st Dec., 1967. His total wealth was computed by the WTO at Rs. 8,10,165. This included, inter alia, a sum of Rs. 6 lakhs, as the value of a house on Plot No. 12, Block No. 39, Kautilya Marg, Chanakya Puri, New Delhi. The assessee had never challenged in the past the determination of the value of this property at Rs. 6 lakhs ; but in the relevant assessment year the assessee returned its value at Rs. 4,52,000 on the basis of a certificate from M/s Anand Apte Jhabwala, architect and approved valuer of New Delhi. The value of the property was estimated at Rs. 5,82,268 from which a sum of Rs. 1,30,000 was deducted as 50per cent of the unearned increase in the value of land which was required under the terms of the agreement of lease, to be paid to the lessor (the President of India), at the time of the transfer of the lessee's interest. The WTO did not accept the assessee's valuation. He estimated the value of the property at Rs. 8,29,560 on rental basis to which the assessee's objection was that the building being very large, it could attract only a limited number of interested tenants. The WTO, however, determined the value of Rs. 6 lakhs as in the past ; and rejected the claim for deduction of 50per cent of the unearned increase as "based merely on hypothetical presumptions". The AAC of Wealth -tax in appeal was of the view that the fact that the assessee might have to pay a sum of Rs. 1,30,000 to the lessor did not affect the valuation of the property under S. 7 of the WT Act. According to him, the market value was a price which a prospective buyer was prepared to give in respect of property as on the valuation date and the fact that the assessee may have to part with a part of that money was of no relevance. The Tribunal, in second appeal, agreed with the AAC and rejected the pleas of the assessee that, under the terms of the lease, the lessor was entitled, in case of transfer, to claim and recover 50per cent of the unearned increase in the value of land, that the lessor had the pre - emptive right to purchase the property after deducting 50per cent of the said unearned increase and that the assessee, therefore, was entitled to deduct 50per cent of the unearned increase from the total value of the land. It was under these circumstances that the Tribunal, at the instance of the assessee, referred the above question to us for our opinion.

(3.) THE law thus provides a fictional approach by which an hypothetical sale in the open market of the asset in question is assumed on the valuation date. In this case, the price which the asset in question would so fetch on the valuation date was estimated to be Rs. 6 lakhs. This asset consists of the leasehold interest of the assessee in the property which is subject to the terms and conditions of the agreement for lease dt. 30th Dec., 1954, executed between the President of India as the lessor and one Smt. Vashesharan Devi from whom the assessee acquired the property, as the lessee.