1986 PLP (Trib (PTD)

ZAFAR HUSSAIN (MEMBER).‑‑These four appeals have been filed from the order to the learned C.I.T. (A) in respect of the four wealth tax assessments for the years 1976‑77 to 1979‑80 framed under the Wealth Tax Act, 1963, taking objection to his decision confirming the assessments framed by the W.T.O. This is the case of an assessee who, besides other property, holds one‑fifth share in the building known Mariam Mension situated at The Mall, Lahore. The learned counsel for the assessee and the D.R. have been heard and the appeals are disposed of as under:‑

2. The facts briefly, stated are that the assessee is the owner of 1/5th share, besides other property, of the Mariam Mansion, a four storeyed, building which was constructed during the financial year 1975‑

76. It is located in the most central and expensive commercial area of The Mall, Lahore, and its market value according to the W.T.O had to be determined keeping these facts into consideration. The W.T.O. came to know from Messrs American express International Banking Corporation, who had hired this the entire building that it had been given on rent to them in April, 1976 at an annual rent of Rs.5,40,

00. In view of this fact the W.T.O. did not accept the declared value of the budding at Rs.1,24,105 whereas the value of the plot itself was about Rs.1,44,000 at the rate of Rs.9,000 per marla. Discarding the, value declared by the assessee the W.T.O. valued building at Rs.54.00,000 adopting the valuation at ten times of the annual rent vii., Rs.5,40,000.

3. In framing the estimate of valuation of the building the W. T. O. resorted to the provision of sub‑rule (3) of rule 8 of the Wealth Tax Rules, 7963. The W. T. O. accordingly assessed 1/ 5th share of the assessee in her hands at Rs.10,80,000 each for year 1977‑78 and 1978‑79 and Rs,9,00.000 for the year 1976‑77 allowing some concession as the property .was let out only four days after the valuation date. Taking exception to the decision of the W.T.O. the assessee filed an appeal to the C.W.T. (A), who confirming the decision of the W.T.O. held that in view of the monthly rent of Rs.45,000, the W.T.O. had rightly calculated the valuation of the building at Rs.54,00,000 and the share of the assessee in the wealth at Rs.l0, 80, 000 for the last three years.

4. In appeal, before us the learned counsel for the assessee taking objection to the decision of the C.W.T.(A) has taken two grounds viz. (i) the valuation adopted by the W. T . O. of the property situated at 85, The Mall, Lahore, is illegal, harsh and excessive, and (ii) the Income‑tax Appellate Tribunal in its order in an Estate Duty case. EDA No. 10 of 1981‑82, dated 2‑6‑1963 has determined the valuation of the property much less and the W. T.O. could not adopt contrary valuation of the superior Court's decision, The counsel has also drawn our attention to the Circular instructions of C.B.R. contained in S.R.O. 404(1)/81, dated 3‑5‑19811. On reference to the Notification we find that it has no application to the case before the Tribunal. The further contention of the appellant was that the provision ref sub‑rule (3) rule 8 of the Wealth Tax Rules are not attracted in this case. On the other hand the learned D.R. pointed on: that the assessment framed by the W.T.O. was very much legal, fair and in keeping with the provisions of the Wealth Tax Act and the rules made thereunder and the W.T.O. has adopted the valuation of the building at only ten times that of the annual rent which he was legally permitted under the sub‑rule (3) of rule 8 of the Wealth Tax Rules which is so squarely applicable art this case. He could even estimate higher value subject, of course, to the approve by the higher officer i.e., the Inspecting Assistant Commissioner of Wealth Tax.

5. The case cited by the A.R. where the valuation for the purpose of Estate Duty of this building was determined, is under the Estate Duty Act, 1950, which assessment was framed as consequence of death of the owner of the property who expired on 29‑4‑1979. In, that case the Controller of Estate Duty had proposed finally Rs.40,00,000 as valuation for the purpose of Estate Duty, but he ultimately adopted the valuation at Rs.54,00,

000. In that case the counsel for the Accountable Persons had adopted the stand that the Controller of Estate Duty id to estimate the principal value of the property if sold in open market at the time of death of the deceased. It was further stated that in order to make hypothetical estimate of value of property a number of factors had to be kept in view which are for instance, the location, the type of construction, the taxes on immovable property, the tax on its income, whether the property is vacant or rented out etc. Further plea of the learned A.R. in that case, who is also the A.R. in the wealth tax case before us, was that the annual letting value is certainly not a criteria for valuation, which is in fact a misleading factor, It was argued by the A.R. that a property may be rented out to a good tenant on higher rent while another property worth much more can De rented out on much lower rent. The further plea that a higher rent was a liability in this case as the deceased had received advance rent and the property was under lease for a fixed period. According to the arguments of the A.R. the Tribunal had finally fixed the value of building for the purposes of the Estate Duty at Its. 24, 33 , 000..

6. We leave given consideration to the arguments of the learned, A.R. in the wealth tax before us and we find that the basis of valuation of a property are certainly different under the Estate Duty Act from1A those laid down under the Wealth Tax Act. Subsection (1) of section 38 of the Estate Duty Act for estimating the principal value of the building is as follows:‑ "The principal value of any property shall be estimated to be the price which in the opinion of Controller it would fetch if sold in tile open market at the time of the deceased's death.

7. The emphasis in the Estate Duty Act in estimating the valuation of the property is on the value that it may fetch if sold in the open market. As mentioned above there will be various factors which would determine the value in the market at the time of death of the deceased one of the important factors being whether the property is vacant or rented out, which makes substantial variation in the value. On the other hand the valuation for the purposes of wealth tax is made under the provisions of charging section 3 of the Wealth Tax and the rules made thereunder. The section and the rules are reproduced for facility of reference. "Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963 a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual and Hindu undivided family at the rate or rates specified in the Schedule." Sub‑rule (3) of rule 8 is in the following words: "The value of lands and buildings, excluding agricultural land shall be estimated with due regard to the valuation is the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighbourhood of the said locality. "Provided that the Wealth Tax Officer shall not, except with the prior approval of the Inspecting Assistant Commissioner of Wealth Tax, determine the value of any property at a sum higher than ten times the gross annual rental value of such property. "Explanation.‑‑For the purposes of this sub‑rule, "gross annual value" means the sum for which the property might reasonably be expected to let from year to year."

8. The two provisions for the valuation of a property referred heretofore in the Estate Duty Act and the Wealth Tax Act are admittedly unidentical. The valuation under the Estate Duty Act is on the date of death of the owner that the property may fetch if sold in the open market. But in the case of Wealth Tax this valuation may differ from year to year. The two basic factors in the valuation under the Wealth Tax Act are:‑ (i) Wealth Tax is chargeable on the basis of net wealth on the corresponding valuation, and (ii) Sub‑rule (3) of rule 8 of the Wealth Tax Rules permits the valuation of the property at ten times that of the gross annual value i.e., the sum for which the property may reasonably, be expected to let from the year to year.

9. It was, however, pointed out that in the case of neighbouring building known as Hafiz Chambers, the Provincial Property and Excise Department has estimated the monthly rent of Rs.15,

510. On the same basis the annual rent in this case would work out at Rs.1,86,120 and ten times of the same would be Rs.18, 61,

200. The basis of municipal valuation was, however, discarded vide Notification No. SRO 593(1)/71, dated 29‑7‑1971 by which the 1st Proviso to sub‑rule (3) of rule 8 of the Wealth Tax Rules was deleted. This had laid down that in case the capital value of a property has been determined by the provincial authority for the purposes of property taxation than that valuation be adopted. The proviso is no longer, therefore, the years under appeal.

10. Obviously while determining the valuation of a property at tens times of the annual letting value the W.T.O. has to keep in view the nature and size of the property, the amenities available etc. The annual letting value is, therefore, a very material factor in valuing the property under the Wealth Tax Act whereas it is not so in the Estate Duty Act. At the same time the W. T.O. has to bear in mind that the gross annual value means the sum for which the property might reasonably be expected to let from year to year. The annual value of property does not necessarily mean the rent receivable from the property. The rent payable is one of the relevant considerations for determining the annual value. Other relevant considerations are the rents paid for similar properties in the same area. These observations were made in the case reported as (1935) 4 I.T.R.

250. It was also laid down in the case reported as (1951) 20 I.T.R. 160 that annual value is national value and that neither the actual rent received, nor the municipal valuation is a conclusive factor for the determination of the annual value, though both may be taken into consideration for the purpose.

11. In view of the observations made above and keeping in view the appreciation in the value of the land and building and increase in the rental value from year to year, as well as location of the building for which the American Express International Banking Corporation has decided to pay the monthly rent of Rs.45,000 we feel it would be in the fitness of things to place the valuation of the building at Rs.35,00,000 for 1976‑77, Rs.40,00,000 for 1977‑78 and Rs.45,00,000 for both the years 1978‑79 and 1979‑

80. The W.T.O. is directed to re‑compute the share of the assessee for the purposes of assessment in this case.

12. In the result the appeals are allowed to the extent indicated above. M. Y. H. Appeals allowed.