Commissioner of Wealth Tax vs Dr. K. Jagadeesan

V. Ramaswami, J.—The following question is sought to be referred in this case: Whether the method of valuation applied by the Tribunal for determining the fair market value of the property at 927, Poonamallee High Road, Madras at Rs. 8,00,000 for the wealth-tax assessment for the tax year 1975-76 in the circumstances of the case is valid in law and in accordance with principles of valuation of properties?

The assessee, a practising doctor, owned 10 grounds of land with a building at Poonamallee High Road, Madras. This asset was used by the assessee for running a private hospital. For the assessment year 1975-76 the assessee filed a return under the provisions of the Wealth-tax Act, 1957 (''the Act'') disclosing a net wealth of Rs. 2,89,300. The assessee, while valuing the asset, adopted the value of the land of Rs. 2,00,700 representing the cost and the depreciated value of the building at Rs. 4,75,901 as shown in the accounts and book value of furniture, fittings and medical equipment. The property had been leased to a private limited company formed by the assessee on a monthly rent of Rs. 9,000 which consisted of Rs. 4,000 for the building and Rs. 5,000 for the furniture, fixtures and equipment. As and from 1-4-1974 the lease agreement came to be revised under which a lease rent of Rs. 7,000 per month consisting of Rs. 5,000 for the land and building and Rs. 2,000 for other assets was fixed. The WTO referred the matter to the Valuation Officer u/s 16A of the Act. The Valuation Officer determined the value of the asset at Rs. 14,50,000. The Valuation Officer determined this value on the assumption that at the expiry of the lease agreement the building would fetch a rent of Rs. 10,000 and that its potential value and future increase in rent would have to be taken into account. This was objected to by the assessee. The WTO rejected the objection and determined the value of the building at Rs. 14,50,000 and on that basis proceeded with the assessment. On appeal, the AAC pointed out that though the capitalisation of the rental income and determining the value of the asset could not be said to be incorrect, held that the rental for the purpose of such capitalisation should be taken as Rs. 5,000 which is relatable to the building alone and not any potential rental value which it may fetch at a future date. The AAC also pointed out that the assessee has in his books separately valued the furnitures, fittings, ambulance van, etc., at Rs. 2,58,546 and this will have to be separately considered as an asset for purpose of wealth-tax. On the basis of Rs. 5,000 as monthly rental the value of the building was determined at Rs. 8,00,000. This was accepted by the Tribunal. A reference application u/s 27(1) of the Act having been dismissed, the present application has been filed u/s 27(3) praying for a direction to the Tribunal to refer the abovesaid question.

Two points are raised by the learned counsel for the revenue in support of his contention that the proposed question of law has to be directed to be referred. Firstly, he contended that the potential rental value should have been taken in account and not the rental actually paid. The Tribunal had found as a fact that Rs. 5,000 received by the assessee from the tenant is the real rent as on 31-3-1975 which is the rent date for purpose of wealth-tax. Though this is not disputed, the learned counsel for the revenue seriously contended that the prospect of the building fetching more rent after the end of the tenancy in 1978 has to be taken into account and the Tribunal erred in taking the rental value on the basis of a rent of Rs. 5,000 per month. We are unable to agree with this contention of the learned counsel. It may be that at the end of the four years'' tenancy period the rental may be increased and the building may fetch more rent, but for the purpose of valuing the building as a multiple of the annual rental value we have no doubt that the prospect of increased future rent could not enter into the picture at all. It may be a different matter if the rental bargain between the lessor and the lessee is not accepted and it might have been open to the department to find out the real rental value as on the valuation date. But once as on the valuation date the rental is accepted to be at a particular figure, the potential future increase could not come into the picture at all for the purpose of valuing a building as a multiple of the annual rental value. In fact we would consider that in fixing the rental on the valuation date, both the lessor and the lessee would have taken into account all the facilities, benefits and other amenities available and then only the rent would have been fixed, and there is no possibility of any other circumstance being taken into account such as future prospect of getting increased rent. It may be a different matter if the building is valued not on the basis of multiple of the annual rental value but on different method in which case the future prospects of being put to a better use or to other purposes may have to be taken into account for valuing the building as in the case of an agricultural land, with potential value as a house site. However, when the determination is with reference to the annual rental value, the rent fetched or reasonably expected as on the date of valuation is the only relevant matter and not the future rent that it may fetch. We are, therefore, unable to agree with the learned counsel that in fixing the annual rental value the Tribunal or the AAC has in any way erred.

The next argument of the learned counsel is that the building is rented out for the purpose of a hospital and the valuation should have to be determined with reference to the building let out as hospital and that in this case though the rent for the building and the rent for the furniture, fittings, equipment, van, etc., is separately mentioned, the total composite rent will have to be taken into account and the annual rental value determined for purpose of determining the capital value because, according to him when the lease is for the purpose of the hospital, all these furnitures, fittings, van and other equipments available would have been taken into account and though separate figures are mentioned, it could not be dissected as one for the building and the other for the furnitures and equipments separately and if that is so, even assuming that Rs. 7,000 is the real rental value then as for a hospital the annual rental value on the basis of Rs. 7,000 should have been taken into account and the value of the building with the equipment should have been determined and not the value separately for the building and the value separately for the furnitures and fittings should be taken into account. As already stated Rs. 8,00,000 is taken as the value for the building and Rs. 2,58,546 is taken as the value of the furnitures, fittings, ambulance van, etc. The argument is attractive but the point has not been specifically put in this form. However, we think on this ground we need not direct any reference because we find the total value now comes to Rs. 10,58,546 and if Rs. 7,000 is taken as the basis for the purpose of determining the annual rental value, then the multiple arrived at on the basis of such value would be Rs. 11,20,000 (Rs. 8,00,000 x 7/5). The difference in valuation is marginal and, therefore, we do not think that any useful purpose will be served by directing the Tribunal to state a case and refer the question. For the foregoing reasons, we dismiss the petition with costs. Counsel''s fee Rs. 250.