PETITIONER:
COMMISSIONER OF WEALTH TAX, NEW DELHI
Vs.
RESPONDENT:
P.N. SIKAND
DATE OF JUDGMENT01/04/1977
BENCH:
BHAGWATI, P.N.
FAZALALI, SYED MURTAZA
CITATION:
1977 AIR 1657 1977 SCR (3) 418
1977 SCC (2) 798
ACT
Wealth Tax Act 1957 (Act 27 of 1957)--S. 7 r/w ss.
i(e)(m), 3--Valuation of the lease-hold interest, when
attached with a restraint or disadvantage--"Net wealth" in
s. 2(m)--Whether 50% of unearned increase "payable" to the
lessor as per the agreement deductible out of the valuation.
HEADNOTE
The respondent an assessee to wealth tax as an individual,
in the assessment for the assessment year 1968-69, valued
his property situate on plot No. 12, Block 39 Kautilya Marg,
Chanakyapuri in his return of net wealth @ Rs. 4,52,000 as
against the value of Rs. 6,00,000 shown by him in the previ-
ous years. The property consisted of leasehold interest in
the land together with a house built on it. The land be-
longed to the President of India and it was leased by the
President of India to one Vashesharan Devi on the terms and
conditions set out in an agreement of lease dated 30th
December, 1954 and the leasehold interest was acquired from
Vashesharan Devi by the assessee. Clause (13) of the lease
deed provided that the assessee shall not be entitled to
assign the leasehold interest in the land without obtain-
ing the prior approval in writing of the lessor and 50 per
cent of the unearned increase in the value of the land at
the time of assignment shall be claimable by the lessor and
moreover, if the lessor so desires, he shall have pre-emp-
tive right to purchase the property after deducting 50% of
the unearned increase in the value of the land. It further
provided that "all such assignees and
transferees ...... ..shall be bound by all the covenants
and conditions herein contained and be answerable in respect
therefor". In accordance with this clause, the Architects
who are approved valuers estimated the value of the property
@ Rs. 5,82,268 and from this’ figure, they deducted a sum of
Rs. 1,30,000 representing 50 per cent of the unearned in-
crease in the value of the land, which belonged to the
lessor and arrived at the value of Rs. 4,52,268/-. The
Wealth Tax Officer did not accept the estimate of the
valuation and taking the annual rental value of Rs.
1,32,000/- fetched by the property as the basis, computed
the net annual rent at Rs. 82,956/- and arrived at the
figure of Rs. 8,29,560/- as the value of the property by
applying the multiple of ten to the net annual rental value
of Rs. 82,956/-. The claim of the assessee to deduct from
the value of the property 50 per cent of the unearned in-
crease in the value of the land was rejected on the ground
that this claim was based "merely on hypothetical presump-
tions". The value of the property was, however, reduced
from Rs. 8,29,560/- to Rs. 6,00,000/- since that was the
figure accepted by the Revenue in the past assessment years.
The appeals before the Appellate Assistant Commissioner and
the Tribunal failed. On a reference, the High Court took
the view that the liability to pay 50 per cent of the un-
earned increase in the value of the land to the lessor at
the time of the assignment was a disadvantage attached to
the leasehold interest in the land and hence its value was
liable to be deducted from the value of the property in
arriving at the net wealth.
Dismissing the appeals, the Court,
HELD: (1) In determining the value of the leasehold interest
of the assessee in the land for the purpose of assessment to
wealth tax the price which the leasehold interest would
fetch in the open market, were it not encumbered or affected
by the burden of the restriction contained in clause (13) of
the leasedeed, would have to be reduced by 50 per cent of
the unearned increase in the value of the land on the basis
of the hypothetical sale on the valuation date. [427 C-D]
(2) The only way in which in a. case of this kind the
valuation u/s. 7(1) of the Wealth Tax Act can be done is by
taking the market value of the leasehold interest as if it
were unencumbered or unaffected by the burden or restriction
contained in clause (13) and deducting from it, 50 per cent
of the unearned
419
increase in the value of the land on the basis of the hypo-
thetical sale as representing the value of such burden or
restriction. [425 A-C]
(3) The true test for determining the matter of payment
made by an assessee out of an amount received by him wheth-
er it is an application of part of the amount which belongs
to him or it is payment of an amount which is diverted
before it reaches the assessee so that at the time of re-
ceipt, it belongs to the ’payee and not to the assessee. In
the present case 50 per cent of the unearned increase in the
value of the land would be diverted to the lessor before it
reaches the hands of the assessee as part of the price.
[425 E-F]
C.I.T.v. Sitaldas Tirathdas 41 I.T.R. 367 SC; applied.
Pandit Lakshmi Kant Jha v. Commissioner of Wealth-Tax,
Bihar 90 I.T.R. 97, explained.
(4) The burden or limitation attaching to the leasehold
interest must be taken into account in arriving at the value
of the leasehold interest and it can not be value ignoring
the burden or limitation The covnaent in clause (13) is
clearly a covenant running with the land and it would bind
whosoever is the holder of the leasehold interest for the
time being. It is a constituent part of the rights and
liabilities and advantages and disadvantages which go to
make up the leasehold interest and it is an incident which
is in the nature of burden, on the leasehold interest.
Plainly and indisputably, it has the affect of depressing
the value which the leasehold interest would fetch if it
were free from this burden or disadvantage. When the lease-
hold interest in the land has to be valued this burden or
disadvantage attaching to the leasehold interest must be
duly discounted in estimated the price which the leasehold
interest would fetch. To value the leasehold interest on
the basis that this burden or disadvantage were to be
ignored would be to value an asset different in content and
quality from that actually owned by the assessee. [424 B,
423 D-H]
Corrie v. MecDermott [1914] A.C. 1056, quoted with approval.
(5) When under the lease deed the lessor has a bundle of
rights which includes "something" more than the reversion,
that "something" would necessarily be subtracted from the
interest of the lessee and to that extent, the interest of
the lessee would be the leasehold interest minus that
"something". What goes to augment the interest of the
lessor would correspondingly reduce the interest of the
lessee and it cannot be taxed as the wealth of both the
lessor and the lessee. It would be includible in the net
wealth of the lessor and hence it cannot at the same time
form part of the wealth of the lessee and must be subtracted
in determining the nature and extent of the interest of the
lessee. [424 E-F]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1174 of
1974.
(From the Judgment and Order dated the 4-4-1974 of the
Delhi High Court in Wealth Tax Ref. No. 5 of 1972).
R.M. Mehta and, P.L. Juneja, for the appellant.
G.C. Sharma, M.L. Khanna, Anup Sharma, Miss Jaswal K.K.
and K.R. Jagaraja and D.K. Jain, for the respondent.
The Judgment of the, Court was delivered by
BHAGWATI, J.--This appeal raises a rather difficult but
interesting question of law relating to valuation for the
purpose of the Wealth Tax Act, 1957 of leasehold interest in
land, when, there is, a covenant in the lease that the
lessee shall not be entitled to assign the leasehold inter-
est without obtaining the prior approval in writing of the
lesson and the lessor shall be entitled to, claim and recov-
er from the, lessee a certain specified proportion of the
unearned increase in the value of the land at the time of
the assignment.
13--436SCI/77
420
The controversy in this appeal, relates to the assess-
ment year 1968-69, the relevant valuation date being 31st
December, 1967. The assessee is assessed to wealth tax as
an individual. His net wealth on the. valuation date
included a property situate on plot No. 12, Block 39, Kauti-
lya Marg, Chanakyapuri. the property consisted of leasehold
interest in the land together with a house built upon it.
The land belonged to the President of India and it was
leased by the President of India to one Vashesharan Devi on
the terms and conditions set out in an agreement of lease
dated 30th December, 1954 and the leasehold interest was
acquired from Vashesharan Devi by the assessee. The premium
for the grant of the lease was Rs. 24,400/- and the annual
rent was fixed at Rs. 610/-, subject to. certain variations.
The terms and conditions of the lease are a little important
and, so far material, they may be reproduced as follows:
"13. the lessee shall before any assign-
ment or transfer of the said premises hereby
demised or any part thereof obtain from the
lessor or such officer or body as the lessor
may authorise in this behalf approval in
writing of the said assignment or transfer and
all such assignees and transferees and the
heirs of the lessee shall be bound by all the
covenants and conditions herein contained and
the answerable in all respect therefore.
Provided also that the lessor be enti-
tled to claim and recover a portion of the
unearned increase (i.e. the difference between
the premium already paid and current market
value) in the value of land at the time of
transfer (whether such transfer is an entire
site or only a part thereof), the amount to
be recovered being 50 per cent of the unearned
increase.
The Lessor shall have a pre-emptive
right to the property after deducting 50 per
cent of the unearned (torn) said."
The assessee constructed a large building on the land and
the question arose as to how the leasehold interest of the
assessee in the land together with the building should be
valued. This property had been valued in the past assess-
ment years at Rs. 6,00,000/- and the assessee had accepted
this valuation and not challenged it. But in the assessment
for the assessment year. 1968-69 the assessee valued this
property in its return of net wealth at Rs. 4,52,000/- on
the. basis of a certificate obtained from M/s Anand Apte
and Jhabvala, Architects who, are approved valuers recog-
nised by the Department. The Architects estimated the value
of the property at Rs. 5,82,268/and from this figure, they
deducted a sum of Rs. 1,30,000/- representing 50 per cent of
the: unearned increase in the value of the land, which under
the terms and conditions of the lease. belonged to the
lessor and arrived at the value of Rs. 4,52,000/-. The
Wealth Tax Officer did not accept the estimate of the valua-
tion made by the Architects and taking the annual rent of
Rs. 30,000/- fetched by the property as the basis, computed
the net annual rent at Rs. 82,956/-
421
and arrived at the figure of Rs. 8,29,560/- as the value of
the property by applying the multiple of ten. to the annual
rental value of Rs. 82,956/-. The Wealth Tax Officer re-
jected the claim of the assessee to deduct from the value
of the property 50 per cent of the unearned increase in the
value of the land on the ground that this claim was based
"merely on hypothetical presumptions" but reduced the value
off the property from Rs. 8,29,560/- to Rs. 6,00,000/-,
since that was the figure accepted by the Revenue in the
past assessment years. The assessee challenged the valua-
tion made by the Wealth Tax Officer in an appeal preferred
before the Appellate Assistant Commissioner, but the
appeal was unsuccessful as the Appellate Assistant Commis-
sioner took the same view as the Wealth Tax Officer. The
Tribunal also, in further appeal, affirmed the same view
holding that "the fact that the assessee might have to Pay
50 per cent of the unearned increase to the lessor does not
affect the valuation of the property under section 7 of the
Wealth ’Tax Act" and the words used in that section "make it
clear that the estimate. which should be made by the Wealth
Tax Officer is. of the gross price" and hence no, part of
the unearned increase was deductible in computing the value
of the property for the purpose of the Wealth ’fax Act. The
Tribunal also upheld the rental method of valuation of the
property and finding that the valuation of Rs. 6,00,000/-
adopted by the Wealth Tax Officer was even less than eight
times the annual rental value of Rs. 82,956/-, the Tribunal
declined to interfere with the valuation made by the Wealth
Tax Officer.
The assessee thereupon applied to the Tribunal for
making a reference to the High Court and on the application
of the assessee, the following question of law was referred
by the Tribunal for the opinion of the High Court:
"Whether on the facts and in the circum-
stances of the case, the Tribunal was justi-
fied in law in taking the view that 50% of
the unearned increase payable to the lessor of
the land formed part of, and was not deducti-
ble out of, the valuation of the property for
the purposes of Wealth-tax Act ?"
The High Court took the view that the liability to pay 50
per cent of the unearned increase in the value Of the land
to the lessor at the time of the assignment was a disadvan-
tage attached to the leasehold interest in the land and
hence its value was liable to be deducted from the value of
the property in arriving at the net wealth of the assessee
and on this view, it answered the question in the negative
in favour of the assessee. This led to. the filing of the
present appeal by the ’Revenue after obtaining a certificate
of fitness from the High Court.
It would be convenient’ at the outset to refer to the
relevant provisions of the Wealth Tax Act, 1957 before
we .address ourselves to the question which arises for
determination in the appeal, The Wealth Tax Act, 1957 was
passed by the Parliament in exercise of the legislative
power conferred under Entry 86 of List I of, the Seventh
Schedule to the’ Constitution and, as pointed out by Shah,
J., ih Sudhir
422
Chandra Nawa v. Wealth Tax Officer, Calcutta,(1) wealth tax
"is a tax imposed’ on the capital value of the assets of
individuals and companies on the valuation date ...... it
is imposed on the total assets which the assessee owns" and
it is levied on the value of those assets. Section 3 is the
charging section and it provides that, subject to the other
provisions contained in the Act, there shah be charged for
every assessment year commencing on and from the 1st day of
April, 1957 a tax_in respect of the net wealth on the corre-
sponding valuation date of every individual, Hindu Undivided
Family and company at the rate or rates specified in the
Schedule. Thus, wealth tax is a tax on the net wealth of
the assessee on the valuation date. Net wealth is de-
fined in section 2(m) to mean "the amount by which the
aggregate value, computed in accordance with the provisions
of this Act, of all the assets, wherever located, belonging
to the assessee on the valuation date, including assets
required to be included’ in his net wealth as on that date
under this Act, is in excess of the aggregate value of all
the, debts owed by the assessee on the-valuation date" other
than debts failing within certain specified categories. The
word ’asset’ used in section 2(m) is of the widest Signifi-
cation and under section 2(e), it includes property of every
description, movable or immovable, barring certain excep-
tions which are not material for our purpose.- What is,
therefore, necessary for the purpose of determining the net
wealth of the assessee is., first to compute the aggregate
value of all assets belonging to the assessee in accordance
with the provisions of the Act and then to deduct from it
the aggregate value of all the debts, and the resultant
which is obtained would be the net. wealth assessable to
tax. section 7, sub-section (1) lays down the. mode of
determination of the value of an asset for the purposes of
the Act and it says that, subject to any rules made in this
behalf, the value of any asset other than cash "shall be
estimated to be the price which, in the opinion of the
Wealth Tax Officer it would fetch if sold in the open market
on the valuation date". Now, plainly one of the assets
belonging to the assessee in the present case was the lease-
hold’ interest in the land together with the building upon
it and for the purpose of computing the net wealth of the
assessee, it was necessary to determine the value of this
asset. The question which must, therefore, be asked in
terms of section 7( 1 ) is: what would be the price which
this asset would fetch if sold in the open market on the
valuation date ? This question cannot be satisfactorily
answered, unless we first determine what is the nature of
this asset: what is the interest in property, qualitative as
well as quantitative, which this asset represents ?
The asset consists of leasehold interest of the asses-
see in the land together with the building constructed upon
it. The building, of’ course, belongs to the assessee
having been constructed by him and the determination of its
value should not present any difficulty, because there are
recognised methods of valuation of buildings. The diffi-
culty, however, arises. in regard to valuation of the
leasehold interest in-the land. The leasehold interest is
held by the assessee. under a lease-deed executed by the
President of India and apart from
(1) 69 I.T.R. 897.
423
clause (13), which we have reproduced above, it is an ordi-
nary leasedeed of the usual kind. Clause (13 ) of the
lease-deed provides that the assessee shall not be entitled
to assign the leasehold interest in the land without obtain-
ing the prior approval in writing of the lessor and 50 per
cent of the unearned in.crease in the value of the land at
the time of the assignment shall be claimable by the lessor,
and moreover, if the lessor so desires, he shall have pre-
emptive right to purchase the property after deducting 50
per cent of the unearned increase in the value of the land.
Does this covenant merely impose a personal obligation on
the lessee which ,arises on assignment of the leasehold
interest or it is a covenant running with the land ? That
is a question which has a direct bearing on the valuation
of the leasehold, interest. Now, the last portion of the
first paragraph of clause (13) provides that "all such
assignees and transferees .... shall be bound by all the
covenants and conditions herein contained and. be answerable
in respect therefore". This means that whenever an assign-
ment of the leasehold interest is made by the lessee, the
assignee would be bound by all the covenants contained in
the lease-deed and these would indisputably include the
covenant in clause (13 ). Clause (13 ) would equally bind
the assignee and if the assignee in his turn wants. to
assign his leasehold interest in the land, he would have to
obtain the prior approval in writing of the lessor to such
assignment and the lessor would be entitled to claim 50 per
cent of the unearned increase in the Value of the land.
This indeed was not disputed on behalf of the Revenue.
The covenant in clause (13) is, therefore, clearly a cove-
nant running with the land and it would bind whosoever is
the holder of the leasehold interest for the time being. It
is a Constituent part of the rights and liabilities and
advantages and disadvantages which go to make up the lease-
hold interest and. it is an incident which is in the nature
of burden on the leasehold interest. Plainly and indis-
putably it has the effect of depressing the value which the
leasehold interest would fetch if were free from this
burden or disadvantage. Therefore, when the leasehold inter-
est in the land has to be valued, this burden or disadvan-
tage attaching to the leasehold interest must be duly dis-
counted in estimating the price which the leasehold interest
would fetch. To value the leasehold interest on the basis
that this burden or disadvantage were to be ignored would be
to value an asset different in content and quality from that
actually owned by the assessee.--This was the principle
applied by the Judicial Committee in Corrie v. MacDemott,(1)
an appeal from Australia, where the question arose as to how
certain land granted by the Government of Queensland to the
trustees of the Acclimatisation Society of Queensland to be
used only for the purpose of the Society should be valued on
resumption by the Government. The trustees had no general
power of sale but they were by statute authorised to sell
any part of the land to the local authority and to the
National Agricultural and Industrial Association. It was
held by the judicial Committe that in view of this restric-
tion on the nature of the interest of the trustees in the
land, the trustees were not entitled, upon resumption of
the land by the Government, to be paid unrestricted. free-
hold value of
(1) [1914] A.C. 1056.
424
the land but only the value of the land to the trustees
under the conditions upon which they held it. The Judicial
Committee pointed out that if the owner holds the property
subject to restrictions, "it is a necessary point of enquiry
how far these restrictions affect the value" and the proper-
ty cannot be valued as if it were "unrestricted in any way".
The burden or limitation attaching to the leasehold interest
in the present case must, therefore, be taken into account
in arriving at the value of the leasehold interest and it
cannot be valued ignoring the burden or limitation.
This problem can also be looked at from a slightly
different angle and this approach too would throw some light
on the true nature of the leasehold interest required to be
valued. Let us approach the question from the point of view
of the lessor. What is the nature of the lessor’s interest
in the land ? The lessor has undoubtedly the reversion,
but coupled with it is also the right to 50 per cent .of the
unearned increase in the value of the land at the time of
assignment of the leasehold interest by the lessee as also
the pre-emptive right to the land after deducting 50 per
cent of the unearned increase from the price obtainable by
the lessee. This is the asset of the lessor which would
have to be valued when the lessor is sought to be assessed
to wealth tax. The right to 50 per cent of the unearned
’increase on assignment of the leasehold interest would
certainly add to the value which the reversion would other-
wise fetch in the open market. Now, once it is granted that
under the lease deed the lessor has a bundle of rights,
which includes ’something’ more than the reversion, that
’something’ would necessarily be subtracted from the inter-
est of the lessee and to that extent, the interest of the
’lessee would stand reduced. The interest of the lessee
would be the leasehold interest minus that ’something’.
What goes to augment the interest of the lessor would corre-
spondingly reduce the interest of the lessee and it Cannot
be taxed as the wealth of both the lessor and the lessee.
It would be includable in the net wealth of the lessor and
hence it cannot at the same time form part of the wealth of
the lessee and must be subtracted in determining the nature
and extent of the interest of the lessee.
That takes us to the question as to how the leasehold
interest of the assessee with the burden or limitation
attaching under clause (13) of the lease-deed should be
valued. It is clear from the language of section 7, sub-
sectiOn (1 ) that what the Revenue is required to do for the
purpose of determining the value of an asset is to assume
that the asset which is to be valued is being sold in the
open market and to fix its value for the purpose of wealth
tax upon that hypothesis. Now, whenever the value of an
asset has to be determined on the basis of a hypothetical_
sale, the court has necessarily to embark upon speculations
which may be quite difficult and in ’some cases, even arti-
ficial. Here the asset to be valued is the leasehold inter-
est in the land with the burden or restriction contained in
clause (13) of the lease deed and the inquiry has, there-
fore, to be directed to the question as to what is the
price which this asset would fetch if sold in the open
market. What would be the realisable value of this asset
? It would indeed be difficult to speculate as to what
425
the leasehold interest in the land would fetch in the open
marker when it is affected by the burden or restriction
contained in clause (13) of the lease deed. If the lease-
hold interest were free from this burden or restriction, it’
would be comparatively easy to determine its market value,
for there are recognised methods of valuation of leasehold
interest, but where. the leasehold interest is cut down by
this burden or restriction and some right of interest is
abstracted from it, the problem of valuation becomes a
difficult one and some method has to be evolved for resolv-
ing it. The only way it can be done in a case of this kind
is by taking the market value of the leasehold interest as
if it were. unencumbered or unaffected by the burden or
restriction of clause (13) and deducting from it, 50 per
cent of the unearned increase in the value of the land on
the basis of the hypothetical sale, as representing the
value of such ’burden or restriction.
There is also one other consideration which reinforces
the adoption of this method of valuation. When, for the
purpose of valuation of the leasehold interest, it is as-
sumed that the leasehold interest is sold in the open
market, the price received does not in its entirety belong
to the assessee. Fifty per cent of the unearned increase in
the value of the land is diverted to the lessor by virtue of
the paramount title contained in clause (13) and when re-
ceived by the assessee, it belongs to the lessor. It is in
truth and substance collected by the assessee on behalf of
the lessor. What is received by the assessee on his own
account is only the price less 50 per cent of the unearned
increase in the value of the land and that represents the
net realisable worth of the asset in the hands of the asses-
see. The Revenue contended that payment of 50 per cent of
the unearned increase in the value of the land to the lessor
is really an instance of application of the price received
by the assessee and not diversion of a part of the price by
paramount title and hence the whole of the price must be
taken as the measure of the wealth of the assessee. But
this contention is, in our opinion, not well founded and
cannot be sustained. The true test for determining whether
a payment made by an assessee out of an amount received by
him is an application of part of the amount which belongs to
him or it is payment of an amount which is diverted before
it reaches the assessee so that at the time of receipt, it
belongs to the payee and not to the assessee, has been
explained by Hidayatullah, J., in C. 1. T.v. Sitadas Tirath-
das(1) in the following words:
"In our opinion, the true test is wheth-
er the amount sought to be deducted, in
truth, never reached the assessee as hi’s
income. Obligations, no doubt, there are in
every case but it is the nature of the. obli-
gation which is the decisive fact. There is a
difference between an amount which a person
is obliged to apply out of his income and an
amount which by the nature of the obligation
cannot be said to be a part of the income of
the assessee. Where by the obligation income
is diverted before it reaches the assessee, it
is deductible; but where the income is re-
quired to be applied to discharge an obliga-
tion after such income reaches the
41 I.T.R. 367.
426
assessee, the same consequence, in law, does
not follow. It is the first kind of payment
which can truly be excused and not the second.
The second payment is merely an.obligation to
pay another a portion of one’s own income,
which has been received-and is since applied.
The first is a case in which the income never
reaches the assessee, who, even if he were to
collect it, does so, not as part of his in-
come, but for and on ,behalf of the person to
whom it is payable. In our opinion, the
present case is one in which the wife and
children of the assessee who continued to be
members of the family received a portion of
the income of the assessee, after the assessee
had received the income as his own. The case
is one of application of a portion of the
income to discharge an obligation and not a
case in which by an overriding charge the
assessee became only a collector’ of another’s
income."
It is clear on the application of this test that in the
present case, 50 per cent of the unearned increase iii the
value of the land would be diverted to the lessor before it
reaches the hands of the assessee as part of the price. The
assessee holds the leasehold interest on condition that if
he assigns it, 50 per cent of the unearned increase in the
value of the land will be payable to the lessor. That is
the condition on which he has acquired the leasehold inter-
est arid hence 50 per cent of the unearned increase in the
value of the land must be held to belong to the lessor at
the time when it is received by the assessee and it would
not be part of the net realisable worth of the leasehold
interest in the hands of the assessee. If a question is
asked as to what is the real wealth of the assessee in terms
of money so far as the leasehold interest is concerned, the
answer would inevitably be that it is the price less 50 per
cent of the unearned increase in the value of the land. It
is difficult to see how 50 per cent of the unearned increase
in the value of the land which belongs to the lessor can be
regarded as part of the wealth of the asses.see. The posi-
tion would undoubtedly be different where a payment is made
by an assessee which is an application of a part of the
price received by him. Where such is the case, the whole of
the price would represent the net realisable worth of the
asset in the hands of the assessee and what is paid out by
the assessee would be merely a disbursement made after the
price reaches the assessee as his own property. That was
the position in Pardit Lakshi Kant Jha v. Commissioner of
Wealth-Tax, Bihar(1) where the question arose whether the
expenditure in connection with brokerage, commission or
other expenses which would be liable to be incurred by the
assessee in effectuating a sale would be deductible from the
market value of the shares in determining their value for
the purpose of assessment to wealth tax. This Court held
that in computing the value of the shares, the assessee is
not entitled to deduction of brokerage and commission from
the valuation of the shares as given in,the Stock Exchange
quotations or quotations furnished by well known brokers.
It was pointed out by this Court that:
(1) 90 I.T.R. 97.
427
"It is not... the amount which the vendor would receive
after deduction of this expense, but the price which the
asset would fetch when sold in the open market which would
constitute the value of the asset for the purpose of section
7(1) of the Act". Obviously, this view ’was taken because
the entire price, when received, would belong to the asses-
see and payment of brokerage and commission would be merely
application of part of the price in meeting expenditure
necessary for effectuating the sale and hence it would not
be deductible in ascertaining the net realisable worth of
the shares in the bands of the assessee.
We are, therefore, of the view that the question re-
ferred by the Tribunal must be answered in the negative and
it must be held that in determining the value of the lease-
hold interest of the assessee in the land for the purpose of
assessment to wealth tax, the price which the leasehold
interest would fetch in the open market were it not encum-
bered or affected by the burden or restriction contained in
clause (13) of the lease deed, would have to be reduced by
50 per cent of the unearned increase in the value of the
land on the basis of the hypothetical sale on the valuation
date. The appeal accordingly Fails and must be dismissed
with costs.
S. R. Appeal dismissed.
428