ORDER
N.V. Vasudevan, J.M.
1. These are appeals by the Revenue against the common order dt. 1st May, 1998; of CIT(A)–Assessee, New Delhi, relating to asst. yr. 1994-95.
2. The first ground of appeal in these appeals which is a common ground in all the three appeals reads as follows:
“On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not following the valuation report in respect of property No. N-117, Panchsheel Park, New Delhi.”
3. The facts and circumstances under which the aforesaid ground of appeal arise are as follows. One Mr. R.K. Mathur was the owner of l/3rd share of the property, bearing No. N-119, Panchsheel Park, New Delhi, hereinafter referred to as ‘the property’. On his death on 6th May, 1991, his wife, Mrs. Rekha Mathur, (the assessee in ITA 3984/Del/1998) and. his two daughters Ms. Deepti Patni and Ms. Aditi Sharma (assessees in ITA 3986/Del/1998 and ITA 3985/Del/1998, respectively) became entitled to a l/3rd share each in the l/3rd share of Mr. R.K. Mathur over the property. The three assessees thus had l/9th share each over the whole property.
4. During the previous year relevant to asst. yr. 1994-95, this property was sold for a total consideration of Rs. 3,25,00,000. The three assessees received a sum of Rs. 36,11,111 each towards their share of the sale consideration. The capital gain on sale of the property was offered for taxation by the assessees. Under Section 48 of the Act, the mode of computation is to deduct from the full value of consideration received on transfer, the cost of acquisition of the property which was transferred. There is no dispute with regard to the sale value of consideration received on transfer in the present case. The dispute is with regard to the cost of acquisition of the property to the assessees. Section 55(2) of the Act explains the meaning of ‘cost of acquisition’ for the purpose of Section 48. Depending on the capital asset that is subject-matter of transfer and the mode of its acquisition, the said Section 55(2) lays down the mode of computation of capital, gain. In the present case, the relevant provisions applicable are Section 55(2)(b)(i) which reads as follows:
Section 55(2): For the purpose of Sections 48 and 59: Cost of acquisition–
(a)…
(b) in relation to any other capital asset,–
(i) where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value (FMV) of the asset as on 1st April, 1981, at the option of the assessee.
5. There is no dispute that the assessee had opted for adopting the Fair Market Value (FMV) of the property as on 1st April, 1981. The dispute is with regard to the FMV as on 1st April, 1981, as adopted by the assessee. In the course of assessment proceedings, the AO came into possession of the report of the DVO dt. 11th April, 1996, which had been obtained in the case of S.C. Mathur, another co-owner of the property. In this report the DVO had, while determining the FMV as on 1st April, 1981, deducted 50 per cent of unearned increase in rent. The land of the property belonged to the Government and the assessees had only a leasehold interest over the land. As per the terms of the lease when the leasehold interest is transferred, the lessee is bound to get approval of the Government. On such application for approval, the lessor has an option to purchase the leasehold interest after deducting 50 per cent of unearned increase (i.e., the difference between the premium already paid and current market value) in the value of the land at the time of transfer. Alternatively, the lessor might receive 50 per cent of unearned increase in the value of the land at the time of transfer and accord approval for the proposed transfer. This reduction on account of the preemptive right of the Government as lessor was allowed as a deduction in computing FMV of land and was recognised by the Hon’ble Supreme Court also in the case of CWT v. P.N. Sikand . Consequent to the Supreme Court judgment, the WT Act was amended with specific provision for such deduction as recognised by the Hon’ble Supreme Court. Rule 7 of Schedule III to the WT Act provides as follows:
Rule 7. Adjustment for unearned increase in the value of the land.–Where the property is constructed on land obtained on lease from the Government, a local authority or any authority referred to in Clause (20A) of Section 10 of the IT Act and the Government or any such authority is, under the terms of the lease, entitled to claim and recover a specified part of the unearned increase in the value of the land at the time of the transfer of the property, the value of such property as determined under r. 3 shall be reduced by the amount so liable to be claimed and recovered or by an amount equal to fifty per cent of the value of the property as so determined, whichever is less, as if the property had been transferred on the valuation date.
Explanation: For the purpose of this rule, “unearned increase” means the difference between the value of such land on the valuation date as determined by the Government or such authority for the purpose of calculating such increase and the amount of the premium paid or payable to the Government or such authority for the lease of the land.
6. The assessee was confronted with the report of the DVO in the case of S.C. Mathur and the assessee was called upon to show cause as to why the value as shown by the DVO as FMV as on 1st April, 1981, be not adopted as the cost of acquisition. The assessee filed the report of a registered valuer, one Shri Goel, wherein the FMV of the property as on 1st April, 1981, was adopted without giving any deduction for unearned increase in the value of the land. The difference, therefore, was only as to whether deduction on account of unearned increase in the value of the land should be allowed or not.
7. A reference to the provisions of Section 55A of the IT Act, 1961, is also necessary. The said provision reads as follows:
55A. Reference to Valuation Officer.
With a view to ascertaining the fair market value of a capital asset for the purposes of this chapter, the AO may refer the valuation of the capital asset to a Valuation Officer–
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the AO is of opinion that the value so claimed is less than its fair market value;
(b) in any other case, if the AO is of opinion–
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf;
or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of Sub-sections (2), (3), (4), (5) and (6) of Section 16A, Clauses (ha) and (i) of Sub-section (1) and Sub-sections (3A) and (4) of Section 23, Sub-section (5) of Section 24, Section 34AA, Section 35 and Section 37 of the WT Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the AO under Sub-section (1) of Section 16A of that Act.
Explanation: In this section, “Valuation Officer” has the same meaning as in Clause (r) of Section 2 of the WT Act, 1957 (27 of 1957).
8. It is thus clear from the provisions that the AO, for the purpose of ascertaining fair market value of an asset, is empowered, to make a reference to the DVO and on such reference, the DVO is to make an estimate in accordance with the provisions of the WT Act.
9. The contention of the assessee before the AO was that the criteria for valuing property for wealth-tax purposes and while computing capital gains are different and, therefore, the unearned increase in value of land should not be deducted while determining the FMV as on 1st April, 1981. Another contention raised on behalf of the assessee was that the report of the DVO obtained in some other person’s case (S.C. Mathur’s case) cannot be used against the assessee. The AO however, rejected both these contentions on behalf of the assessee. He held that the correct FMV can be arrived at only after giving deduction for unearned increase in value of land as contemplated in law. He also held that the valuation report of the same property obtained in the case of a co-owner was very much relevant. The AO thus held that the FMV as on 1st April, 1981, was to be arrived at after deducting unearned increase in the value of the land.
10. Aggrieved by the order of the AO, the assessee preferred appeal before CIT(A), reiterating contentions with regard to using report of DVO obtained in the case of some other persons. It was further contended as follows. A reference to the Government Valuation Cell is not called for under Section 55A of the IT Act as that section is not attracted. Section 55A is applicable in cases where the valuation of asset claimed by the assessee in accordance with the estimate made by his registered valuer is less than its fair market value. That such was not the case in the case of the three assessees. The law pertaining to deduction of 50 per cent unearned increase is not provided in the IT Act/IT Rules. The provisions pertaining to deduction of unearned increase are applicable in case of valuation under the WT Act. The DVO has erred in applying provisions of WT Act, for the following reasons:
(i) That Section 2(22B) provides for IT Rules also for ascertaining the price. There is no rule under the IT Rules providing for 50 per cent unearned increase deduction. There is only one rule in IT Rules, i.e., Rule 111AA which deals with conditions for reference to Valuation Officer. In these appeals even this condition is not satisfied.
(ii) That even though language of Rule 20 of Schedule III to WT Act is a similar to that of Section 2(22B)(i) of IT Act, yet it is wrong to assume that whatever is provided in Schedule III to WT Act is ipso facto applicable to case under the provision of IT Act dealing with computation of capital gains have to the said provisions of wealth-tax pertaining to Rule 7, Schedule III providing for deduction of 50 per cent unearned increase.
(iii) The provisions in Rule 7 and Rule 20 of Schedule III to WT Act presume that there is a transfer/sale in the open market on the valuation date. This has no application in the present cases. In these cases, there is no transfer, no assumed sale and no determination of sale price. What is being determined in these 3 cases is the cost of acquisition/purchase price on inheritance. Under Section 55(2)(b) of the IT Act, assessee has the option to take the cost of acquisition of asset as on 1st April, 1981, if the capital asset became the property of assessee before 1st April, 1981. The three appellants have inherited the property on the death of the owner and have exercised their option. In such circumstances, it is wrong to assume a sale as on 1st April, 1981, as what is relevant is the cost of acquisition of the asset and not the open market sale.
11. The CIT(A) held that the AO was not justified in proceeding with the valuation report obtained in the case of another person and, therefore, held that the cost of acquisition as determined by the DVO as on 1st April, 1981, was not correct. He followed the decision of the Tribunal, Madras Bench, in the case of Mrs. Zeebunnissa Begum v. WTO (1997) 59 ITD 557 (Mad). He did not render any decision on the alternative contention on merits putforth by the assessee. Aggrieved by the order of the CIT(A), the Revenue has raised the aforesaid ground of appeal.
12. We have heard the submissions of the learned Departmental Representative who principally relied on the order of the AO and also brought to our notice the provisions of Section 2(22B) of the Act defining FMV. The learned counsel for the assessee reiterated submissions which were on the same lines as made before the Revenue authorities. The learned counsel for the assessee also submitted that he has no objection in this Tribunal deciding the issue, viz., whether the reduction for unearned increase has to be made or not.
13. We have considered the rival submissions. We are of the view that the CIT(A) was not correct in holding that the AO was not justified in relying on the report of the DVO obtained in some other case and on that basis further holding that the FMV as determined by the AO was to be set aside. We say so because, there is materially no difference in the valuation as done by the approved valuer on behalf of the assessee and the DVO, except deduction for unearned increase in the value of the land. Even if we were to ignore the report of the DVO, the AO would be well within his rights to fall back upon the provisions of Rule 7 of Schedule III to the WT Act and hold that value of unearned increase in rent was to be deducted while arriving at FMV as on 1st April, 1981. We, therefore, proceed to decide the main issue, viz., whether the unearned increase in value of land was to be deducted while determining the FMV of the property as on 1st April, 1981. FMV has been defined under the IT Act, 1961 as follows.
Section 2(22B): “fair market value”, in relation to a capital asset, means–
(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and
(ii) where the price referred to in Sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act.
14. The provision for making a deduction for unearned increase in value of land as contained in Rule 7 of Schedule III to WT Act has to be read with Section 7 of the said Act. Section 7 of the WT Act lays down that the value of any asset shall be its value as determined on the valuation date in the manner laid down in Schedule III to the WT Act. Schedule III, Part B, Rules 3 to 8 lays down the manner of determination of value of immovable property. These rules determine the value on the basis of the net maintainable rent, which is the gross maintainable rent as reduced by certain other sums. The gross maintainable rent is based on actual rent or notional rent which the property will fetch. It is in this context that a further deduction towards unearned increase in the value of the land is allowed under the WT Act. The legislature has thought it fit to adopt a liberal attitude when taxing wealth and hence these rules. Rule 8 r/w Rule 20 of Schedule III to the WT Act, however provides for adopting estimated price of the property if sold in open market, where application of Rule 3 to a property is not practicable. It is thus clear from these provisions that deduction for unearned increase in rent is peculiar only when valuation of an asset is done in accordance with r. 3 of Schedule III and not in a case where the value of an asset is determined on the basis of the price the property would fetch if sold in the open market. While computing capital gains under the IT Act, it is only the price the asset would fetch as on 1st April, 1981, that is relevant. There is, therefore, no occasion to apply the provisions of Rule 7 of Schedule III while computing FMV as on 1st April, 1981. We are, therefore, of the view that the FMV as determined by the registered valuer on behalf of the assessee without deducting any sum towards unearned increase in value of land has to be accepted as FMV as on 1st April, 1981, and the capital gain is directed to be computed accordingly. The ground of appeal of the Revenue is dismissed. The order of CIT(A) is confirmed but for different reasons as given above.
15. The second common ground of appeal in all the three appeals reads as follows:
‘On the facts and in the circumstances of the case, the learned CIT(A) has erred in law and on facts in allowing of exemption under Section 54 of the IT Act, when the property in question is not registered in the name of the assessee.”
These grounds are relevant only in the case of Deepti Patni and Aditi Sharma (appellants in ITA Nos. 3985 and 3986/Del/1998). In the case of Deepti Patni and Aditi Sharma the AO did not allow deduction under Section 54 amounting to Rs. 8,16,025 and Rs. 6,13,687, respectively. The claims of the assessees were not allowed by the AO on the ground that property purchased is not registered in the name of the assessee. Before the CIT(A), the assessee contended that the requirement of Section 54 is purchase of property and not registered ownership of property. The assessee filed before the CIT(A) documents showing payment receipts for purchase of flats, evidence of their occupation and their enjoyment of the flat. It was contended that the law in relation to ownership of house property income has been clearly incorporated in Section 27(iiia) of the IT Act. Further, it was pointed out that the Supreme Court in case of CIT v. Poddar Cement (P) Ltd. Etc. have held that for property whose income is assessed as house property income, ownership by registered document is not the law. Therefore, it was urged that assessees’ cases are fully covered by the abovementioned provisions of law and decision of Hon’ble Supreme Court.
16. The CIT(A) forwarded the submissions of the assessee to the AO for his comments. The AO in his report dt. 15th Jan., 1998, had submitted that in the case of these two assessees, the possession of the flat has been taken over and payment for purchase of property has been made within the prescribed time. Therefore, it would be deemed that the assessee has purchased the property and fulfilled the conditions laid down for claiming the deduction under Section 54 of the IT Act. The same may be allowed as per the Act. On such submissions, the CIT(A) held as follows:
“I have considered the submissions of the Authorised Representative of the appellant and the facts of the case. Since the AO has now agreed that the claims of the assessees are correct which, in my opinion, also appears to be correct, the AO is directed to allow deduction under Section 54 in the case of Smt. Deepti Patni and Smt. Aditi Sharma.”
17. We do not find any grounds to interfere with the order of the CIT(A), especially in the light of AO’s admission that the assessees took possession of the flat and had also taken possession of the flats within the time prescribed under Section 54 of the Act and the only lacuna was the absence of a registered document in their favour. On identical facts, it has been held by the Bombay High Court in the case of CIT v. Dr. Lakshmichand Narpal Nagda that the claim for exemption has to be allowed. The order of the CIT(A) is, therefore, confirmed and these grounds of appeal of the Revenue are also dismissed.
18. In the result, the appeals by the Revenue are dismissed.