SRINIVASAN J.


The assessee made a gift of the property bearing No. 1, Kasthuri Ranga Iyengar Road, Madras-18, by a deed dated June 9, 1972. The property comprised of land measuring about 16, 000 sq. ft. with a building thereon having a plinth area 2, 400 sq. ft. The assessee admitted the value of the property at Rs. 75, 000 for gift-tax purposes for the assessment year 1973-74. The Gift-tax Officer felt that the value returned was very low and called upon the assessee to produce the revenue records and a copy of the statement filed under rule 3 of the Stamp Rules. That was not done. The assessee did not give any reply to the letter of the Gift-tax Officer dated December 15, 1975, requiring him to specify his objections to adopt the market value at Rs. 1, 50, 000. The Gift-tax Officer found that the prevailing market rate in the area in which the property is situated during the relevant period ranged between Rs. 16, 000 and Rs. 18, 000 per ground. As regards the building, the Gift-tax Officer found on detailed enquiry that it is centrally situated in the land and it has R.C.C. roof, teak wood doors and panelling and windows fitted with frames and glass. It was also found that there is mosaic floor in the verandah and dining room and marble floor in the hall and that there are two spacious bed rooms with attached dressing and bath rooms. Considering the age of the building, the type of construction and the amenities provided, he fixed the value of the building at not less than Rs. 60, 000. Ultimately, he fixed the value of the property gifted at Rs. 1, 50, 000 The assessee preferred an appeal to the Appellate Assistant Commissioner and contended that the Gift-tax Officer should have evaluated the entire property as one unit and that the Gift-tax Officer should have taken into consideration the annual value based on the hypothetical yield which alone according to him was the recognised method of valuation of property comprising of a residential building with land appurtenant thereto. A complaint was also made by the assessee that the Gift-tax Officer did not give him sufficient opportunity to prove the value of the property. Lastly, it was argued that the Gift-tax Officer ought to have accepted the report of the approved valuer prepared in 1968 in connection with the wealth-tax assessment. The Appellate Assistant Commissioner took the view that the method of capitalisation of rent was not suitable in this case as the rent of Rs. 400 per month for the house property situated on a land measuring 16, 000 sq. ft. could not be considered as an adequate return. The Appellate Assistant Commissioner approved of the method adopted by the Gift-tax Officer and confirmed the value fixed by himOn further appeal by the assessee to the Tribunal, it was held that the method of valuation adopted by the Gift-tax Officer was proper in the present case. The Tribunal expressed its inability to accept the contention of the assessee that the capitalisation method was the only appropriate method for valuing the property in question. The reason given by the Tribunal is that though the property is stated to be on lease and the tenant is stated to be entitled to the benefits of the Rent Control Act, the data relating to the tenancy is inadequate. The Tribunal held that in the absence of data regarding the tenure of the lease, the contention of the assessee that the actual rent received should be the proper basis for capitalisation could not be accepted. The Tribunal expressed its opinion that this is not a fit case in which the market value could be properly determined by applying the method of capitalising the actual rent received. However, the Tribunal reduced the value of the property to Rs. 99, 000 from that fixed by the Gift-tax Officer on the ground that the same land had been valued at Rs. 10, 000 per ground for wealth-tax purposes and the cost of construction of the building to be Rs. 20 per sq. ft. as on March 31, 1968. The Tribunal accepted the rate of Rs. 12, 000 per ground fixed by the assessee's valuer for the land and with regard to the building fixed the value at Rs. 27, 000 after allowing depreciation. Thus, the total value was fixed at Rs. 99, 000 by the Tribunal.


At the instance of the assessee, the Tribunal referred the following question to this court.


"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal ought to have adopted the capitalisation of rent method and not any other method, while evaluating the taxable gift which was wholly let out to a tenant ?Before us, the assessee contended that the only method by which property which has been let out to a tenant could be valued is by capitalising the rent. According to learned counsel for the assessee, it is not open to the Revenue to contend that the entire property which is the subject-matter of the gift has not been let out to the tenant. According to him, clause (7) of the gift deed which recites that possession of the property gifted is handed over to the donee by getting a letter of attornment from the tenant proves that the entire property is in the occupation of the tenant. Learned counsel proceeds to contend that the actual rent received by the assessee, viz., Rs. 400 per mensem, should be taken to be the basis for capitalisation in the absence of any other circumstance or material being placed by the Revenue for not accepting it as the rent receivable for the property. At one stage of the arguments, learned counsel for the assessee contended that the building was non-residential in character and the provisions of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, were applicable to the property in question. Learned counsel for the assessee cited a number of decisions in support of his contentions.


Per contra, learned counsel for the Revenue argued that it was not imperative in all cases of tenanted properties to apply the method of capitalisation of rent. According to learned counsel, under section 6 of the Gift-tax Act, the value of any property other than cash, transferred by way of gift, shall be estimated to be the price which it would fetch if sold in the open market on the (late on which the gift was made. Learned counsel submitted that such estimation could be made by different methods including capitalisation of rent and that the appropriate method should be chosen by the Gift-tax Officer on the facts and circumstances of the case depending on the materials placed before him. Learned counsel for the Revenue pointed out that apart from the insufficiency of the data relating to the tenancy in this case, it has not been established that the property in question is governed by the provisions of the Tamil Nadu Buildings (Lease and Rent Control) Act. He contended that the Tribunal has adopted one of the recognised methods of valuation and on the facts and circumstances of this case, the Tribunal could not be said to have committed any error in adopting that method. For his part, learned counsel for the Revenue relied upon a number of decisions. Further, learned counsel for the Revenue submitted that for the assessment year 1970-71, the assessee had, in proceedings under the Wealth-tax Act, agreed to valuation of Rs. 90, 000 for the same property though in the return of gift he had admitted only a sum of Rs. 75, 000 as the value of the property. Learned counsel submitted that if the contention of the assessee that valuation should be made by capitalisation of rent is accepted, it should be only on the basis of standard or fair rent as per the provisions of the Tamil Nadu Buildings (Lease and Rent Control) Act. It is the contention of learned counsel for the Revenue that the necessary materials for the ascertainment of such fair rent under the provisions of the Tamil Nadu Buildings (Lease and Rent Control) Act not being available on record as at present, the Tribunal should be directed to make a further enquiry and fix the value accordinglyAfter hearing counsel on both sides at some length, we found that the stakes involved in the case do not warrant a detailed investigation or discussion of the question whether with reference to a tenanted property, the only method of valuation is capitalisation of rent. Moreover, the event of taxation being a single transaction of gift pertaining to the assessment year 1973-74, it would cause unnecessary hardship to the parties concerned if we direct the Tribunal to hold further enquiry as to the value of the property at this distance of time. We agree with the contention of learned counsel for the Revenue that the materials available on record are not sufficient to proceed straightaway to fix the value of the property by adopting the capitalisation method. The Tribunal has not given any definite finding that the entire property is under the occupation of the tenant, but has proceeded to discuss the matter on that assumption. We found that the question of law referred to this court should be refrained and that the proper question which should arise out of the order of the Tribunal was different. Hence, by order dated March 7, 1988, we refrained the question as follows" *


Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in computing the value at Rs. 99, 000 ? "


By adopting the land and building method, the value of the land has been calculated to be at Rs. 72, 000 and the value of the building has been fixed at Rs. 27, 000. By doing so, the Tribunal has overlooked a relevant and important matter to be taken into account before fixing the value of the property. There is no dispute that a tenant is occupying the building. Whether he is a tenant of the building only or of the building and the land together, the fact that he is in occupation of the building is sufficient to detract any purchaser from, paying the full value thereof if it is sold in the open market. It is common knowledge that it is very difficult to dislodge a tenant and take vacant possession of the property. Undoubtedly, the property occupied by a tenant will not fetch the same value as a vacant property, even though similar in every other aspect. Any purchaser of a tenanted property will insist on a discount for the expenditure which he might be obliged to incur either by way of payment of compensation to the tenant for vacating the premises or by instituting proceedings for eviction of the tenant. There are several cases in which purchaser finds it necessary to wait for more than a decade to et vacant possession of the premises occupied by the tenant. Consequently, the value of a tenanted property will necessarily be less than the value of vacant properties. When an authority is called upon to fix the value of a tenanted property, it has to take into account the existence of the tenant and make an allowance therefor while fixing the value of the propertyThough learned counsel for the assessee contended that the building was a non-residential one, he

had to admit that there was no positive evidence on record as to the character of the building. However, it is seen from the order of the Appellate Assistant Commissioner that the assessee had raised a contention before him on the footing that the building was a residential one with land appurtenant thereto. Having regard to the available materials on record, we consider it reasonable that deduction of 15% should be made from the value of the property arrived at by the Tribunal by adopting the land and building method. If that deduction is made, the value of the property would be Rs. 84, 150. The difference between the said value and the value admitted by the assessee is not much. Hence, we do not think it worthwhile to go into the question whether the valuation should be on the basis of capitalisation of rent only. In the result, we hold that on the facts and circumstances of the case, the Appellate Tribunal was in error in not making an allowance of 15% for the tenant's occupation of the gifted property while computing the value thereof. The question as reframed by us is answered in the negative and in favour of the assessee. In the circumstances of the case, there will be no order as to costs.