M/S Rane (Madras) Ltd., Madras v. The Commissioner Of Income-Tax, Madras

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21/08/2002 CORAM THE HON'BLE MR.JUSTICE R.JAYASIMHA BABUANDTHE HON'BLE MR.JUSTICE K.P.SIVASUBRAMANIAM T.C.No. 858 of 1993 M/s Rane (Madras) Ltd.,Madras. ..Applicant -Vs- The Commissioner of Income-tax,Madras. ..Respondent Tax Case reference under Section 256 (1) of the Income Tax Act, 1961 ,made by the 'A' Bench of the Income-tax Appellate Tribunal, Madras. !For applicant : Mr.P.P.S.Janardhanaraja For respondent : Mr.T.C.A.Ramanujam,Sr. Standing Counsel forIncome Tax Dept. :ORDER (The order of the Court was made by R.JAYASIMHA BABU, J.) Four questions have been referred to us for our consideration, at theinstance of the assessee. The assessment year is 1984-85. 2. The first question is whether in the facts and in thecircumstances of the case the Tribunal was right in holding that the sum ofRs.7 5,706/- being salary paid to the drivers should be taken into account forthe purpose of computing the disallowance under section 37 (3A) for theAssessment Year 1984-85. 3. This question, it is submitted by the learned counsel for theparties, is covered by the law laid down in the case of Commissioner ofIncome-Tax -vs- Sholinger Textiles Ltd. (240 ITR 908). Applying the law laiddown therein, this question is required to be and is answered against theassessee and in favour of the Revenue. 4. The second question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that thereimbursement of the medical expenses made to the director/DivisionalManagers/Secretary of the company should be taken into account for the purposeof computing disallowance under section 40 (C)/40(A) (5). 5. Counsel for the parties submit that similar question has already been considered in the case of Sundaram Industries Ltd. -vs- Commissioner ofIncome-tax (239 ITR 405). Applying the law laid down therein, this questionis required to be and is answered in favour of the Revenue and against theassessee. 6. The third question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the sum ofRs.4 2,345/- out of the expenses incurred on the dealers conference, AnnualGeneral Meeting, providing food to the visitors was entertainment expensesunder section 37 (2A) for the assessment year 1984-85. 7. By the very terms of Section 37 (2-A) entertainment expenditure includes expenditure on hospitality extended by the assessee to any personwhether by way of provision of food or bewerages or in any other mannerwhatsoever. The expenditure incurred on providing food and entertainment atthe time of Annual General Meeting is clearly covered by that provision. Thequestion is, therefore, required to be and is answered in favour of theRevenue and against the assessee. 8. The fourth question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the marketvalue of the building as on 1.1.1964 should be computed on the basis of therent capitalization method for the purpose of section 55 of the Income Tax Actin preference to the estimated value submitted by the registered valuer. 9. The assessee, during the assessment year sold a building situated 8. The fourth question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the marketvalue of the building as on 1.1.1964 should be computed on the basis of therent capitalization method for the purpose of section 55 of the Income Tax Actin preference to the estimated value submitted by the registered valuer. 9. The assessee, during the assessment year sold a building situated at No.6 and 7, Pattulos Road, Madras for a consideration of Rs.7 lakhs. Theassessee estimated the value of the building as on 1.1.1964 at Rs.4 lakhs andcomputed the capital gain at Rs.3 lakhs. The assessee relied on the valuationmade by a registered valuer who first calculated the value of the land andbuilding separately and thereafter assuming a notional rent of Rs.7500/- p.m.which was higher than the actual rent received, he worked out the value of thebuilding on that basis by adopting the rent capitalisation method. Theaverage of the two values so computed was Rs.4 lakhs which the valuercertified as the value of the buiilding as on 1.1.1994. The assessing officerrejected that approach to valuation made by t he registered valuer. Heinstead took the actual rent received by the assessee and by adopting the rentcapitalisation method which is a method provided for in Schedule III to theWealth Tax Act, determined the value of the building as on 1.1.1964, atRs.3,00,032/- and computed the long term capital gain at Rs.3,99,968/-. Thevaluation so made by the assessing officer was upheld by the Commissioner asalso by the Tribunal. 10. Counsel for the assessee contended that the assessing officer should not have rejected the report given by the registered valuer and should have referred the matter to the valuation cell. Section 55-A of the IncomeTax Act provides for reference to a Valuation Officer at the option of theassessing officer, in the cases referred to in sub-clauses (a) and (b)thereunder. Sub-clause (a) deals with a situation where the assessing officeris of the view that the valuation made by the registered valuer is less thanthe fair market value. Subclause (b)deals with a situation where theassessing officer is of the opinion that the fair market value of the assetexceeds the value of the asset as claimed by the assessee by more than suchpercentage of the value of the asset as so claimed or by more than such amountas may be prescribed in that behalf or where having regard to the nature ofthe asset and other relevant circumstances it is necessary to do so. 11. In this case, sub-clause (a) of Section 55-A has no application,as the value given by the registered valuer was higher than what the assessingofficer regarded as the fair market value. Sub-clause (b) also is notattracted for the reason that the value claimed was higher than what in theview of the assessing officer the value was, and also having regard to thenature of the assets and the relevant circumstances, the assessing officer didnot consider it necessary to refer the matter to the valuation officer. 12. We cannot fault the assessing officer for not having referred the matter to the valuation officer when he was under no obligation to do so. Thenature of the asset and the relevant circumstances in this case did notrequire the reference to the valuation officer as the assessee had furnishedthe actual rent received and that data was sufficient to enable the officer tocompute the market value by adopting the rent capitalisation method whichmethod is provided for in Schedule III to the Wealth Tax Act. 12. We cannot fault the assessing officer for not having referred the matter to the valuation officer when he was under no obligation to do so. Thenature of the asset and the relevant circumstances in this case did notrequire the reference to the valuation officer as the assessee had furnishedthe actual rent received and that data was sufficient to enable the officer tocompute the market value by adopting the rent capitalisation method whichmethod is provided for in Schedule III to the Wealth Tax Act. 13. It was further submitted for the assessee that the assessingofficer should not have rejected the report of the registered valuer. Asalready noticed that report was based on a hybrid valuation by determining thevalue of the land and building first and separately computing the value of thebuilding by the rent capitalisation method by adopting a notional rent, whichwas much higher than the actual rent received, and then averaging the twovalues. No material was placed before the Tribunal nor has any such materialbeen placed before us to show that such a hybrid valuation made by theregistered valuer is the correct method or the appropriate method. We cannotfind fault with the assessing officer for not adopting that method,especially, when the registered valuer had not taken the actual rent receivedbut had taken the notional rent which was much more than the actual rent forcomputing the value on the basis of the rent capitalization method. 14. The adoption of the rent capitalization method by the assessingofficer cannot be regarded as an arbitrary choice. That method is one whichis sanctioned by law in Schedule III of the Wealth Tax Act. That method underthat Act can be applied for determining the market value. We, therefore,answer the fourth question also in favour of the Revenue and against theassessee. Index: YesWebsite: Yes Copy to 1.The Assistant Registrar,Income-tax Appellate Tribunal,Rajaji Bhavan, Besant nagar,Chennai-90.2.The Secretary,Central Board of Direct Taxes,New Delhi. 3.The Commissioner of Income-tax,Madras.4.The Commissioner of Income-tax (appeals VI),Madras-34.5.The Income-tax Officer,Company Circle,Madras-6. 6.The Inspecting AssistantCommissioner of Income-tax,(Asst.) Range-II,Madras-34. dev/�