The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— The proceedings which have culminated in this appeal and the facts relevant thereto are as follows:

Smt. Ashirna Sinha, the respondent herein, sold premises Nos. 74A, 74B and 74C, Elliot Road, Calcutta-16 (hereinafter referred to as the said property), in equal undivided share to Mst. Sayeeda Khatun and Mst. Fatima Khatun by executing two separate conveyances both dated 10th December, 1973, for Rs. 40,000 each.

3. Statements under s. 269P(1) of the I.T Act, 1961, in the prescribed form and verified in the prescribed manner were duly filed by the transferees along with a copy of the instrument of transfer disclosing the following particulars:

(a) The said property consisted of a partly two and partly three-storeyed buildings together with one-storeyed out-houses in a total area of 6 cottahs, 5 chittacks and 25 sft.

(b) The buildings were approximately over 50 years old.

(c) The entire premises were let out to tenants.

(d) The fair market value of the undivided half part of the said property was approximately Rs. 35,000.

4. By his communication in writing dated the 13th June, 1974, the 1 AC/, Acquisition Range-I, Calcutta, a competent authority within the meaning of s. 269B of the I.T Act, 1961, made a reference to the Assistant Valuation Officer, Unit No. III, under s. 269L(1) requiring the latter to determine the fair market value of the said property and make a report. Pursuant thereto, the said Valuation Officer inspected the said property on the 26th June, 1974, and on the 9th July, 1974, submitted his valuation report, inter alia, stating as follows:

(a) The said property was situated in a middle class residential area With all civic amenities.

(b) The buildings in the said properties were not properly maintained.

(c) The buildings were electrified and-had corporation tap connection as also sewerage connection which, however, had outlived their utility.

(d) The building was about 60 years old and past its useful life and its future-life was estimated to be only 20 years more.

(e) The premises were fully tenanted, total rent realised being Rs. 820.37 per month.

(f) There was every possibility for extension of the property.

5. On the basis of the location of the said property and amenities avail able, the market price of the land was determined at Rs. 20,000 per cottah, aggregating Rs. 1,26,300. The valuation of the said property was deter mined to be Rs. 1,16,000, which according to the Valuation Officer was the fair market price of the said property, the half share thereof being valued at Rs. 58,000.

6. The actual computation of the Valuation Officer was as follows:

Rental method of valuation Rs. Rs. Gross annual rent 820.37 × 12 9,844 Less outgoings 1. Municipal tax 4 × 2 (Rs. 7.69 + 161.75 + 9.42) 1,431 2. Govt. revenue payable annually Rs. 15.74 16 3. Maintenance & repair 1/6th of (Rs. 9,844 less [1431 plus 16]) 1,400 4. Management & collection charges @ 6% of (Rs. 9,844 less [1431 plus 16]) 504 (−) 3,351 Net annual return: 6,493

Capitalised value

For 20 years' life-years @ 7% with redemption capital @ 4% = Rs. 6,493 × 9,654 62,513 Less capital repair done by vendees= L.S =”: = (-). 3, 000 Total structural value on 10-12-74 59, 513

Land value on reversion— land=6C. 5 ch. 2 sft.=6-315 cottahs @ 20,000 per cottah =1, 26;300 Salvaged value of building 10% of the estimated reproduction cost of building, i.e, @ 10% of Rs. 2,40,000 24,000 1,50,300

Deferred for 20 years @ 5% Y.P = 03769 × Rs. 1,50,000 = Rs. 56,648. Total value of the property by rental method as on 10-12-74.

Rs. Rs. 1. Structure 59, 513 2. Land 56, 648 1, 16, 161 1, 16, 000

7. On the 24th August, 1974, the competent authority initiated proceedings for acquisition of the said property under s. 269C of the Act after recording his reasons for such initiation stating, inter alia, that on the basis of the report of the Valuation Officer the fair market value of the property exceeded the apparent consideration by 45% (i.e, more than 25%).

8. On the same date, i.e, the 24th August, 1974, the competent authority issued and had duly published a notice, under s. 269D(1) of the Act inviting objections against the proposed acquisition under s. 269E.

9. Objections were preferred both by the transferees as also the transferor against the proposed acquisition. It was, inter alia, contended on behalf of the transferees that—

(a) The valuation by the said Valuation Officer, was not correct and was based on guess without evidence.

(b) The estimation of the value of the land at Rs. 20,000 per cottah was erroneous and without any evidence.

(c) The said property was not situated in a middle class residential area. There was a bustee covering 10 bighas on its south and on its east). A valuation report of H. Sarkar, chartered engineer and valuer, was enclosed in support of the objection.

10. The objections of the transferor, inter alia, were as follows

(a) The said property was incorrectly described as being located in a middle class residential area. Even the tenants in the property were of lower income group.

(b) The only method of valuation of the said property, a fully tenanted premises, was the rental method.

(c) The reversionary method of valuation was incorrecth applied by the said Valuation Officer.

(d) The property being fully developed and tenanted and rent restriction legislation being in force, valuation of the said property by the land and building method would be inappropriate.

11. At the hearing of the objections under s. 269F of the Act instances of contemporaneous sale of the property in the neighbouring area were cited on behalf of the transferee as follows:

1. 93, Elliot Road Registered on 23-3-69 Price—Rs, 1, 01, 000 Area—15C. 5 ch. 25 sft. Two storied—1/6th self-occupied and the remaining portion tenanted. 2. 82, Elliot Road Regd. 16-5-69—Rs. 1, 35, 000 Area 12 C. 3 ch, 18 sft. 4 storied, fully tenanted.

3. 86, Elliot Road Regd. 6-11-71—⅓rd sold— Rs, 30, 000—Total 9C, 11 ch. 17 sft.

12. The transferee also relied on and filed another valuation report of the said H. Sarkar dated the 12th August, 1975.

13. On hearing the said objections and after obtaining the approval of the CIT, the competent authority made an order for acquisition of the said property under s. 269F(6) of the Act. The instance of contemporaneous sale cited on behalf of the objectors in respect of premises Nos. 82 and 93, Elliot Road, were distinguished by the competent authority on the ground that the said transactions took place before Chapter XX-A of the I.T Act, 1961, had come into force and, therefore, went unchallenged. He also noted that between 1969 and 1971, the city of Calcutta was in a very disturbed condition on account of which land price in the city had slid down a sharp decline.

14. The competent officer upheld the reversionary method of valuation applied by the Valuation Officer accepting that the building in the said property was a very old structure and had a future life of only 20 years, whereafter it would have to be demolished and the land would revert back to the owner as vacant land. It was also accepted that the purchase had been made on that basis and also as the vacant land would become available for further construction. The competent officer rejected the valuation rieport of H. Sarkar. Comparing the sale on the 31st March, 1974, of a Gorner plot measuring 538 cottahs situated at the junction of Elliot Road and Acharya Jagadish Chandra Bose Road for Rs. 15,00,000, i.e, at the rate of Rs. 28,000 per cottah, the competent authority held that the proper consideration had not been truly stated in the instrument of transfer.

15. For the purposes of wealth-tax the said property had been last assessed at Rs. 65,000, The competent authority noted that even on such admitted valuation the transaction resulted in a substantial capital gain and, therefore, he concluded that the transaction was designed to facilitate concealment of further liability to capital gains tax.

16. Being aggrieved by the above order of the competent authority the transferor preferred an appeal to the Income-tax Appellate Tribunal. In the said appeal, the following further facts were elicited on behalf of the transferor:

(a) The transferor had purchased the said property on the 4th March, 1952, in a court auction for only Rs. 45,100.

(b) Earlier, the property had been leased out on a total rent of Rs. 104.16 per month. After the expiry of the said earlier lease in June, 1971, new tenants were inducted at an enhanced total rental of Rs. 820 per month.

(c) The husband of the transferor was murdered on the 31st January, 1971, in the disturbances prevailing at that time resulting in nervous breakdown of the transferor.

(d) Being a lady and residing away from the said property, the transferor could not manage the said property and had no other alternative but to sell the same at the best price available.

(e) At the time of the sale, rents aggregating Rs. 8,251 were in arrears which were assigned by the transferor in favour of the transferee for only Rs. 6,188.

17. On the basis of the aforesaid it was submitted that the consideration for the transfer was the fair market value of the said property and had been correctly shown in the instrument of transfer and, in any event, was the actual amount involved in the transfer.

18. It was contended further that the property having been sold without, reservation there was no question of any reversionary interest being valued as was done by the Valuation Officer. The property was fully tenanted. The tenants could neither be evicted nor their rent enhanced by reason of restrictive legislation and, therefore, the appropriate and the only method of valuation of the said property was to capitalise the annual rent by any number of years' purchase. It was contended that the proper multiple to be applied was 12 and if this was done the value of the property would be much less than the consideration shown in the instrument of transfer.

19. On the other hand, it was contended on behalf of the revenue that, admittedly, the property was about 60 years old and, therefore, the addition of the reversionary value of the land was fully justified. It was also submitted that the total built-up area in the property was 5,510 square feet which was fetching a rent of only Rs. 820 per month, i.e, at the old rate of 15p. per square foot which was not reasonable. Therefore the valuation of the said property on the basis of yield would not be justified. It was further contended that of 4,547 square feet, the total area, 1,264 square feet had been left vacant indicating that there was scope for further development of the property and for this reasons also, the valuation of the said property on yield basis would not be justified.

20. The transferor contended in reply that under the municipal requirements for the area; one-third of the total area in the premises had to be left open and, therefore, there was no question of any further development of the said property. It was also submitted that the yield of the property was not on the basis of old rates of rent as the property had been let out to new tenants in 1971.

21. After consideration of the respective submissions, the Tribunal, following a decision of this court in CED v. Radha Devi Jalan, [1968] 67 ITR 761 (Cal), held that by reason of the provisions of the rent control statutes, the only proper method of valuation was by application of a multiple to the net yield of the property which the Tribunal determined to be 121. The Tribunal also held that the said property having been sold in two undivided half shares, a further deduction of 10% would have to be made. On the above basis, the fair market value of the property on the date of the transfer was found to be less than Rs. 80,000 which was the value mentioned in the instrument of transfer. Accordingly, the Tribunal allowed the appeal and set aside the order of acquisition passed by the competent authority.

22. The present appeal before this court has been preferred by the CIT, West Bengal II, under s. 269H of the Act against the said order of the Appellate Tribunal.

23. Mr. B.L Pal, learned counsel for the appellant, has urged before us the following grounds from the memorandum of appeal:

(a) The Tribunal erred in holding that the only proper method of determining the fair market value of the property was by applying a multiple to the net yield from the property.

(b) The Tribunal erred in rejecting the method of the Valuation Officer being the reversionary method of valuation inasmuch as the said property had an additional economic life of 20 years.

(c) The Tribunal failed to take into consideration that the total area of land was 4,547 square feet out of which 1,264 sq. feet had been left vacant on which there could be further development of the property.

(d) The Tribunal erred in proceeding on the basis that the proper multiple should be only 12½.

24. Mr. Pal contended that the fair market value of the said property could be determined by applying more than one method and if the valuation was made by applying only the yield method, the result would be incorrect. If in valuing a property on the method known as the “land and building” method a higher valuation than that obtained by following the method known as “yield or rental” method was obtained, the same must be accepted as correct. Even if the “yield or rental” method was applicable it would be necessary to check the result arrived at by applying the other methods including the “land and building” method.

25. Mr. Pal next contended that where the land was not fully developed-or where the return from the land was controlled and not commercial then value determined solely on the basis of “yield or rental” method would be incorrect or misleading. Mr. Pal submitted that in the instant case the said property included vacant land measuring 1,264 sq. ft. which provided scope for further development of the property.

26. Mr. Pal next submitted that in the instant case the rent or yield from the said property was only 15p. per square foot which was neither the reasonable nor commercial rent for a building in the locality. Accordingly, the method followed by the Tribunal, i.e, the yield or rental method, was wholly inapplicable in the instant case.

27. Mr. Pal next submitted that the method applied by the Valuation Officer, i.e, “reversionary method”, which was based partly on the “yield or rental” method and partly on the “land and building” method was applicable in the instant case as the property had an available economic life of 20 years.

28. Mr. Pal finally submitted that, in any event, “yield or rental” method applied in the instant case has not been correctly computed inasmuch as the Tribunal had applied a multiple of only 121 which was very low. On a higher and proper multiple being applied even on the “yield and rental” method the valuation could be computed at a much higher figure.

29. In support of his contentions Mr. Pal cited the following:

(a) Parks “Principle and Practice of Valuation”, 4th Edn., pp. 37, 38:

“When land is fully developed by buildings erected thereon, when the property is let at a rent from which the fair rent can be ascertained, and when the rent has been proved and is likely to be maintained for years to come, then the rental method of valuation should be applied to determine the market value of the premises… When a property is valued on the rental basis, the result is the value of the land and buildings taken together anil cannot afterwards be apportioned…This does not mean the land and building method cannot be employed to check a valuation done by the rental method. It simply states that after, capitalisation of the rent you cannot deduct the depreciated value of the buildings on the land, and say that khe result is the definite value of the land.”

(b) Rustom Cavasjee Cooper v. Union Of India, [1970] 40 Comp Cas 325 (SC). In this decision, the Supreme Court considered the vires of the Backing Companies (Acquisition and Transfer of Undertakings) Act, 1969. One of the main questions involved was whether “compensation” in such an acquisitive statute would in consonance with art. 31 of the Constitution be a just equivalent in money of the property acquired or whether the said expression did not mean a just equivalent and the court cannot go into the propriety or adequacy or reasonableness of compensation under the said article of the Constitution. The Supreme Court held that the law providing for acquisition must either fix the compensation or specify the principles on which and the manner in which the compensation is to be determined. Mr. Pal relied on the following from the majority judgment of the Supreme Court at page 383:

“The important methods of determination of compensation are: (i) market value determined from sales of comparable properties, proximate in time to the date of acquisition, similarly situate, and possessing the same or similar advantages and subject to the same or similar disadvantages. Market value is the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchaser; (ii) capitalization of the net annual profit out of the property at a rate equal in normal cases to the return from gilt-edged securities. Ordinarily value of the property may be determined by capitalizing the net annual value obtainable in the market at the date of the notice of acquisition; (iii) where the property is a house, expenditure likely to be incurred for constructing a similar house, and reduced by the depreciation for the number of years since it was constructed; (iv) principle of reinstatement, where it is satisfactorily established that reinstatement in some other place is bona fide intended, there being no general market for the property for the purpose for which it is devoted (the purpose being a public purpose) and would have continued to be devoted, but for compulsory acquisition. Here compensation will be assessed on the basis of reasonable cost of reinstatement; (v) when the property has outgrown its utility and it is reasonably incapable of economic use, it may be valued as and plus the break-up value of the structure. But the fact that the acquirer does not intend to use the property for which it is used at the time of acquisition and desires to demolish it or use it for other purpose is irrelevant; and (vi) the property to be acquired has ordinarily to be valued as a unit. Normally an aggregate of the value of different components will not be the value of the unit.

30. These are, however, not the only methods. The method of determin the value of property by the application of an appropriate multiplier the net annual income or profit is a satisfactory method of valuation of ds with buildings, only if the land is fully developed, i.e, it has been B to full use legally permissible and economically justifiable, and the some out of the property is the normal commercial and not a controlled Hirn, or a return depreciated on account of special circumstances. If the Hlperty is not fully developed, or the return is not commercial, the whod may yield a misleading result.”

31. Mr. R.N Dutt, learned counsel for the respondent, drew our attent to the undisputed facts of the instant case noted earlier and cited the following decisions in support of the order of the Tribunal:

(a) CED v. Radha Devi Jalan, [1968] 67 ITR 761 (Cal). Here certain premises were being valued for assessment of estate duty. The said premises were in the occupation of an old tenant who was paying a monthly rent of Rs. 1,600. The Appellate Tribunal estimated the valuation of the property on rental basis. On a reference it was contended before this court that the Tribunal should have determined the real value of the property on the basis of what the property would fetch if sold in the open market at the relevant time. This court rejected the contention and upheld the order of the Tribunal with the following observations (at pp. 765-766):

“The contractual rent of Rs. 1,600 per month was payable by the tenant in respect of a building, which at the material time was governed by the West Bengal Premises Tenancy Act, 1956. Under the operation of the various rent restriction Acts, which have been operating in the State for now well over quarter of a century, landlords have lost the right of letting out their houses at any rent they choose and of evicting tenants on such grounds as appeal to them. Contractual relationship between land lords and tenants have given way to statutory relationship imported by successive rent restriction Acts and the position now is that houses may be let out only at fair rents and at no more. If premises can no longer be let out at such rent as the landlord may expect or aspire, then however costly the premises may otherwise be, their value have to be determined on 1 the basis of the limitations imposed by the statute.”

32. It was further observed (at pp. 769-770) as follows:

“When a person buys a property, he does so for two purposes (a) to obtain an annual income, (b) to obtain security for his capital, ifl the property was merely a vacant land, it might be developed and made to yield such income, as it was capable of, in a metropolitan area where some sort of scarcity for accommodation prevails. The property was, however, burdened with a tenanted house and the income therefrom was controlled 1 by a statute. This control on income was bound to react on the value of the property and application of the land” and building method would not have been a proper method in the instant case.”

(b) J.N Bose v. CWT, [1976] 104 ITR 83 (Cal). Here it was here by this court in the context of the W.T Act, that there are differment methods of valuation of immovable property and which one would suitable for a particular property would, depend upon the particr features thereof.

(c) CED v. Bijoy Kumar Khavdelwal, [1977] 108 ITR 864 (Gau). this case, the Tribunal in determining the market value of a prope under s. 36 of the E.D Act, 1953, held that the gross rental value was proper method to be applied to ascertain the market value of the property concerned. The Assam High Court held that the Tribunal did commit any error of law by computing the valuation on the rental metllgui in preference to the other methods.

33. We do not accept the contention of Mr. Pal that the said properllgi was not fully developed. Out of a total area of 4,547 sq. ft onwn 1,264 sq. ft. had been left open. No evidence was led to show if this 12 sq. ft. was in the form of one regular plot or consisted of accretiortrrcj of open spaces unconnected with each other. The property has been sold to two persons in undivided equal shares. The vacant land in each share will not exceed 632 sq. ft., i.e, an area less than one cottah. The requirement of the Corporation of Calcutta is that one-third total of an area should be left vacant; therefore, the available area for development in the instant case would be only about 200 sq. ft. in each undivided share. In our view, the scope for future development of the said property is negligible.

34. In R.C Cooper, [1970] 40 Comp Cas 325 (SC), the Supreme Court was considering what would be a fair compensation where property was being acquired compulsorily and not what would be the fair market value when such property was being voluntarily transferred by the owner for a consideration. The Supreme Court held that application of the “yield or rental” method to value vacant business premises in urban areas on the basis of estimated rental would lead to misleading results and would not ensure adequate compensation. The following observations of the Supreme Court (at p. 387) make the position clear:

“Under Explanation 2, clause (1), ascertained value in respect of buildings which are wholly occupied on the date of the commencement of the Act is twelve times the amount of the annual rent or the rent for which the building may reasonably be expected to be let from year to year reduced by certain specific items. This provision, in our judgment, does not lay down a relevant principle of valuation of buildings. In the first place, making a provision for payment of capitalised annual rental at twelve times the amount of rent cannot reasonably be regarded as payment of compensation having regard to the conditions prevailing in the rlaoney market. Capitalization of annual rental which is generally based o;h controlled rent under some State Act at rates pegged down to the rates prevailing in 1940 and on the footing that investment in buildings yields 8⅓ per cent, return furnishes a wholly misleading result which cannot be ciklled compensation. Value of immovable property has spiralled during the last few years and the rental which is mostly controlled does not bear and reasonable relation to the economic return from property…There is in the present conditions considerable value attached to vacant business premises in urban areas. True compensation for vacant premises can be ascertained by finding out the market value of comparable premises at or about the time of the vesting of the undertaking and not by capitalising the rental—actual or estimated. Vacant premises have a considerably larger value than business premises which are occupied by tenants. The Act instead of taking into account the value of the premises as vacant premises adopted a method which cannot be regarded as relevant. Prima facie, this would not give any reliable basis for determining the compensation for the land and buildings.”

35. Moreover, we find that the rent restriction legislation do not generally apply to premises in which the Government is interested either as a tenant or as a landlord. Therefore, when the Government acquires property, the fact that there are tenants in the property is irrelevant for the purpose of computing compensation as the Government is not restricted from removing such tenants. Therefore, in determining compensation payable for property acquired by the Government valuation of the property on the basis of actual yield would be unfair to the owner.

36. The discussion in Parks' Principle and Practice of Valuation cited by Mr. Pal does not advance the case of the revenue any further. According to Parks a fully developed and tenanted property fetching a steady rent has to be valued by the “yield or rental” method. No doubt “land and building” method might be applied even in such a case to check the value arrived at by the former method but it is not the opinion of Parks that in such cases the result arrived at by “land and building” method must be accepted in preference to that obtained by the “yield and rental” method.

37. The said property, therefore, is a property fully developed and let out to tenants in its entirety. The quantum of-rent realised has been duly ascertained and such rent is likely to be maintained for years to come. The method indicated in Parks' Valuation at p. 37 clearly applies to such facts and, in our opinion, the Tribunal has rightly applied the “yield or rental method” for the valuation in the instant case.

38. We entirely agree with the principles laid down in Radha Devi Jalan, [1968] 67 ITR 761 (Cal) and find that the Tribunal has correctly applied/the same in the instant case. If a statutory control is imposed on a commodity, restricting the price, or transfer, or distribution of the same then, in our opinion, the commodity ceases to be a commercial commodity as understood in common parlance and becomes a controlled commodity and its effective value is its controlled value and not an imaginary commercial value. If the State chooses to impose statutory control in respect of ternts and conditions for tenancies in properties and such control is statutorily enforced then during the subsistence of such control such properties would necessarily have a value which is controlled. The State cannot then turn round and say that for other purposes the properties would have a notional commercial value. To hold otherwise would be to ignore the realities.

39. We have failed to understand either the principles or the logic of the “reversionary” method of valuation as applied by the Valuation Officer of the department in the instant case. After following the “yield or rental” method and having arrived at a figure the Valuation Officer has added to it the value of an imaginary reversion in future. We invited Mr. Pal to cite any authority which has approved or even indicated this method but he was unable to do so. It is stated in Parks' Valuation (at p. 38) that when a property is valued on rental basis the result is the value of the land and building taken together which cannot afterwards be apportioned. In the method adopted by the Valuation Officer the value of the land is taken twice, being included in the amount arrived at by the “yield or rental” method and again under the “reversionary” method. This is an entirely novel approach but in our view erroneous.

40. The only other point to be considered is whether the Tribunal applied a proper multiplier, i.e, 121 times. In our opinion, this point is academic. The Valuation Officer applied the rental method and computed the capitalised value of the said property at Rs. 62,513 by applying a multiplier of only 9,654. The assessee's valuer has applied a multiple of 12£ which was accepted by the Tribunal. The appellant has no reasons to be aggrieved that a multiplier higher than that suggested by its own valuer has been applied.

41. Apart from the report of the Valuation Officer no other relevant evidence was available before the competent authority or the Tribunal in support of the case of the revenue. No comparable figures of other sales were brought on record. The vacant land sold on the 31st March, 1974, at the rate of 28,000 per cottah was situated at the junction of Elliot Road and Acharya Jagadish Chandra Bose Road. There cannot be any comparison between that property and the property with which we are concerned.

42. For the reasons given above, it cannot be said that the Tribunal erred in choosing an accepted method of valuation, namely, the “yield or rental” method in preference to other methods. Accordingly, the appeal fails and is dismissed. The respondent will be entitled to costs. Interim orders will continue for a period of 8 weeks from date.

C.K Banerji, J.:— I agree.