COMMISSIONER OF WEALTH TAX, NEW DELHI versus P. N. SIKAND

Citation: [1977] 3 S.C.R. 418 · Decided: 01-04-1977 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

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418 
COMMISSIONER OF WEALTH TAX, NEW DELHI 
v. 
P. N. SIKAND 
April l, 1977 
(P. N. BHAGWATJ AND S. MURTAZA FAZAL ALI, JJ.] 
Wealth Tax Act. 1957 (Act 27 of 1957)-S. 7 rlw ss. i(e)(m), 3-Valuation 
of the hase-hold interest, when attached with a restraint or disadvantage-
"Net wealth" in s. 2(m)-Whetlzer 50% of unearned increase "payable" to the 
lessor as per the agreement deductible out of the valuation. 
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 M~rg, 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 previous years. The 
property consisted of leasehold interest in the land together with a house built 
on 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. Clause (13) of the le<lfic 
deed provided that the assessee shall not· be entitled to assign the 
leasehold 
interest in the land without obtaining 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-emptive 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 alf the covenants 
and conditions herein contained and be answerable in respect therefor". 
In 
accordance with this clau!le, 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 increa!le 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 
increase in the value of the land was rejected on the ground that this claim. was 
based "merely on hypothetical presumptions". 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 Revf'.nue 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 t~e unearned 
increase in the value of the land to the lessor at the time of the assignment was 
a disadvantage attached to the lea-sehold interest in the Ian~ and. h.ence its value 
was liable to be deducted from the value of the property 1n arnv1ng 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 lease-
hold 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 lease-
hold interest as if it were unencumbered or unaffected by the burden or restric-
tion contained in clause (13) nnd deducting from it, 50 per cent of the unearned 
t 
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COMMR. WEALTH TAX v. P. N. SIKAND (Bhagwati, J.) 419 
increase in the value of the land on the basis of the hypothetical sale as repre-
A 
sent1ng the value of such burden or restriction. 
[425 A-Cl 
(3) The true test for determining: tbe matter of payment ruade 
by an 
assessee out of an amount received by him whether it

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