MUHAMMAD MUJIBULLAH SIDDIQUI (JUDICIAL MEMBER).--1. In all the above appeals the appellant has agitated the following common ground:-- "That the learned C.I.T. (A) has erred in estimating the value of ground floor of property No. 511/21, Garden West, Karachi at Rs. 14,63,020 which besides being unjustified is excessive and exorbitant."
2. The issue being common in all the four appeals they are being disposed of by this single consolidated order.
3. Briefly stated the relevant facts are that the appellant, an individual, is owner of property No. 511/21, Garden East, Karachi. This property consists of two floors. The area of plot on which the building is constructed is 1,200 sq. Yds. The ground floor has been rented out by the appellant to her real sons who are running business under the name and style of M/s. M.F. Corporation Limited, M.F.
Sons and Asadullah Limited. The appellant declared value of the property in each year under consideration at Rs. 1,10,000/-. The W.T.O. Did not accept the declared value and determined the G.A.R.V. Of the building in the following manner: Fair gross monthly rental value of ground floor Rs. 15,000 Fair gross monthly rental value of 1st floor Rs. 15,000 Rs. 30,000 Gross Annual rent (30,000 x 12) Rs. 3,60,000 Add: Interest at 12% on presumed advance loan , Rs. 43,200/- of one year. i.e. Total: Rs. 4,03,200 To determine the ALV (4,03,200 x 10) = Rs. 40,32,000 This value is being rounded 40,00,000 which is value of the property {{TEXT MISARRANGED}}
4. The appellant claimed first floor of the building as self- occupied which claim was also rejected by W.T.O. The appellant felt aggrieved and preferred first appeal before the learned C.I.T. (A). The learned C.I.T. (A) did not approve the method of valuation adopted by the W.T.O. And directed the W.T.O. To adopt the following valuation of ground floor:- "The W.T.O. Is directed to adopt the following valuation of ground floor. According to the guideline issued by the Excise & Taxation Department, the land should be valued at Rs. 900 per square yard:
(i) Therefore, the value of the plot is worked out at 1,415 sq. Yds. x Rs.900 = Rs. 12,73,500.
(ii) According to the said guideline, the cost of construction of the house built prior to 1962 is to be determined at Rs. 40 per square ft. This house was purchased in 1963.
(4753 sq. Ft, x Rs.40) = Rs. 1,90,120.
The first floor was valued at Rs. 55,000/- and held to be self occupied by the learned C.I.T. (A).
5. The appellant still felt dissatisfied with the valuation of ground floor by the learned C.I.T. (A) and preferred the above appeals before us. The department assailed the finding relating to first floor which appeal has been disposed of separately and the findings of learned C.I.T. (A) relating to self- occupation of first floor have been maintained.
6. We have heard Mr. I.N. Pasha, learned counsel for the appellant and Mr. Shahid Jamal, learned D.R. For the Department. Mr. I.N.. Pasha has contended that the learned C.I.T. (A) has rightly adopted the land and building method for determining the value of property in question. However, he was not justified in adding the entire value of the land to the valuation of first floor. He has contended that both the floors have been constructed on the same land and, therefore, the value of land should be proportionately apportioned to the value of each floor. He has submitted that according to the findings of learned C.I.T. (A) the value of land is Rs. 12, 73,500. The value of ground floor is Rs.
1,90,120 and the value of first floor being self-occupied is Rs. 55,000. As the result of method adopted by the learned C.I.T. (A) the value of first floor has remained at Rs. 55,000 which is the cost of construction while the value of ground floor has risen to Rs. 14,63,620/-. There cannot be such vast difference in the value of the first and second floor of the same building. According to Mr. Pasha the fallacy of the method adopted by the learned C.I.T. (A) is demonstrated on the face of it by looking to the difference, in the value determined in respect of the ground and first floor of the same building. He has, therefore, submitted that the only reasonable method of restoring the balance and determining the market value of the each floor is to apportion the value of land proportionately with the value of cost of construction of the each floor. Mr. Shahid Jamal, the learned D.R. Has supported the method adopted by the learned C.I.T. (A).
7. We have given our anxious consideration to the respective contentions of the learned representatives for the parties. The valuation of buildings comprising more than one storey has all along been a complicated and confusing affair. The valuation of such buildings becomes more intricate and cumbersome when the land and building method is adopted and the value of each floor of the building is determined separately. Normally the Assessing Officers while determining value of each floor of the building, include the cost of land and the construction of foundation upto the plinth level alongwith the .Cost of construction of ground floor. The upper floors are valued on the basis of the respective cost of construction on each floor starting from the floor of that particular storey upto the roof. The result of adopting such method is that the ground floor is valued at much higher rate as compared to the upper) floors which is totally disproportionate. If the value of ground floor and the upper floors so arrived at is compared with the market value of each floor it becomes clear that it does not represent the true state of affairs. On adopting such method a very important factor is overlooked that although the upper floors are not directly and physically in touch with the land but nonetheless they ultimately stand on the same land and cannot maintain their existence without the land beneath the ground floor. Secondly, the foundation although remains in physical touch with the ground floor only but the cost of construction laid on the foundation depends on the number of storeys intended to be constructed.
The strength of foundation is to commensurate with the number of storeys intended to be raised on the foundation. Thus the land and the foundation though not in direct physical contact with the upper floors but they are the integral part of the entire building and, therefore, the cost of land and the foundation should necessarily be apportioned in the cost of each floor in order to represent the correct valuation of each floor of the building. We are, therefore, of the view that in order to arrive at the correct valuation of the buildings comprising of more than one storey the Assessing Officer should estimate the value of land and foundation separately. Thereafter the cost of construction of the ground floor and each upper floor should be worked out. The cost of land and foundation should then be apportioned and clubbed with the cost of construction of the each floor worked out.
In apportioning the cost of land and the foundation with each floor, the ground floor should be apportioned higher than the upper floor. No hard and fast rule can be laid down in this behalf and the Assessing Officer should exercise reasonable discretion in this behalf which may differ from building to building keeping in view the nature thereof, the size of building, the number of storeys, etc. For example, if a building is two-storeyed, 55% of the cost of land and foundation may be apportioned to the cost of ground floor and remaining 45% may be added to the cost of construction of the first floor. If a building is three storeyed then 40% of the cost of land and foundation may be apportioned to the ground floor and 30% to the first and second floor each.
However, as already observed no hard and fast rule can be laid down in this behalf and the reasonable discretion is to be exercised by the Assessing Officer, in respect of each building.
8. As a result of above discussion we are of the opinion that the valuation of the ground floor arrived at by the learned C.I.T. (A) at Rs. 14,63,620/- out of the total valuation of the two storeyed house valued at Rs. 15,18,620 is not justified. Both the orders of the learned two officers below are, therefore, set aside, so as far the valuation of building in all the assessment years under appeal is concerned. The I.T.O, is directed to determine the value of each floor separately in accordance with the method given in the earlier part of this judgment. In determining the value of each floor the total value of the building as arrived at by the learned C.I.T. (A) at Rs. 15,18,620 should be maintained, as none of the parties have objected to this valuation of the entire building. The appeal is allowed in the manner as indicated above.