1. Z. A. CHANNA, J.-----In pursuance of an order made on 16-8-1966 by a Division Bench of the Karachi Seat of the erstwhile High Court of West Pakistan, on an application made by the Controller of Estate Duty (hereinafter referred to as the Controller), the Income-tax Appellate Tribunal has referred the following question for the decision of the High Court under section 59-A of the Estate Duty Act, 1950, hereinafter referred to as the Act:- "Whether on the facts and circumstances of the case, the Tribunal was justified in accepting the valuation of the properties by the valuer according to the so-called principles of golden mean between the rental value and the estimated value as the market value of such properties under section 38 of the Estate Duty Act."
2. The aforesaid question has arisen in respect of the estate left by the late Mr. Nusserwanji Mehta, who died in Karachi on 1st August, 1952. The property left by tate Mr. Nusserwanji consisted of factories and business assets, household effects and undivided share in urban land and buildings.
3. The accountable person, Mr. Sohrab Hommie Mehta, submitted an account statement declaring the not value of the estate of late Mr. Nusserwanji, after deducting debt and income-tax liabilities and funeral expenses, at Rs. 1,31,918. The value of the share of the deceased in urban land and buildings was shown in the statement as Rs. 1,47,000. It may be stated that this property consisted of five separate items. The first item consisted of a building in Elphinstone Street on a plot having an area of 3,146 sq. Yards. The second item was a building in the Machi Miani quarter on a plot measuring 910 sq. Yards. The third item was a plot measuring 35,297 sq. Yards in Garden East, on which plot there were two double-storeyed bungalows and one tile factory. The fourth property was a plot measuring 35,015 sq. Yards on Lawrence Road which was mainly in the occupation of squatters from whom, however, some rent was being realized. The fifth item consisted of a plot measuring 1,628 sq. Yards in Saddar Bazar, on which there was a building. The deceased had 1/3rd share in the first four mentioned properties, while in the last mentioned property, his share was 1/8th.
4. The Controller did not accept the declaration of the accounting person, either in respect of the urban lands and buildings or the other property of Mr. Nusserwanji. As the question that has been referred to us relates solely to immovable property, we will confine our attention only to that property and not touch upon matters relating to other property. The Controller was of the view that in 1951-52, the period during which Mr. Nusserwanji died, properties in Karachi had greatly appreciated in value and were selling at anywhere from 25 to 35 times their' not annual value. He accordingly valued the immovable property of the deceased at Rs. 7,48,291. In arriving at this figure, he valued the two items of built up property at Elphinstone Street and Machi Miani (which he has characterised as very attractive business centres) at 30 times their not rental value and the property at Saddar Bazar at 17 times its gross rental value. So far as the property at Garden East is concerned, he valued the price of the two bungalows at Rs. 2-- lacs and the land at Rs. Ten lacs that is at about Rs. 30 per square yard.
5. The accountable person challenged before the Tribunal the assessment made by the Controller.
6. The Tribunal appointed Mr. Solangi, a retired Sup--erintending Engineer of the Buildings and Roads Department of Government, as a valuer. He calculated the gross value of Mr. Nusserwanji's share in the aforesaid property at Rs. 5,05,500. From this figure, he deducted an amount representing ten per cent. Of the said sum, on account of Mr. Nusserwanji's share being undivided, and determined the true or not value of his share in the said property at Rs. 4,55,000.
7. The Tribunal accepted the valuer's report, which contained detailed reasons for his valuation, and assessed the property accordingly. It may be mentioned here that according to the Tribunal no objection was taken before its by the Department to the Valuer's report. The Department, however, was apparently not satisfied with the Valuer's report or the decision of the Tribunal and accordingly made an application to it to refer for the decision of the High Court certain questions of law said to have arisen from the Tribunal's decision. The Tribunal, however, by its order made on 10-5-1960, refused to make a reference to the High Court on the ground that no questions of law arose in the case. Aggrieved by the said order, the Department made an application to the High Court for reference under section 59-A(2) of the Act. The contention of the Department in that reference was that the rule of "golden mean" propounded by David Lawrence and adopted by the Tribunal in determining the principal value of the property was not only a method which had never been followed in Karachi but further that in law this is not a proper or valid method for determining the value of the property under the Act. The contention on behalf of the accountable person, in the reference proceedings, was that a valuation of property made by a Valuer appointed by Government was binding on the Department, specially as it had not objected to his report or valuation before the Tribunal. The Division Bench, which heard the reference, was of the opinion that the method of "golden mean" adopted by the Valuer has to be considered in the circumstances prevalent in the city of Karachi. It was of the view that the question whether the report of the Valuer should or should not have been relied upon was a mixed question of law and fact and accordingly it directed the Tribunal to refer the question, stated in the first paragraph of our judgment, for the decision of the High Court.
8. The contention of Mr. Nusrat, who appeared on behalf of the Department, was that under the Act, the principal value of property has to be according to the market value of the property at the time of the deceased's death, and that the rule of "golden mean" adopted by the Valuer and the Tribunal does not follow or reflect this criterion. On the other hand, Mr. I. N. Pasha, who appeared for the accountable person, contended that the method adopted by the Valuer and the valuation made on that basis and accepted by the Tribunal were strictly in accordance with the provisions of the Act and reflected the true market value of the property, which is the sole criteria for determining the principal value of the property under the Act.
9. Sections 39 to 41, deal with special types of property, and since the property in the instant case does not fall in any of the categories covered by the said sections, they are not relevant for the present reference. Section 42, however, is very much relevant. It is based on section 7(8) of the U. K.
10. Finance Act, 1894, and reads as follows:- "42. Subject to the provisions of this Act, the value of any property for the purpose of estate duty shall be ascertained by the Controller in such manner and by such means as he thinks fit and if he authorises a person to inspect any property and to report the value thereof for the purposes of this Act, that person may enter upon the property and inspect it at such reasonable times as the Controller considers necessary."
11. It may be pointed out that the aforesaid section, unlike the corresponding section 41 of the Indian Estate Duty Act, 1953 which requires the Controller to ascertain the value of any property for the purposes of estate duty, in the manner and by the means prescribed in the rules, gives full power to the Controller to ascertain the value of the property for the purpose of the estate duty, "in such manner and by such means as he thinks fit", the only limitation on his power being that in doing so, he must not infringe, or act in violation of, any of the other provisions of the Act. The said section specifically authorizes the Controller to appoint a Valuer for the purposes of ascertainting or determining the value of property. Mr. Nusrat conceded, in view of the provisions of subsection (4) of section 59, that the Tribunal, like the Controller has the power to refer a dispute as to valuation of any property to a valuer. The objection that he has raised is that the mode or method adopted by the valuer in the instant case did not or is not likely to give in the city of Karachi the true "market value" which is the indispensable requirement of section 38.
12. As already indicated, the Valuer has given elaborate reasons in support of his valuation. He has stated, a statement which he has based not only on his own experience but on the book, "Modern Method of Valuation of Land and Buildings", by David Lawrence, that "there are two important ways in which the value of buildings and property can be determined". The first method is by finding out the not income of the property, which is obtained by deducting from the actual receipts, the actual expenditure incurred on taxes, ordinary and special repairs, collection charges, insurance, etc. And such not income is then capitalized at 6 % rate of interest, but from the sum so determin--ed, depreciation on capital cost of buildings is to be deducted at the rate of 4-- % per annum, which rate of depreciation is generally allowed by Government. He, however, considered this method not very reliable, as firstly the rent, in spite of rent laws, is not fixed or constant and is "based on commercial spirit of gain and loss and the rent income changes now and then", and secondly, "very often, it happens that, although the building is new and up-to-date, the rent income is small and not commensurate with the amount of 6 % on the capital cost, and at times, the building is too old and of less value, but the rent figure is too high on account of a prosperous locality and demand". The Valuer accordingly adopted the second method, which is based on "the golden mean of the rental value and estimated value". According to the valuer, finding the value of a structure by estimating is accurate and certain. On examining the report of the Valuer, we find that in the case of each building or structure, he has taken into consideration a number of factors, including its location, age, type and nature, its normal life-expectancy, its state of maintenance, etc. While determining the value of land on which there are structures, he has pointed out that, in certain cases, the structures may result in the value of the property being much less than the value of the land, if it was open, for the structures, if they are too old or uneconomical have first got to be vacated and then pulled down and the debris removed, resulting in considerable expenditure being incurred in order to make the plot open land. In the case of land or plots he has also taken into consideration the circumstances whether the land has been encroached upon or is in occupation of squatters and the extreme difficulty and the expenses involved in removing them.
13. We are of the opinion that these are very material and relevant factors in assessing the market price both of plots and built up land.
14. It is now settled law that the true criterion for determining the market value or open market price of any land or other immovable property is the best price which a willing buyer would pay for it to a willing seller. It is, however, not necessary that there should in fact be an open market for the property. As pointed out by Viscount Hailsham, L. C., in the case of Commissioner of Inland Revenue v. Cross-man and another ((1937) L R (A C) 26), where the House of Lords was called upon to consider the question of value for the purposes of estate duty of a large number of shares in a Company, the articles of association whereof imposed rigid restrictions upon the alienation and transfer of its shares, that the statute does not require or even envisage that there should be an open market, for if this was correct, "it would follow that any property which could not be sold in the open market would escape duty altogether."
15. The factors and circumstances, on the basis of which the Valuer in the instant case has assessed and determined the value of the property in question, in our opinion, are relevant and appropriate for determining the true and correct market value of the property. Similarly, we consider, that the ten per cent. Deduction which he made in the gross value of the property, on the basis of the principle enunciated by David Lawrence in his book "Modern Method of Valuation", on account of the fact that the deceased had an undivided share in the property, was quite proper in determining its correct market price, in view of the difficulties and problems involved in management of jointly-owned properties, specially those which cannot easily be divided, and the time, expense and trouble required in the proper and satisfactory physical division of such property. On the other hand, the valuation made by the Controller, in our opinion, was largely on the basis of surmises and on assumptions which had no proper foundation. The Controller, among other factors, has not taken into consideration the age of the structures, their nature and state of repair or disrepair, the expendi--ture involved or required for their repairs and above all whether the shops, houses, etc. Were vacant or there was a reasonable possibility of their being vacant in the near future. It is our experience, gained from the cases heard by us, that a building, shop or house has far greater market value in Karachi if it is vacant or vacant possession can be obtained within a short time. The system of pugree was quite prevalent in Karachi in 1952, with reference to which period the market value of the property had to be determined, and the prospect of obtaining high sums as pugree greatly pushes up the price of vacant buildings, shops and houses.
16. No doubt, section 42 of the Act confers power upon the Controller to ascertain the value of any property for the purposes of assessm ent of estate duty in such manner and by such means as he deems fit, but this power of the Controller is controlled by section 38, which enjoins him to fix the principal value of the property according to the market price at the time of the deceased's death.
17. In our opinion, the Controller has not complied with this essential requirement and, as already pointed out, his estimation is based on surmises and not well-founded assumptions, and furthermore, he has omitted to consider important and relevant factors in making his estimate. His estimate thus, in our opinion, is not in accord with the provisions of section 38 of the Act.
18. Conversely, as we have pointed out, the factors taken into consideration by the Valuer and the rule of "golden mean" adopted by him would appear to give a far more accurate estimate of the market value of the property. We would accordingly answer the question referred to us in the affirmative. As Mr. Pasha has not claimed any costs, we would make no order as to costs.
19. K. B. A.