Valuation of Immovable Property

Valuation of Immovable Property for the
purpose of Probate of Will
A Will is the disposition of the assets made by a person during his or her lifetime intended to take
effect after death. When a person dies without making a Will, he is said to have died intestate i.e. his
property will be inherited by the heirs according to the Law of Succession. In this case, heirs should
obtain a legal heir certificate.
When a person dies after making a Will, it can be enforced only after a probate is issue. A probate
is identified as the copy of the Will certified under the seal of the court of competent jurisdiction.
No right as executor or legatee can be established in any court of justice unless a court of competent
jurisdiction in India has granted only to the executor appointed by the Will.
A petition for the probate is to be filed in the concerned court along with the Will. The petitioner
should furnish stamp paper of value equal to the required court fee which is specified as certain
percentage of the value of assets to be inherited. The assets may include immovable property (ies)
for which to arrive at the stamp duty, its value should be worked out.
In the case titled Gorhandus Hargoindas vs. Municipal Commissioner, Ahmedabad (1964) 66
NmlR68.78 AIR 196 Se1742, 1747, the court stated that “the annual value or rateable value is
arrived at by one of the three methods:
i) Annual rent fetched by land or building where it is actually let.
ii) Where is not let, rent based on hypothetical tenancy, particularly in the case of buildings
and
iii) Where either of these two methods is not available, by valuation based on capital value.
A division bench of the Mysore High Court in the case of CED vs / Krishnamurthy (1974) 96 ITR
97 was concerned with the valuation of unquoted shares for the purpose of Estate Duty. There was
no rule under the Estate Duty Act providing for such valuation (it was only later that Rule 1 BB was
introduced and Estate duty was abolished in the 1986).
The court observed that “in the absence of rules, valuation for the purpose of this Act had to be
made in accordance with the well recognized valuation methods followed in India. The method of
valuation prescribed under the Wealth Tax rules being the only statutorily recognized method of
valuation.
It has been held by the Bombay high Court. In a petition filed by Madhusudhan Dwarkda Vora vs.
Superintendent of stamps that the wealth tax rules provide a method for assessing the value of
unutilized surplus land where the difference between the unbuilt area and specified area is less than
20 percent of the aggregate area. The same method must be applied for the purpose of grant of
probate.
Relevant Extract of Rule 3 of the Wealth Tax Act
Where rule 3 is applicable the value of the immovable property being a building or land appurtenant
thereto or part thereof shall be amount arrived by multiplying the net matainable rent by the figure
12.5.
Net maintainable rent is relation to an immovable property shall be the amount of gross maintainable
rent as reduced by:
i) The amount of taxes levied by any local authority in respect of the property and
ii) A sum of equivalent to 15 percent of the gross maintainable rent.
Gross Maintainable Rent
i) Where the property is let out, the amount received or receivable by the owner as annual
rent or the annual value assessed by the local authority in whose area the property is
situated for the purpose of levy of the property or any other tax on the basis of such
assessment whichever is higher.
ii) Where the property is not let the amount of annual rent assessed by the local authority in
whose area the property is situated for the purpose of levy of property tax or if there is
no such assessment or the property is situated outside the area of any local authority, the
amount the owner can reasonably expect to receive as annual rent had such property
been let.
iii) Where the owner has accepted any amount as deposit (not being advance payment towards
rent for a period of three months or less) by the amount calculated at the rate of 15 per
cent per annum on the amount of deposit outstanding from month to month for number
of months (excluding part of month (during which such deposit was held by the owner
in the previous year and if the owner is liable to pay interest on such deposit the increase
in this clause shall be limited to a sum by which the amount calculated as aforesaid
exceeds the interest actually paid.
Rent received or receivable shall include all payments for the use of the property, by whatever
name called, the value of all benefits or prerequisites whether convertible as money or not
obtained from the tenant or occupier of the property and any sum paid by a tenant or occupier of
the property in respect of any obligation which but for such payment would have been payable
by the owner.
Adjustment to value arrived at under Rules 3 for unbuilt area of plot of land
Example
Mr. X was the owner of a property at Chennai with an extent of 7,200 sq.ft. of land and with a
building with 3,000 sq ft on the ground floor and 1,500 sq ft in the first floor. X passed away in
2002 leaving a Will and the registrar valued the property at Rs. 40 lakh as per the guidelines.
Valuation of the property as per Rule 3 of the Wealth Tax Act
Extent of land : 7,200 sq. ft.
Extent of building in the ground floor: 3,000 sq. ft.
Extent of unbuilt area =
7,200 sq. ft – 3,000 sq. ft 4,200 sq. ft.
Specified area for Chennai = 60 per cent
Percentage of unbuilt area is less than the specified area. Hence Rule 3 is applicable without
adjustment.
The property is owner-occupied throughout.
Annual value fixed by the Corporation of Chennai Rs. 16,380
Gross annual income: Rs. 16,380 / 0.91 Rs. 18,000
Deduct property tax and other taxes and other taxes: (-) Rs. 3,000
15 per cent of gross annual income Rs. 2,700
Net annual income = Rs. 18,000 – Rs. 5,700 = Rs. 12,300
Value of the property: Rs. 12,300 x 12.5 = Rs. 1,53,750
The value of the property is only Rs. 1,53,750 when worked out by application of Rule 3 of the
Wealth Tax Act as against Rs. 40 lakh assessed by the registrar.
According to the Tamil Nadu Court Fees and suits Valuation Act, the fee chargeable for the
grant of probate or letters of administrations shall comprise a fee at the rate of three percent on
value if it exceeds a sum of Rs. 5,000.
When the application is made within one year of the death of the deceased, the market value of
the estate on such a date is to be worked out for payment of fees.
A circular released on January 11, 2002 by the Inspector General of Registration. Government
of Tamil Nadu (Circular No. 45794) mentions “the stamp duty payable for instrument of
settlement in favour of on the value as set forth in the settlement and not the market value”.
Incidentally gift tax has also been abolished under the Income Tax Act.
This means that a man seeking settlement in his lifetime ends up sending far less and stamp
duty to be paid than when he is dead! The court fees payable at the rates prescribed under the
Court Fees Act may vary in other states. Besides this, immovable property situated in territories
other than West Bengal, Mumbai and Chennai require no probate for Wills made by Hindus. It
is high time the law commission took initiative in order to set the right the discrimination by
recommending to the government an amendment to the act.