IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21/08/2002 CORAM THE HON'BLE MR.JUSTICE R.JAYASIMHA BABU AND THE HON'BLE MR.JUSTICE K.P.SIVASUBRAMANIAM T.C.No. 858 of 1993 M/s Rane (Madras) Ltd., Madras. ..Applicant -Vs- The Commissioner of Income-tax, Madras. ..Respondent Tax Case reference under Section 256 (1) of the Income Tax Act, 1961 , made by the 'A' Bench of the Income-tax Appellate Tribunal, Madras. !For applicant : Mr.P.P.S.Janardhanaraja For respondent : Mr.T.C.A.Ramanujam, Sr. Standing Counsel for Income Tax Dept. :ORDER (The order of the Court was made by R.JAYASIMHA BABU, J.) Four questions have been referred to us for our consideration, at the instance of the assessee. The assessment year is 1984-85. 2. The first question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rs.7 5,706/- being salary paid to the drivers should be taken into account for the purpose of computing the disallowance under section 37 (3A) for the Assessment Year 1984-85. 3. This question, it is submitted by the learned counsel for the parties, is covered by the law laid down in the case of Commissioner of Income-Tax -vs- Sholinger Textiles Ltd. (240 ITR 908). Applying the law laid down therein, this question is required to be and is answered against the assessee and in favour of the Revenue. 4. The second question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the reimbursement of the medical expenses made to the director/Divisional Managers/Secretary of the company should be taken into account for the purpose of computing disallowance under section 40 (C)/40(A) (5). 5. Counsel for the parties submit that similar question has already been considered in the case of Sundaram Industries Ltd. -vs- Commissioner of Income-tax (239 ITR 405). Applying the law laid down therein, this question is required to be and is answered in favour of the Revenue and against the assessee. 6. The third question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rs.4 2,345/- out of the expenses incurred on the dealers conference, Annual General Meeting, providing food to the visitors was entertainment expenses under section 37 (2A) for the assessment year 1984-85. 7. By the very terms of Section 37 (2-A) entertainment expenditure includes expenditure on hospitality extended by the assessee to any person whether by way of provision of food or bewerages or in any other manner whatsoever. The expenditure incurred on providing food and entertainment at the time of Annual General Meeting is clearly covered by that provision. The question is, therefore, required to be and is answered in favour of the Revenue and against the assessee. 8. The fourth question is whether in the facts and in the circumstances of the case the Tribunal was right in holding that the market value of the building as on 1.1.1964 should be computed on the basis of the rent capitalization method for the purpose of section 55 of the Income Tax Act in preference to the estimated value submitted by the registered valuer. 9. The assessee, during the assessment year sold a building situated at No.6 and 7, Pattulos Road, Madras for a consideration of Rs.7 lakhs. The assessee estimated the value of the building as on 1.1.1964 at Rs.4 lakhs and computed the capital gain at Rs.3 lakhs. The assessee relied on the valuation made by a registered valuer who first calculated the value of the land and building separately and thereafter assuming a notional rent of Rs.7500/- p.m. which was higher than the actual rent received, he worked out the value of the building on that basis by adopting the rent capitalisation method. The average of the two values so computed was Rs.4 lakhs which the valuer certified as the value of the buiilding as on 1.1.1994. The assessing officer rejected that approach to valuation made by t he registered valuer. He instead took the actual rent received by the assessee and by adopting the rent capitalisation method which is a method provided for in Schedule III to the Wealth Tax Act, determined the value of the building as on 1.1.1964, at Rs.3,00,032/- and computed the long term capital gain at Rs.3,99,968/-. The valuation so made by the assessing officer was upheld by the Commissioner as also by the Tribunal. 10. Counsel for the assessee contended that the assessing officer should not have rejected the report given by the registered valuer and should have referred the matter to the valuation cell. Section 55-A of the Income Tax Act provides for reference to a Valuation Officer at the option of the assessing officer, in the cases referred to in sub-clauses (a) and (b) thereunder. Sub-clause (a) deals with a situation where the assessing officer is of the view that the valuation made by the registered valuer is less than the fair market value. Subclause (b)deals with a situation where the assessing officer is of the opinion that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in that behalf or where having regard to the nature of the asset and other relevant circumstances it is necessary to do so. 11. In this case, sub-clause (a) of Section 55-A has no application, as the value given by the registered valuer was higher than what the assessing officer regarded as the fair market value. Sub-clause (b) also is not attracted for the reason that the value claimed was higher than what in the view of the assessing officer the value was, and also having regard to the nature of the assets and the relevant circumstances, the assessing officer did not consider it necessary to refer the matter to the valuation officer. 12. We cannot fault the assessing officer for not having referred the matter to the valuation officer when he was under no obligation to do so. The nature of the asset and the relevant circumstances in this case did not require the reference to the valuation officer as the assessee had furnished the actual rent received and that data was sufficient to enable the officer to compute the market value by adopting the rent capitalisation method which method is provided for in Schedule III to the Wealth Tax Act. 13. It was further submitted for the assessee that the assessing officer should not have rejected the report of the registered valuer. As already noticed that report was based on a hybrid valuation by determining the value of the land and building first and separately computing the value of the building by the rent capitalisation method by adopting a notional rent, which was much higher than the actual rent received, and then averaging the two values. No material was placed before the Tribunal nor has any such material been placed before us to show that such a hybrid valuation made by the registered valuer is the correct method or the appropriate method. We cannot find fault with the assessing officer for not adopting that method, especially, when the registered valuer had not taken the actual rent received but had taken the notional rent which was much more than the actual rent for computing the value on the basis of the rent capitalization method. 14. The adoption of the rent capitalization method by the assessing officer cannot be regarded as an arbitrary choice. That method is one which is sanctioned by law in Schedule III of the Wealth Tax Act. That method under that Act can be applied for determining the market value. We, therefore, answer the fourth question also in favour of the Revenue and against the assessee. Index: Yes Website: Yes Copy to 1.The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, Besant nagar, Chennai-90. 2.The Secretary, Central Board of Direct Taxes, New Delhi. 3.The Commissioner of Income-tax, Madras. 4.The Commissioner of Income-tax (appeals VI), Madras-34. 5.The Income-tax Officer, Company Circle, Madras-6. 6.The Inspecting Assistant Commissioner of Income-tax, (Asst.) Range-II, Madras-34. dev/ 