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CATEGORY CROSSOVER AS A VALUER - A CONUNDRUM

Jigesh J. Mehta Surat (Gujarat)

B.E.(Civil), M.S. (USA), LL.B. M.Val. (ISTAR, V.V.nagar)

(F – 18099) e-mail : jigeshj@yahoo.com

1. INTRODUCTION

One of the frequently asked questions

(FAQs) by valuers across the country on

several occasions is – “Can a Valuer

registered in one category under Section

34AB of the Wealth Tax Act carry out

valuation assignments for properties

falling under different class of assets?”

Yet some other FAQs include:

- “Is not the term „Government

Approved Valuer‟ a misnomer and

should not the correct nomenclature

be „Registered Valuer‟?”

- “Whether Courts recognise the

designation of Govt. approved/

registered valuers?”

- “Whether use of such designation

amount to misguiding general public?”

Time and again, senior valuers have given

antagonistic opinions as to their views on

what they understand the scenario is or

ought to be interpreted in our country.

One school of thought supports the

argument that in the absence of an

enactment regulating the valuation

profession in India (i.e. Valuers Act),

valuers or any skilled person with relevant

proficiency in valuation of any particular

class of asset can execute such an

assignment except for fiscal purposes

under Direct Taxes, viz. Wealth Tax Act,

Income Tax Act, Estate Duty Act

(repealed) and Gift Tax Act (abolished)

under the purview of Ministry of Finance.

Nothing in law prevents banks or financial

institutions to appoint valuers on their own

after satisfying themselves of the

professional competency and experience;

however, their policies are steered by

guidelines issued by the Reserve Bank of

India (RBI) on empanelment of Valuers.

In nutshell, registration under Wealth Tax

Act is limited to the purpose of that Act

and extended to Income Tax Act at the

most.

The other school of thought including a

vast majority, vehemently supports the

view that valuers registered under Wealth

Tax Act in a specific category should not

jump over to do valuations of other asset

classes for which they are not registered.

This line of thinking is based on the

underpinning that atleast the academic

qualifications and experience criteria are

checked by the I.T. Dept. prior to

registration – this being the only

mechanism available in the present

regulatory framework.

2. REGISTRATION AND

EMPANELMENT

Since the rules under Sec.247 of the

Companies Act-2013 pertaining to

Registered Valuers are yet to be finalized,

this aspect is not discussed here.

(i) Section 34AB of Wealth Tax Act

and Rules 8A of Wealth Tax Rules,

1957

Registration under section 34AB of the

Wealth Tax Act enables a valuer to be

listed on the Register of Valuers

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maintained by the Income Tax

Department under this Act. Eligibility

criteria with qualifications required for

obtaining this registration under the 10

prescribed categories are laid down in

Rule 8A of the Wealth Tax Rules, 1957. It

may be noted that there are a few class

of assets in this list which are in fact

exempted from Wealth Tax (not

taxable) but yet included for the

purpose of registration, viz. Category-II

(Agricultural Lands), Category-VII

(Machinery & Plant), Category-IX (Works

of Art).

It is also noteworthy that 10 different

formats of valuation reports are prescribed

in Rule 8D of Wealth Tax Rules. It is

evident from the contents of these formats

that it is possible only for a qualified valuer

having specific knowledge related to

particular class of assets to justify such a

detailed valuation report.

Such registered valuers can also provide

services to assessees for various

purposes under the Income Tax Act.

However, this registration does not

automatically entitle a valuer to execute

any / all valuation assignments other than

for Wealth Tax and Income Tax purposes.

For that matter, earlier when the Estate

Duty Act (under subsection 4(3)) co-

existed with the Wealth Tax Act, valuers

had to be obtain separate registrations

under both these Acts.

Furthermore, a valuation report though

issued by a Registered Valuer, is not

binding on the Assessing Officer

(Wealth Tax/Income Tax Officer).

It is well established that valuation of

property is always a matter of estimation

and is essentially a question of fact to be

determined after considering all the

relevant facts and circumstances of a

particular case. There is no provision in

law making the approved valuer‟s report

binding on the authorities. Although an

approved valuer is a technically qualified

person and his report of valuation

cannot be brushed aside but rather has

to be considered before arriving at a

reasonable figure of valuation, it is only

an important piece of evidence and is

not a conclusive and final word on the

issue of valuation.

The I.T. Department also has separate

Valuation Officers for different categories

of assets, subject to availability.

(ii) RBI Master Circular on

Management of Advances

Annexure I of Circular no.RBI/2013-14/20

dated 1 July-2013 for „Valuation of

Properties and Empanelment of Valuers‟

includes the following guidelines covered

in notification no.RBI/2006-2007/230

dtd.9-01-2007:

(a) Banks should have a procedure

for empanelment of professional

valuers and maintain a register of

'approved list of valuers'.

(b) Banks may prescribe a minimum

qualification for empanelment of

valuers. Different qualifications may

be prescribed for different classes of

assets (e.g. land & building, plant &

machinery, agricultural land, etc).

While prescribing the qualification,

banks may take into consideration

the qualifications prescribed under

Section 34AB (Rule 8A) of the

Wealth Tax Act, 1957.

It is, therefore, the current practice that

most of the banks have adopted a policy

to empanel valuers registered under the

Wealth Tax Act.

(iii) IBA Guidelines (draft) has allowed

that valuations for lending purposes can

be carried out even by experienced

diploma-holders till 31-12-2017. Most of

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these diploma-holders are not Registered

Valuers under sec.34AB of Wealth Tax

Act but are yet considered eligible by IBA.

This proposition is contrary to the RBI‟s

Master Circular and Guidelines in its

present form.

(iv) SARFAESI Act – Approved Valuer

Under section 2 of The Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest

(SARFEASI) Act-2002, "Approved Valuer"

means a valuer as approved by the Board

of Directors or Board of Trustees of the

secured creditor, as the case may be.

Banks follow a similar procedure for

empanelment under SARFAESI Act as

they do for routine appointments of panel

valuers.

While subsection 8(5) for Sale of

Immovable Secured Assets requires the

Authorised Officer to obtain valuation of

the property from approved valuer prior to

fixing the reserve price, section 5 for Sale

of Movable Secured Assets does not

conspicuously refer to the involvement of

approved valuer to arrive at the estimated

value prior to fixing the reserve price.

Now, let us try to understand a few

decisions of the Appellate Tribunals and

Courts on the acceptance or rejection of

valuer‟s report for asset class different

than the category for which he/she has

obtained registration under Wealth Tax

Act.

3. CASE LAWS

(i) P.T. Mathai & Another Vs. South

Indian Bank & Others decided by the

High Court of Kerala at Ernakulam on 7

April-2015. The details of this case are

published in the May-2015 issue of this

Indian Valuer Journal. In this case, the

Debts Recovery Tribunal (DRT) rejected

the valuation report for immovable

property issued by Plant & Machinery

Valuer (Cat-VII) as he was not registered

under Cat-I.

(ii) Commissioner of Wealth-tax Vs.

Rama Shanker Gupta (190 ITR 157 All)

decided by Allahabad High Court on 18

December-1990 noticed that the

qualifications prescribed for each category

of valuers are different, separate

qualifications are prescribed precisely

because a valuer who is equipped and

qualified to value a particular type of asset

might not be equipped and qualified to

value another type of asset. While it is not

necessary to mention those qualifications,

it is sufficient to mention that qualifications

appropriate to the work expected of them

are prescribed. A valuer of immovable

property may not be competent to value

mines, quarries or for that matter of

stocks, shares debentures, etc., or works

of art and jewellery.

(iii) Balco Employees Union (Regd.)

Vs Union of India & Ors decided by the

Supreme Court on 10 December-2001 is a

case of disinvestment for transfer of 51%

shares of Bharat Aluminium Company

Limited (BALCO).

The Disinvestment Commission had

recommended the appointment of a

Financial Advisor to undertake a proper

valuation of the company and to conduct

the sale process. For the purpose of

carrying out the asset valuation of

BALCO, the Global Advisor M/s. Jardine

Fleming short-listed four parties from the

list of Registered Government Valuers

approved by the Income-Tax Department.

On 18th January-2001, BALCO invited

quotations from the four Registered

Valuers, so short listed, and the quotation

of Shri P.V. Rao was accepted. Shri P.V.

Rao was a registered valuer of immovable

property and his teammates were

Government Registered Valuers

authorised to value plant and machinery.

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They were assisted in the work of

valuation by officers of the Indian Bureau

of Mines for assessing the value of

existing mines.

On 8th February-2001, Advisors M/s.

Jardine Fleming requested the three

bidders to submit their financial bids along

with other necessary documents by 16th

February-2001. On 14th February-2001,

Shri P.V. Rao submitted his asset

valuation report to the Advisors. On 15th

February-2001, an Evaluation Committee

was constituted to fix the reserve price of

51% equity of BALCO which was to be

sold to the strategic party. The three

contenders, namely, Alcoa, Hindalco and

Sterlite Industries Ltd. submitted their

sealed bids on 16th February-2001 which

were presented together with the asset

valuation report to the Evaluation

Committee to work out the reserve price.

After due adjustments to the valuation

arrived at by the discounted cash flow

method, the reserve price was fixed at

Rs.514.40 crores for 51% stake and finally

the transfer was completed in favour of

the highest bidder Sterlite Industries Ltd.

at Rs.551.50 crores.

The crux of the case is that Advisors selected the valuer who was already on the list of valuers maintained by the Government.

(iv) Dominic Dias Vs. Assistant

Commissioner of Income Tax decided

by ITAT Panji on 21 February-2002. The

vital issue involved was the determination

of fair market value as on 1st April-1981 of

1,08,000 sq. mts. of agricultural land

situated at Canacona, Goa. The said land

was sold to M/s Deeksha Holding Co. (P)

Ltd. on 27th October-1994, for a

consideration of Rs.1,69,56,000 for

construction of a beach resort. The share

of each of the four assesses/family

members was equal.

The assessees declared capital gains on

the basis of computation made by taking

the market value as on 1st April-1981, as

determined by an approved valuer Shri

Vikas Desai, through two separate

Valuation reports, one in respect of the

value of trees and the other in respect of

the value of land.

The AO summoned the approved valuer

and examined him on oath. It came out

that Shri Vikas Desai had not visited the

Sub-Registrar's office to collect

information of sale deeds for comparison

nor had he visited any Government office

for getting information on specific

amenities available as on 1st April-1981, in

and around the area where the said land

was situated. After cross-examination, the

AO rejected the report of the registered

valuer Mr. Vikas Desai on the ground that

he is not a registered valuer for

agricultural land.

Therefore, another valuer Shri

Ghanshyam A. Nagarsekar who was the

valuer for valuing the agricultural land was

engaged. Not a single instance of

contemporaneous transaction i.e., a sale

deed executed on or about valuation date,

viz., 1st April-1981 has been relied upon

by him. He solely relied on the "inquiries

with those who had Knowledge of this

land and had lived or resided in the area".

Who were these persons and what

knowledge did they possess about the

subject land is shrouded in mystery. No

attempt has been made at any stage to

establish their credentials. Perusal of the

report revealed that Mr. Nagarsekar made

numerous assumptions without bringing

on record any material to substantiate,

them.

After rejecting the reports of both the

valuers, the AO proceeded to determine

the value of land as on 1st April-1981 as

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there are no valuers of agricultural land in

the valuation cell.

(v) Randhir Singh Vs State of

Haryana decided by the Punjab-Haryana

High Court on 15 July-2011 is a case

relating to valuation report of only

superstructure for the purpose of

compensation under the Land Acquisition

Act-1894. For the appellant, valuation

report was prepared by draftsman Amar

Singh based on PWD rates and market

rates. On the other hand, Assistant

Engineer of PWD (B&R) estimated the

value of superstructure for the

respondent-State.

The reference Court found that the expert

produced by the appellant is neither a

qualified Engineer nor an approved

Government valuer to assess the value of

the super-structure and, therefore,

accepted the valuation report prepared by

the Government expert.

4. CONCLUSION

At present, registration as a valuer under

the Wealth Tax Act, 1957 is being given to

a person merely on the basis of his

qualification and is valid virtually for his

lifetime. The main lacuna of this prevalent

system is that neither his knowledge in the

field of valuation is being tested prior to

registration nor is any requirement

imposed upon him to undergo continuous

education programme to stay updated.

Summarily, it may be gathered that except

for statutory purposes or otherwise

specifically required by any competent

authority, the services of a valuer is not

restricted to the class of assets for which

he has received registration under section

34AB of the Wealth Tax Act as long as it

is acceptable to the user of his services

(other than fiscal purpose or secured

lending purpose). But as a good practice,

it is generally opined that a valuer should

stick to his category because he has

developed professional competence by

virtue of his academic background and is

therefore better equipped to handle

complex assignments, and also has the

capability to defend or substantiate his

estimate of value.

At the same time, it may be ethical on the

part of a valuer to disclose to the user of

his services as to the fact that he/she is

registered (under Wealth Tax Act) with the

Income Tax Department for a specific

category of assets. Any person who is not

a „Registered Valuer‟ and still portrays to

be one, is flouting the law and susceptible

to disciplinary action and judicial

proceedings.

Though the levy of Wealth Tax will be

discontinued from 1 April-2016 through

the sunset provision inserted in section 3,

subsection (2) of the Wealth Tax Act, the

Act itself is not being repealed or

abolished and therefore, the registrations

of valuers should continue under section

34AB of the Act until further amendments

are announced by the Ministry of Finance,

Govt. of India. Thus, Rule 8B of Wealth

Tax Rules with eligibility criteria for various

categories of valuers may not be

sacrosanct but is a factor that assumes

due significance in the current scenario.

Confusions in this regard can be avoided

only by regulating the profession through

a Valuation Professional Act that would

prescribe qualifications and experience

criteria for valuers, standards of

performance and review, punishment and

penalties for default, recognition of

professional bodies, and other relevant

aspects.