1

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(repealed) and Gift Tax Act (abolished)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

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)) coexisted 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 valuers 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
Management of Advances

on

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

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 RBIs
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
valuers 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.

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

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.