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Valuation of co-owner’s interest in an immovable property
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The interest of a co-owner in an immovable property is something less than the proportionate share, writes C.H. Gopinatha Rao
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— Photo: C.V. Subrahmanyam
Shared property: Each co-owner has a right to transfer his undivided share in the property without the permission of his co-owners.
Each co-owner has a right to transfer his undivided share in the property without the permission of his co-owners. The acquired right of the transferee would include possession and enjoyment along with the co-owners, but not applicable to a residential building belonging to an undivided family if the transferee is not a member of the undivided family. For example, four brothers inherit a residential building from their father. If one of the brothers wants to sell his share
to a third party, the buyer cannot enjoy the possession of the house even though he has the right in the share of the house. The interest of a co-owner in an immovable property is something less than the proportionate share. This is because the transferability of absolute ownership requires the consensus of all the owners.
The book entitled Modern Methods of Valuation of Land Houses and Buildings ( fifth edition ) by David M. Laurance observes that a share in a property is less attractive to prospective investors than absolute ownership. This is due to the limited control which the owner of the share has over the property as a whole.
To allow for this third factor a deduction of say 10 per cent is often made from the estimated value of the share, observes the book. This method was quoted in the CWT vs KN Nagabushana Shetty HUF ( 1986) 156 ITR 484 (Karnataka) judgement too. The judgement observed that there are difficulties inherent in the enjoyment of an undivided share in a property purchased in the open market and permitted an allowance of deduction of 10 per cent from the estimated value of the share. If there are a large number of co-owners the discount will be more. Where there is estranged relationship among the owners the fair market price will be less.
Split ownership
As per the Supreme Court judgment ( A.R. Krishnamirthy vs CIT ( 1989) 178 ITR 417 (SC) the ownership of an immovable property is the ownership of a bundle of rights. The owner can transfer one such right out of the bundle of rights. The lease of an immovable property or mortgage or transfer of life interest fall under split ownership.
The author is former National President, Institution of Valuers.
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