2007 (8) TMI 642 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of capital gains on auction sale of land.
2. Determination of the cost of acquisition of the land.
3. Valuation of the land as on April 1, 1981, for capital gains computation.
4. Applicability of Wealth-tax Act valuation for Income-tax purposes.

Detailed Analysis:

1. Taxability of Capital Gains on Auction Sale of Land
The primary objection by the assessee was against the order confirming that the auction sale of its plot of land at Aundh resulted in capital gains exigible to tax. The assessee argued that the plot of land did not have any cost of acquisition, as it was received as a gift by their ancestor, and thus should not be subject to capital gains tax. The assessee cited judicial pronouncements, including the Supreme Court judgment in CIT v. B. C. Srinivasa Setty, to support the claim that without a cost of acquisition, the computation provisions for capital gains fail.

2. Determination of the Cost of Acquisition of the Land
The assessee contended that the land was inherited and had no cost of acquisition in the hands of either the Peshwas or the Scindias. The Commissioner of Income-tax (Appeals) rejected this claim due to the lack of direct evidence proving that the land had no cost to the Peshwas. However, the Tribunal found that the assessee had provided prima facie evidence from historical records and the Gwalior Gazetteer, which indicated that the land was received as a gift (choli bangdi). The Tribunal held that the burden of proof was on the Revenue to show that the assessee incurred a cost for acquiring the land, citing the Gujarat High Court decision in CIT v. Manoharsinhji P. Jadeja.

3. Valuation of the Land as on April 1, 1981, for Capital Gains Computation
The Assessing Officer rejected the valuation report of the Government approved valuer and adopted the value of Rs. 1,50,404 from the wealth-tax assessment for the assessment year 1981-82. The Commissioner of Income-tax (Appeals) found the Assessing Officer's reasons for rejecting the valuer's report to be untenable and accepted the valuer's estimation of Rs. 99,00,000 as the fair market value as on April 1, 1981. The Tribunal agreed with this view, noting that the Assessing Officer did not provide a credible alternative valuation and failed to refer the matter to the valuation officer as per CBDT Circular No. 96.

4. Applicability of Wealth-tax Act Valuation for Income-tax Purposes
The assessee argued that the value determined under the Wealth-tax Act could not be used for computing capital gains under the Income-tax Act. The Tribunal supported this view, emphasizing that the valuation for wealth-tax purposes is subjective and not necessarily applicable for income-tax purposes. The Tribunal cited the Karnataka High Court decision in Saraswathi Estate v. Commissioner of Agricultural Income-tax to reinforce this point.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the land had no cost of acquisition and thus could not be subjected to capital gains tax. The Tribunal also dismissed the Revenue's appeal, which objected to the valuation of the land as on April 1, 1981, based on the Government approved valuer's report. The final order pronounced that the appeal by the assessee is allowed, and the appeal by the Revenue is dismissed.