2012 (11) TMI 1098 - HC - Income Tax

Computation of capital gains - Adoption of Fair Market value - Held that - it is prudent on the part of the lower authorities to estimate the fair market value as on 1-4-1981 on the basis of the valuation officer s report through reverse indexation method and consequently orders of the Commissioner (Appeals) and the Assessing Authority are set aside - Decided against the revenue.

Summary

Issues:
- Appeal by Revenue under Section 260-A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
- Dispute over fair market value of property for computing long term capital gains.
- Interpretation of guidelines for determining fair market value as on 1-4-1981.
- Assessment of capital gains based on valuation officer's report and reverse indexation method.
- Justification of fair market value estimation at Rs. 750 per sq. yard as on 1-4-1981.

Analysis:
1. The High Court dismissed the appeal by the Revenue challenging the order of the Income Tax Appellate Tribunal, which allowed the respondent-assessee's appeal regarding the computation of long term capital gains under the Income-tax Act, 1961. The case revolved around the fair market value of a property received by the assessee through a gift deed and subsequently sold.

2. The assessee had adopted the fair market value of the property as on 1-4-1981 at Rs. 750 per sq. yard for computing the long term capital gains. However, the Assessing Officer rejected this value based on a certificate from the Sub-Registrar, setting the fair market value at Rs. 8 per sq. yard. The Commissioner (Appeals) upheld this decision, leading the assessee to appeal to the Tribunal.

3. The Tribunal, citing previous decisions, emphasized that the guideline value from the Sub-Registrar's office should not be accepted unless scientifically determined. It also highlighted the importance of estimating fair market value based on the valuation officer's report using the reverse indexation method. The Tribunal concluded that the property would fetch Rs. 750 per sq. yard in the open market as of 1-4-1981, supporting the assessee's estimation.

4. The High Court found no flaw in the Tribunal's reasoning and factual conclusions. It upheld the Tribunal's decision to set aside the orders of the Commissioner (Appeals) and Assessing Authority, directing the reassessment of capital gains considering the fair market value at Rs. 750 per sq. yard as on 1-4-1981. The Court, after hearing both parties, dismissed the appeal without costs.

5. Overall, the judgment clarifies the importance of scientifically determining fair market value for computing capital gains, emphasizing the use of valuation officer's reports and proper methods for estimation. The decision provides guidance on interpreting guidelines and ensuring accurate assessments in taxation matters related to property transactions.