2012 (5) TMI 149 - HC - Wealth-tax

Valuation under Wealth Tax - Fair Market Value of the selfsame jewellery as on 1st April 1974 should be arrived by reverse indexation from the date of sale held in December 1991 based on the sale price and not from the Fair Market Value as on 31 st March 1989 on the basis of which the Revenue had imposed Wealth Tax upon the assessee Held that - Revenue having accepted the declaration of the valuation of the selfsame jewellery given by the assessee as on 31 st March, 1989 as correct valuation for the purpose of Wealth Tax Act, there is no reason why the same valuation should not be treated to be a reliable base for the purpose of computing the capital gain under the Act by the process of reverse indexation - Contention to adopt the reverse indexation from the date of actual sale simply because in that process the Revenue will be benefited cannot be accepted - for the purpose of taxation, it is settled law that when two equally efficacious and acceptable data for the purpose of valuations are available, the one which is beneficial to the assessee should be preferred. The full value of consideration received as a result of transfer of jewellery belonging to a royal family for the purpose of ascertaining the market value as on April 1, 1974 in order to deduct the same from actual sale price would be unsafe to base the actual sale price by the process of reverse indexation and thus the valuation accepted by Revenue as market value for the purpose of Wealth Tax Act is the safest base - AO directed to recalculate the capital gain by adopting reverse indexation based on valuation as on 31 st March, 1989 - in favour of assessee.

Summary

Issues Involved:
1. Determination of the fair market value of the disputed jewellery as on April 1, 1974.
2. Appropriateness of using reverse indexation from the sale price of December 1991 versus the fair market value as on March 31, 1989.
3. Acceptance of the valuation provided by the assessee for Wealth Tax purposes for calculating capital gains.

Issue-wise Detailed Analysis:

1. Determination of the Fair Market Value of the Disputed Jewellery as on April 1, 1974:
The central issue was whether the fair market value of the jewellery as on April 1, 1974, should be derived by reverse indexation from the sale price in December 1991 or from the fair market value as on March 31, 1989, which was used for Wealth Tax purposes. The Tribunal initially upheld the Assessing Officer's approach of using the sale price from December 1991 for reverse indexation.

2. Appropriateness of Using Reverse Indexation from the Sale Price of December 1991 versus the Fair Market Value as on March 31, 1989:
The Tribunal and the CIT (Appeals) agreed that reverse indexation was the appropriate method for determining the fair market value. However, they differed on the base date for reverse indexation. The assessee argued for using March 31, 1989, while the Assessing Officer used December 1991. The High Court found that using March 31, 1989, was more appropriate as it was closer to April 1, 1974, and had already been accepted by the Revenue for Wealth Tax purposes.

3. Acceptance of the Valuation Provided by the Assessee for Wealth Tax Purposes for Calculating Capital Gains:
The High Court noted that the valuation of the jewellery as on March 31, 1989, had been accepted by the Revenue for Wealth Tax purposes. It held that there was no reason to reject this valuation for calculating capital gains. The court emphasized that the valuation accepted under the Wealth Tax Act should be considered reliable and used for reverse indexation to determine the fair market value as on April 1, 1974. The court also highlighted the principle that when two equally valid methods are available, the one more beneficial to the assessee should be preferred.

Conclusion:
The High Court concluded that the Tribunal committed a substantial error of law by not using the valuation as on March 31, 1989, for reverse indexation. It directed the Assessing Officer to recalculate the capital gains using the fair market value as on March 31, 1989, for reverse indexation to determine the value as on April 1, 1974. The appeal was allowed, and the question of law was answered in favor of the assessee.