2017 (3) TMI 981 - HC - Income Tax

Indexed cost of acquisition calculated by adopting the fair market value of the land and building as on 01.04.1981 - whether the Assessing Officer could substitute the guideline value provided to him by the Sub-Registrar as the market value? - Held that - Pertinently the fact that both the subject property which is located in T.Nagar and the one which is located in Cathedral Road were in an area where commercial activity was and is being carried out is not disputed before us. In our opinion one can take judicial notice of the fact that ordinarily the per ground price of a property which has a smaller area would be greater in comparison to that which has larger area. Therefore the argument of Mr.Ravi Kumar that since the Cathedral Road property had a larger area as against that of the subject property and hence ought not to be used as a measure has no weight. Furthermore as noticed above the assessee himself has discounted the per ground rate of the Cathedral property which was calculated at Rs. 6, 83, 333/- per ground to Rs. 5, 00, 000/- per ground. In addition to this fact as has been noted by us in the course of narration of events the value of the building as obtaining in 1983 was also pared down to Rs. 6, 87, 500/- (i.e. 46% of Rs. 15, 00, 000/- which was arrived at based on the construction contract dated 23.02.1983). Therefore given the circumstances that concurrent finding of facts have been returned by both the CIT (A) and the Tribunal we are not inclined to interfere with the impugned judgment.In our view there can be no doubt that the Assessing Officer could not have substituted the guideline value for the fair market value as has been rightly observed by the Tribunal in the impugned judgment. The guideline value is only one of the indicators to arrive at the fair market value of a given property. The Assessing Officer in our opinion asked the wrong question by calling upon the Sub-Registrar T.Nagar to supply him the guideline value of the subject area as on 1.4.1981. What the Assessing Officer ought to have done was to ask for perhaps the sale deeds of property transactions carried out in the subject area in respect of similarly circumstanced properties. As against this the Assessee on her part discharged the onus and therefore no fault can be found with her conduct in proceeding with the matter.

Summary

Issues:
1. Calculation of indexed cost of acquisition for capital gains tax.
2. Dispute over fair market value of property for tax assessment.

Issue 1: Calculation of indexed cost of acquisition for capital gains tax:
The appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the judgment of the Income Tax Appellate Tribunal. The key issue before the Tribunal was the correctness of the indexed cost of acquisition calculated by the Assessee for a property. The Assessee disclosed income under 'Capital Gains' for a property sold, factoring in the fair market value of the land and building as on 01.04.1981. The Assessing Officer, however, questioned this calculation and called for an explanation. The Assessee provided details of the property purchase in 1976 and the fair market value calculations. The Assessing Officer substituted the guideline value provided by the Sub-Registrar, T.Nagar, to arrive at the indexed cost of acquisition. The long term capital gain was calculated based on this indexed cost, leading to a demand against the Assessee. The Commissioner of Income-tax (Appeals) reversed the Assessing Officer's view, considering the Assessee's fair market value calculations reasonable and acceptable. The Tribunal rejected the Revenue's appeal against this decision.

Issue 2: Dispute over fair market value of property for tax assessment:
The crux of the dispute was whether the Assessing Officer could substitute the guideline value provided by the Sub-Registrar with the fair market value. The Assessee supported their fair market value calculations with agreements for sale of similar properties in Cathedral Road and Pantheon Road, Egmore, Chennai. The Assessee had adjusted the per ground rate of the Cathedral Road property to make it comparable to the subject property. The Tribunal upheld the Assessee's fair market value calculations, emphasizing the importance of considering actual sale deeds of similar properties rather than relying solely on guideline values. The Revenue challenged this decision, arguing that the per ground rate was not comparable due to the size difference between properties. However, the Court upheld the Tribunal's decision, noting that the Assessee's calculations were reasonable and the Assessing Officer's reliance on guideline values was misplaced.

In conclusion, the High Court dismissed the Tax Case (Appeal) filed by the Revenue, upholding the Tribunal's decision regarding the fair market value calculations for tax assessment. The Court emphasized the importance of considering actual sale deeds of comparable properties for determining fair market value and rejected the Assessing Officer's reliance on guideline values alone.