1977 (7) TMI 67 - AT - Income Tax

Issues Involved:
1. Determination of the full value of consideration for capital gains.
2. Fair market value of the property as on 1st January 1954.
3. Application of Section 52(2) of the Income Tax Act.
4. Binding nature of CBDT instructions on the Income Tax Officers (ITOs).

Issue-wise Detailed Analysis:

1. Determination of the full value of consideration for capital gains:

The primary issue was whether the full value of consideration for the purpose of capital gains should be the actual amount awarded by the Special Land Acquisition Officer (Rs. 18,49,837) or the higher amount claimed by the assessee (Rs. 51,87,500). The Income Tax Officer (ITO) had taken the higher amount claimed by the assessee as the full value of consideration, pending the decision of the High Court. The Appellate Assistant Commissioner (AAC) disagreed, holding that the full value of consideration should only be the actual amount awarded, as there was no evidence of a higher amount being awarded and received subsequently. The Tribunal agreed with the AAC, stating that the full value of consideration under Section 48 can only be the amount actually awarded by the Special Land Acquisition Officer during the assessment year, and not the amount claimed by the assessee in appeal.

2. Fair market value of the property as on 1st January 1954:

The ITO had capitalized the rent of the property to determine its fair market value as on 1st January 1954, arriving at Rs. 2,00,000. The AAC upheld this valuation. The assessee objected, arguing that the valuation should not be solely based on capitalized rent. The Tribunal noted that the property was not fully developed, and the rental income was not a normal commercial return. Citing the Supreme Court's observations in the Bank Nationalisation case (R.C. Cooper vs. Union of India), the Tribunal held that the capitalization of rental method was not appropriate. The Tribunal directed the ITO to recompute the fair market value using the land and building method or any other suitable method, giving the assessee an opportunity to prove his case.

3. Application of Section 52(2) of the Income Tax Act:

The assessee argued that the ITO's action in substituting the market value for the stated consideration was void as he had not obtained the necessary permission from the Inspecting Assistant Commissioner (IAC) under Section 52(2). The Tribunal found that the ITO had not applied Section 52(2) at all. The ITO had considered the higher amount claimed by the assessee as the full value of consideration under Section 48, not as a fair market value under Section 52(2). Therefore, the Tribunal concluded that the provisions of Section 52(2) were not relevant to the case.

4. Binding nature of CBDT instructions on the Income Tax Officers (ITOs):

The assessee relied on CBDT instructions which stated that if the assessee had not accepted the award fixed on compulsory acquisition, the amount claimed by the assessee should be taken as the fair market value until a final decision is made. The Tribunal noted that these instructions were binding on the officers of the Department. However, since the ITO had not applied Section 52(2), the instructions were not directly applicable to the case. The Tribunal emphasized that the assessment should be based on the actual award amount, and any future higher compensation awarded could be addressed separately.

Conclusion:

The Tribunal dismissed the Department's appeal and partly allowed the assessee's appeal. The full value of consideration for capital gains was confirmed as Rs. 18,49,837, and the fair market value of the property as on 1st January 1954 was to be recomputed using a suitable method other than capitalization of rent. The cross-objection supporting the AAC's order was dismissed as redundant.

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