2000 (11) TMI 283 - AT - Income Tax

Summary

Issues Involved:
1. Fair market value of the property at 9th Block, Jayanagar, as on 1st April 1981.
2. Taxability of compensation received for surrendering tenancy rights at Arekere Village.

Detailed Analysis:

1. Fair Market Value of the Property at 9th Block, Jayanagar:

The assessee claimed the fair market value of the property at 9th Block, Jayanagar, as Rs. 185 per sq. ft. as on 1st April 1981. The AO (Assessing Officer) adopted Rs. 30 per sq. ft. based on guideline values and circulars issued by the Government of Karnataka. The CIT(A) (Commissioner of Income Tax (Appeals)) adjusted this to Rs. 100 per sq. ft. after considering sale instances from 1985 in the same and nearby areas.

The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had relied on relevant sale instances and guideline values. The Tribunal found no merit in the assessee's argument to use gold rates as a criterion for determining the property value. Thus, the fair market value of Rs. 100 per sq. ft. as on 1st April 1981 was deemed appropriate for computing capital gains.

2. Taxability of Compensation for Surrendering Tenancy Rights:

The assessee received Rs. 1,43,05,120 as compensation for surrendering tenancy rights at Arekere Village. The CIT(A) held that this amount was taxable as capital gains, considering a nominal cost of Re. 1 per annum for the tenancy rights. The assessee contended that there was no cost involved, citing the Karnataka High Court decision in Joy Ice Creams (P) Ltd. vs. CIT.

The Tribunal found that the facts of the assessee's case differed from those in Joy Ice Creams. In the present case, the assessee had entered into an agreement to purchase the land and was constituted as a tenant as security for the advance paid. The Tribunal concluded that the advance paid was the cost of obtaining the tenancy rights, not merely Re. 1 per annum as rent. The Tribunal directed the AO to verify the exact amount paid in advance and to compute the long-term capital gains accordingly, taking the advance amount as the cost of the tenancy rights.

Conclusion:

The Tribunal dismissed both appeals, affirming the CIT(A)'s decision on the fair market value of the property and modifying the approach to determining the cost of tenancy rights for computing capital gains. The matter was remanded to the AO for recalculating the long-term capital gains based on the verified advance payment.