1990 (4) TMI 99 - AT - Income Tax

Issues Involved:
1. Legality of initiation of acquisition proceedings.
2. Determination of fair market value of the property.
3. Applicability of the Urban Land Ceiling Act.
4. Validity of the tenancy and its impact on valuation.
5. Method of valuation: land and building method vs. rent capitalization method.
6. Presumption under Section 269-C(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of Initiation of Acquisition Proceedings:
The initiation of proceedings by the IAC (Acquisition) was questioned on the basis that there was no material available at the time of initiation. The Competent Authority had the description and area of the property, apparent consideration, tenancy, and applicability of the Urban Land Ceiling Act before initiating the proceedings. However, there was no valuation report available at that time. The Tribunal held that the formation of belief regarding the fair market value was not based on material, as required by the jurisdictional High Court in Arun Mehra's case. Therefore, the initiation of proceedings was not legally valid for lack of proper material.

2. Determination of Fair Market Value of the Property:
The Competent Authority determined the fair market value of the property at Rs. 2.02 crores, considering factors such as location, potential for multi-storeyed flats, and proximity to important landmarks. However, the Tribunal found that the Competent Authority ignored the impact of the Urban Land Ceiling Act and the tenancy, which significantly affect the valuation. The Tribunal also noted that the property was situated in Luyeten's Bungalow Zone, which has restrictions on development. The Tribunal concluded that the apparent consideration stated in the instrument was reasonable and should not be disturbed.

3. Applicability of the Urban Land Ceiling Act:
The Tribunal emphasized the importance of considering the Urban Land Ceiling Act in determining the fair market value. The Act restricts the amount of vacant land that can be held and requires permission from the Competent Authority for redevelopment. The Tribunal found that the Competent Authority had granted permission to the vendor, but the provisions of the Act still applied to the appellant. The Tribunal held that the provisions of the Act must be taken into account in evaluating the property, as they significantly impact its value.

4. Validity of the Tenancy and Its Impact on Valuation:
The Tribunal noted that the tenancy was stated in the agreement to sell and should have been considered by the Competent Authority. However, the Tribunal agreed with the Revenue that the property could not be valued on the basis of rent capitalization method, as the tenancy was a recent arrangement and the property was purchased for Rs. one crore. The Tribunal found that the Competent Authority erred in ignoring the tenancy at the stage of giving reasons but ultimately held that land and building method was the proper method for valuation.

5. Method of Valuation: Land and Building Method vs. Rent Capitalization Method:
The Tribunal discussed the appropriate method of valuation and concluded that the land and building method was more suitable for the subject property. The property was old, and the provisions of Rent Control law and the Urban Land Ceiling Act applied to it. The Tribunal found that the Competent Authority's assumption of higher FAR was not supported by evidence, and the L & D.O.'s determination of Rs. 2200 per sq. mt. for charging unearned increase was more reasonable. The Tribunal held that the fair market value should be determined considering the restrictions and limited scope of development under the Urban Land Ceiling Act.

6. Presumption under Section 269-C(2) of the Income-tax Act, 1961:
The Tribunal held that the presumption under Section 269-C(2) was not available at the time of initiation of proceedings. The Tribunal found that the Competent Authority did not have sufficient material to form a reasonable belief that the apparent consideration was understated. The Tribunal emphasized that the necessary preliminary facts must be established to justify the initiation of acquisition proceedings.

Conclusion:
The Tribunal quashed the acquisition order, holding that the initiation of proceedings was not proper, there was no material available at the time of initiation, and the Competent Authority erroneously ignored factors affecting valuation. The Tribunal determined that the apparent consideration stated in the instrument was reasonable, considering the restrictions and limited scope of development under the Urban Land Ceiling Act. The appeal was allowed in favor of the assessee-appellant.

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